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Are ESPN and Disney Right For One Another?

After a strong relationship, they are looking like an uncomfortable fit

28Sep

In 2012, ESPN was the jewel in Disney’s crown. It was valued at $40 billion and was the company’s single most important brand.

There are now fears, however, that they’ve fallen out of love with one another, with Forbes stating that ‘the company’s [Disney’s] hand will be forced by the market’s invisible hand to seek another home for this prized asset.’

While ESPN’s subscriber base has steadily fallen this year, concerns have also been levelled at whether Disney’s business model is suitable to bring the sports broadcaster out of its rut. In that sense, it’s something of a one-off. For the last decade, Bob Iger - Disney’s CEO - has been driving the company’s success through a franchise model. Before, they would attempt an array of differing projects, with the hope that a few would work out over time. This proved to be a drain on resources, and for a company that’s home to so many established brands, a waste of time and money.

This strategy is most evident within the company’s consumer products department. Disney used to measure the success of its products by type, like clothes and toys. Now, Buzz Lightyear dolls, for example, come under the Toy Story bracket, allowing the company’s franchises to truly operate as separate entities. It’s paying off too. In 2014, eleven of Disney’s franchises were valued at over $1 billion.

As reported by Ken Favaro in Forbes: ‘ESPN currently benefits relatively little from the company’s strategy of creating, buying and exploiting ‘corporate franchises’. And despite being important to Disney’s success over the past three years, ESPN is now becoming the scapegoat for its declining market valuation. Like Viacom, ESPN is being forced to reinvent itself, as sports broadcasters prepare themselves for a period of upheaval as consumers start to get rid of their subscription packages.

If ESPN neither benefits nor contributes to Disney’s corporate strategy and portfolio, you have to wonder whether there’s any point in it being there. This leaves Disney’s senior management with a simple choice; either make ESPN a central cog, or remove it altogether. As Ken Favaro states: ‘Unless a business has a reason for being in a company’s portfolio that is specific to its corporate strategy, pressure will build over time to get rid of it.’

Whatever the decision Disney makes, it must be taken quickly. Although emphasis must be placed on working out how to ready ESPN for the future, its position within Disney’s portfolio needs to be addressed hastily. While all continues to be good for Disney, they can, to some extent, put their ESPN problem on the back burner. But if times get tougher, Disney’s hand could be forced and that’s when they could see a real hit on their balance sheet.

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