Disney's unusual search for a strategic partner
Early on in Disney’s Cinderella, a message arrives from the King. Cinderella’s cruel stepmother opens the letter and announces:
“There's to be a ball … in honor of His Highness, the Prince! And, by royal command, every eligible maiden is to attend.”
Disney’s CEO Bob Iger must have been inspired by this scene. Iger is telling anyone who will listen that ESPN needs a strategic partner.
This isn’t the way public company CEOs typically behave.
Why is Iger taking such an unusual approach? What can you learn from it?
What is going on at Disney?
Disney’s ability to adapt to consumers is why the company will turn 100 years old this year.
For the last decade, viewers have been moving away from cable boxes (e.g. Comcast) and towards streaming services (e.g. Netflix) and mobile devices.
Disney saw this shift coming and spent years preparing for it, thanks largely to Bob Iger’s leadership. In 2019, Disney launched Disney+.
Consider this incredible stat: it took Netflix 10 years to reach 100M subscribers. After launching, Disney+ signed up 100M subscribers in just 16 months. That is an average of over 200,000 customers added every single day.
As Mickey Mouse might say, “oh boy!”
The success of Disney+ has forced Disney to re-evaluate its business model, specifically Disney’s legacy, linear TV assets.
Disney owns a collection of TV channels - ABC, ABC Family (now called FreeForm), The Disney Channel, FX and sizable ownership in The History Channel, NatGeo, A&E.
The profitability of these TV assets is declining as fewer and fewer viewers subscribe to cable. Does Disney still need to own TV channels?
"The distribution model, the business model that forms the underpinning of that business and that has delivered great profits over the years is definitely broken. And we have to call it like it is,” Bob Iger recently told CNBC.
But there's one linear TV asset that Disney intends on to keep: ESPN.
Why? Because people love watching live sports.
94 of the top 100 programs on US broadcast TV in 2022 were sports, according to Nielsen. On cable, 69 of the top 100 viewed shows were sports.
ESPN’s contracts cover the rights to distribute games for the NFL, NBA, NHL, NCAA … plus cricket, esports and others.
Disney aims to keep ESPN but transition it to a new model … Disney+ but just for sports fans. And Bob Iger has made it clear that he doesn’t intend for Disney to build that business alone.
But which partner can help ESPN transition from a struggling cable channel into a digital sports powerhouse?
Picking a Partner for ESPN
Iger has outlined what Disney is seeking in a partner for ESPN:
"We're looking for partners that are going to help ESPN successfully transition to a DTC (direct-to,consumer) model. And that, as I've said, can come in the form of either content or distribution and marketing support or both.”
In the spirit of Disney’s High School Musical, here are ESPN’s options for strategic partners organized into high school cliques:
The rich kids - Apple, Amazon, Google/YouTube
Pro: Full of cash plus more daily interactions with consumers than anyone else. Also, these rich kids need great content.
Con: Disney may prefer a partnership where they have more leverage & control.
The jocks - NBA, NFL, MLB
Pro: No one values growing sports audiences more than the leagues themselves.
Con: these leagues have existing commitments to other media partners. Also, Disney wants to find a partner across sports, not favor just one or two.
The fifth year seniors - cable networks (e.g. Comcast, AT&T, Charter)
Pro: Past their prime, they need a way to stay cool … and they are willing to pay.
Con: their business model unravels if ESPN goes direct to consumer.
The theater kids - studios (Warner Brothers, Paramount, NBCU)
Pro: they understand content distribution, marketing, etc.
Con: none has the kind of money Disney is seeking in a partner for ESPN.
The rebels - sports betting firms (FanDuels, DraftKings)
Pro: sports betting is lucrative and, well, addictive.
Con: Disney is a family company and sports betting is generally frowned upon.
The fashionista - apparel brands (Fanatics, Nike)
Pro: Disney knows licensing and would benefit from their sports apparel licensing rights.
Con: Nike is still figuring out direct-to-consumer; Fanatics is e-commerce only.
My prediction: Disney will focus on the rich kids (Amazon, Apple, Google/YouTube). Bob Iger built a close relationship with Steve Jobs while negotiating to acquire Pixar. If he can build that kind of trust with Andy Jassy (Amazon), Tim Cook (Apple) or Sundar Pichai (Google), then they may reach a deal.
But Disney has far less leverage in these negotiations, which may make reaching a deal impossible.
If Disney cannot forge a partnership with one of the rich kids, I expect they will assemble a collection of other partners. This could be a joint venture that includes a theater kid (Warner Brothers), a rebel (FanDuels), and a fashionista (Nike). Look for Disney to also recruit some “international students” to help them in India, Brazil, China, etc.
What does this mean for you?
In Cinderella, there is a reason why the King hosts a ball and invites every maiden in the kingdom. Without the ball, the Prince never would have found Cinderella.
Disney knows that ESPN is the Prince Charming of television.
When you have an asset that you know is truly differentiated and you need to find a partner, then let everyone know.
Sometimes the way to find the best partner is to let the world know that you're searching.
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PS - this Hollywood Reporter article outlines the case for why Apple might try to buy Disney. In his excellent autobiography The Ride of a LifeTime, Bob Iger writes about his friendship with Steve Jobs, adding “I believe that if Steve were still alive, we would have combined our companies, or at least discussed the possibility very seriously.”