Good afternoon, I'm Dylan Byers.

Welcome back to In The Room, my private email on the inner workings of the American media. In the past few weeks, I've reported on Bob Chapek’s vision for Hulu, Joe Scarborough’s pursuit of more MSNBC cash, and Bobby Kotick's fate at Activision.

On Wednesday, I spoke with my colleague Bill Cohan about what's going on at ViacomCBS, NBCUniversal, and Disney. Today, the inside conversation continues with Puck co-founder Jon Kelly, about the future of ESPN, the Murdoch's Fox assets, Aryeh Bourkoff's vision for The Athletic, and what people are saying about the Nick Thompson-Jeffrey Goldberg editorial dynamic at The Atlantic. 

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Thanks,

Dylan

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.

Back in your previous life at NBC, you reported on some friction at The Atlantic, the venerable media company now majority-owned by Laurene Powell Jobs. The Atlantic’s C.E.O., Nick Thompson, is now finishing his first year. What are you hearing about that place?

Even during the Trump heyday, The Atlantic was losing tens of millions annually. Nick basically realized that, post-Trump, the company was facing a drastic decline in subscription growth that made their path toward profitability extremely difficult. Their best idea for a solution to that problem is apparent in the copy, and in my humble opinion it’s not pretty. There are a lot of articles about cultural trends and how we live and love and diet and exercise that just seem to stray from the magazine’s traditional strengths, most notably stellar political reporting and analysis, landmark philosophical arguments or policy proposals. That, and reasons why liberals should be absolutely terrified about the state of the world. And also how Trump and Trump-ism are still here! Politically, it seems like a magazine that couldn’t let go of the last moment; culturally it feels like it’s trying too hard. I sincerely hope The Atlantic endures as a strong competitor to the likes of The New Yorker, but it doesn’t feel like it will. And, as I reported for NBC, Laurene Powell Jobs isn’t interested in footing the bill for failing enterprises.

I’ve known Nick for years and he’s an incredibly smart guy. He also performed a near-identical version of this job, five or six years ago, when he helped David Remnick turn The New Yorker into a profitable digital media asset. Nick accomplished the task in an ego-less manner and preserved The New Yorker’s unique culture in the process. But two things strike me here. 

The first is that Nick hails from the editorial side of the industry, and I couldn’t help but notice that he was the person being quoted, rather than editor-in-chief Jeffrey Goldberg, during the roll out of The Atlantic’s newsletter strategy. So while I assume the C.E.O. and E.I.C. have a great relationship, it seems like they have overlapping areas of expertise rather than a traditional creative-business partnership. Secondly, The Atlantic is in an enviable but interesting position: it’s an historic brand, as you say, and it’s also bigger than it has ever been. But Atlantic Media, the parent company, is not as big as its competitors, like Condé Nast or The New York Times Company, and does not enjoy their economies of scale. Nor is the product as targeted as, say, The Athletic, which is increasingly the trend in our niche-ized, balkanized media ecosystem.

One last thought: During the last decade, a number of media assets looked for salvation in the arms of billionaires. Time, Fortune, and The Washington Post all went this route. But billionaires are success machines, not charities, and Laurene Powell Jobs’ Emerson Collective has a media practice run by Peter Lattman, a very smart and formidable executive. I expect that there will be healthy pressure on Thompson and Goldberg to recognize that profitable media is good media.

That’s absolutely right. Or rather, the pressure is already there—spoken or unspoken.

Sticking with Washington media for a moment, you reported last month on Axel Springer’s acquisition of Politico for an eye-popping $1 billion. Axel, now backed with KKR’s cash, appears to be playing the same super-scale subscription business as The New York Times Company, and The Washington Post, among others. This is a business that requires significant investment, whether it be in product or M&A. What’s next for them to gobble up? Maybe they should call Aryeh…

The Athletic! And Rolling Stone. 

You’ve been all over the Disney succession story, including pointing out that Bob Iger’s run as chairman was extended from December to January. Was there any reason for this? And what do you expect Iger, who seriously considered running for president, to do in his third act?

No one ever gave me an explanation for the January 31 end date, but I don’t have any reason to suspect that anything is afoot there. In terms of optics, it does feed the image of him as a man who’s reluctant to let go. He’s quite sentimental about Disney. That dinner at his house I reported on last week? It included a mid-dinner violin medley of Disney’s greatest hits, per sources in attendance. 

As for what’s next, my best bet based on the speculation from sources in his orbit is that he launches an investment firm, not unlike what Peter Chernin and Jeffrey Katzenberg have done. It keeps him in and above the game at the same time. I do not think he’ll run for office. His life is too good, and he cares far too much about his image and reputation, to get caught up in all the mudslinging that entails. Other than that I think he’ll spend a fair amount of time on Aquarius, his yacht, which he’s entitled to after a very storied and successful run in the media business.

Relatedly, many assume that Jason Kilar is just keeping the seat warm for his successor at HBO Max once Discovery takes control of the Warner media assets from AT&T next year. But Kilar is an undeniably a talented executive, whose only major shortcoming appears to be that he hasn’t been able to reconcile the often incongruent tasks of managing a business while placating high-level talent, who are naturally more incentivized by their vanity (and money) than long-term economic trends. Where do you think Kilar winds up next?

What’s interesting about Kilar is that even his most fervent detractors at WarnerMedia acknowledge that he’s quite savvy about the streaming business. Some of his controversial decisions—including the rushed day-and-date plan—were actually smart, they just lacked compassion and diplomacy. He was also brought in by the bad guys (AT&T) and therefore much of what he did was viewed negatively by the WarnerMedia folks, particularly the older guard, which chafed at being told what to do by a tech guy in his 40s. 

But no one I know questions his grasp of the changing nature of the business. As for where he winds up next? I’d like to pretend I have some well-informed speculation, but the truth is that I have no idea. Maybe he should go back to Hulu, seeing as they’re about to get a ton of additional money for original content and are still in need of a leader.

FOUR STORIES WE'RE TALKING ABOUT