Bob Iger's comments last week to CNBC's David Faber about his desire to at least consider selling off the Disney linear TV assets - including ABC and/or its cable networks - has had me trying to imagine what that might look like if it happened. I spent a fair amount of time as a financial reporter and I've seen these types of sell-offs before. So I've tried to parse out the most likely outcomes in this scenario, based on what I have seen in other industries.
At first, I was going to talk specifically about Disney, but I realized that was a near-impossible task. There are so many diverse assets included under the Disney Television Group, including ABC Entertainment (ABC), Freeform, and Disney Branded Television (Disney, Disney XD, Disney Junior) as well as Hulu Originals and several production units like Disney Television Animation.
And if Disney wanted to include everything under the relatively newly-created FX, National Geographic, and Onyx Collective Division, you would have to add FX, FXX, FX Movie Channel, and FX Productions. As well as a variety of National Geographic domestic channels and a group of international channels under National Geographic Global Networks.
Each of those entities has various assets and properties which may or may not be included in any possible sale. So I quickly concluded that without knowing the specifics of the deal, I had better stick to a more general approach. One which, by the way, would also apply to someone wanting to sell off Paramount's linear TV assets.
The first question to consider is to ask "Who is most likely to buy a bunch of linear TV assets?" None of the other major media companies are going to be interested - they have their own linear TV assets they'd like to get rid of if there was a market for them.
So rather quickly, it's apparent that the only real buyer for these assets is some combination of hedge funds and/or private equity firms.
Whether you talking about a struggling newspaper chain or a troubled string of retail stores, these funds make money in several ways.
They buy at a distressed price and then very surgically work their way through a series of predictable steps.
1) Slash costs to just slightly above the point where the business will collapse.
2) Sell off any valuable physical assets, such as property. In many cases, sell off the property and then have the acquired company rent the space back. In many cases, the properties are now owned by a division of the hedge fund or a partner company. Inflated rent is a great way to suck money out of the acquired company in a very legal fashion.
3) Divest any IP or smaller divisions that have value to an outside company.
4 ) Continue to wind down the company until it is either sold off for parts or disappears completely.
What would this process look like when applied to a broadcast and/or cable network group? Firstly, any investor is likely going to want both the broadcast and the cable networks. Because otherwise, they don't have the scale to force satisfactory outcomes in carriage negotiations.
On the broadcast TV side, the first move is to give the 10:00 pm primetime hour back to local affiliates. There has been some talk of that already and that move alone potentially shifts at least several hundred million dollars in production costs off the book (depending on the network).
There is a decent chance in this scenario that this new stand-alone company doesn't have an in-house television studio arm. If that's the case, then scripted series orders can be cut substantially. Say 10-13 episodes per season. Because without being able to recoup money on the studio side, you need to spend just enough money to have at least some original programming. To keep both local affiliates and national advertisers happy in the short term.
You sell off any buildings, and if the network's owned-and-operated TV station group is included in the deal, you begin selling off those stations. In the smallest markets first, because you want to suck every bit of value out of the larger market stations you can before the final exit.
Any non-core IP goes out the door to the highest bidder and that includes any TV and film studio assets you might own. All of that programming has value and splitting it up piecemeal is likely the way to obtain the most consistent valuations.
As network affiliates begin to peel off and viewership starts to decline even faster, begin getting rid of the most expensive programming. Long-running veteran scripted shows, sports rights that bring in audiences but are also insanely expensive. And without other ways to amortize the costs, it quickly becomes too expensive to renew that NFL deal when it expires.
Spending is cut across the board. News production facilities are combined, and expensive long-time anchors are allowed or encouraged to leave. The overall head count at the networks is cut substantially -perhaps as much as 50%. If you are familiar with what happened at Twitter after Elon Musk took over, you should be able to imagine what is in store.
It's not clear how long this process could on before the networks would just disappear into the ether. Most major newspapers are still in business, albeit with a drastically smaller staff and a much less expansive business model.
No one has ever attempted to take apart a large linear TV empire before and it's hard to know what the remnants would look like in the end. But it would be difficult to watch and whatever awaits at the end of this journey would be a major media company in name only.
