Disney, the media and entertainment giant, has been facing pressure from Wall Street analysts and activist investors to split its business into two separate entities: one focused on streaming and content, and the other on parks and experiences. The idea is to unlock the value of its fast-growing streaming segment, which includes Disney+, Hulu, ESPN+, and Star, while shedding the burden of its struggling parks and experiences unit, which has been hit hard by the pandemic and travel restrictions.
The Case for a Split
Some analysts argue that a split would allow Disney to focus on its core competencies and allocate capital more efficiently. They point out that Disney’s streaming business has been growing rapidly, reaching over 179 million subscribers as of the end of 2022, and generating $17.6 billion in revenue, up 57% year over year. They also note that Disney’s streaming business has a higher valuation multiple than its parks and experiences business, which means that separating them would boost Disney’s overall market value.
One of the proponents of a split is Michael Nathanson, a media analyst at MoffettNathanson. He wrote in a recent note that “Disney’s streaming business is now worth more than Netflix on a standalone basis” and that “the market is not giving Disney full credit for its streaming success.” He estimated that Disney’s streaming business could be worth $500 billion, while its parks and experiences business could be worth $150 billion, implying a total value of $650 billion for Disney. That’s significantly higher than Disney’s current market value of around $280 billion.
Another supporter of a split is Nelson Peltz, the billionaire activist investor who owns a stake in Disney through his firm Trian Management. He has been pushing for Disney to spin off its ESPN division, which he believes is dragging down Disney’s profitability and growth prospects. He argues that ESPN is facing declining ratings, cord-cutting, and rising sports rights costs, and that it would be better off as a standalone company that could pursue strategic partnerships or acquisitions.
The Case Against a Split
However, not everyone agrees that a split is the best option for Disney. Some analysts and investors believe that Disney’s diversified portfolio of businesses gives it a competitive advantage and a unique brand identity. They contend that Disney’s streaming and parks and experiences businesses are complementary and synergistic, and that separating them would hurt Disney’s ability to create compelling content and experiences for its customers.
One of the opponents of a split is Bob Iger, the executive chairman and former CEO of Disney. He has been leading the company’s transformation into a streaming powerhouse, while also overseeing the expansion of its theme parks, cruise line, and entertainment segments. He said in a recent interview with CNBC that he is not considering a spinoff of ESPN or any other part of Disney. He said that he believes in the power of Disney’s brand and its ability to create value across multiple platforms.
Another critic of a split is Rich Greenfield, a media analyst at LightShed Partners. He wrote in a recent note that “splitting up Disney makes no sense” and that “Disney is stronger together.” He argued that Disney’s streaming business benefits from its parks and experiences business, which helps to promote its content and characters, and vice versa. He also pointed out that Disney’s streaming business is still unprofitable and relies on the cash flow generated by its parks and experiences business to fund its content spending.
The Bottom Line
Disney is facing a dilemma: whether to split its business into two or keep it as one. There are pros and cons to both options, and there is no clear consensus among analysts and investors on what is the best course of action. Ultimately, the decision will depend on how Disney views its long-term vision and strategy, and how it balances the trade-offs between growth and profitability, innovation and efficiency, and risk and reward.
