Disney's Cash Cow, Putin Mind Games, and the Kamala Drama

Good afternoon, dear reader, and welcome back to The Daily Courant, highlighting the latest and most important journalism being produced at Puck.
 

Today, the media inside conversation continues with Dylan Byers sitting down with Puck co-founder Jon Kelly to discuss everything from the future of ESPN and the Fox Corps assets post-Rupert Murdoch to banker Aryeh Bourkoff's designs for The Athletic and what's next for Jason Kilar after his WarnerMedia adventure. 

Then, below the fold, Matt Belloni and William D. Cohan dig further into the weeds of the media-entertainment-financial complex: Is Netflix finally overvalued? Will private equity take over Hollywood? And can David Zaslav work his magic on the AT&T's left-for-dead stock? 

ESPN’s Future, Aryeh’s Book, and Laurene’s Portfolio

A conversation with Puck editor-in-chief Jon Kelly about the rapid evolution and cutthroat future of the media-technology business.

Dylan, I read with great interest your recent chat with Bill Cohan about a new theory for how Disney eventually spins out ESPN and yet continues to draw cash from it. I realize that this is all still theoretical hypothetical, and that Disney denies it has any interest in a separation, but can you articulate more fully the strategic concept?

Yes, so first let’s state the pros and cons of ESPN. Pro: it’s a cash cow for Disney. Con: It’s a low-to-zero growth business that keeps Disney tied to a linear business that’s in irreversible decline, and thus drags down its stock by tying it to a linear (rather than streaming) multiple. 

So, how do you keep getting cash from ESPN while freeing yourself from the linear albatross? The answer is to spin off ESPN and go into a joint venture with another company—possibly a sportsbook—and let that company run and manage the business while you continue to reap a significant portion of the profits. In that scenario, Disney can go all-in on streaming via Disney+/Hulu and boost the stock, while continuing to benefit from ESPN. Again, I’m not positive that’s how it’ll happen. But as I told Bill earlier this week, I have only grown more convinced from talking to sources in recent weeks that Disney will indeed spin off ESPN.

Rupert Murdoch generated a number of headlines for his light criticism of Trump the other day. But the real headline to me was that Murdoch turned 90. No one can go on forever, and Fox Corp always seemed like one of those companies that would become vulnerable without its principal minding the store. I can’t pretend to know the intricacies of the Murdoch trust, but I assume that if Disney moves ESPN, there will be investor pressure for Fox to spin its significant sports assets. What do you think will happen?

The Murdochs will sell the Fox assets, regardless of what happens with ESPN and regardless of investor pressure (although I’m sure investors will be eager). Remember, Fox Corp. only exists as a home for the assets that the Murdochs wanted to sell to Disney but couldn’t. Meanwhile, it is going to be increasingly hard for Fox to fly solo in an industry dominated by much larger players. Once Rupert is gone, and his sentimentality over the media industry with him, what’s to stop Lachlan from looking for an exit? Fox Sports will have many suitors. The big mystery to me is what happens to Fox News—a highly lucrative business that is viewed as absolutely toxic in the eyes of all the major media companies, including Amazon, Apple, Netflix, Disney and Warner Bros. Discovery. Where does Fox News land post-Murdoch? I have absolutely no idea. Maybe someone reading this can call me and tell me.

Aryeh Bourkoff, the master banker, has been hired to represent The Athletic in a sale or financing event. Any chance that The Athletic is somehow combined in any of this M&A action? You mentioned earlier this week that, despite the competition, CNN and MSNBC seem a lot like future bedfellows—like Continental and United or Penguin and Random House—as the industry consolidates. Could ESPN or Fox ever end up with The Athletic?

Starting with the caveat that I have no inside knowledge of what’s going on with The Athletic right now… Yes, that seems entirely plausible to me. Generally speaking, when envisioning what the future of media looks like, it helps to remember that we’re always trending toward consolidation. If you accept the premise that just 4 or 5 companies will eventually own all media, then it becomes easy to see how contemporary competitors can become future colleagues. The Athletic has also just done a masterful job of bringing local sports reporting into the digital age, so it’s an obvious fit for a larger sports news brand...

FOUR STORIES WE'RE TALKING ABOUT