Rich Greenfield of BTIG has been a thorn in the side of Disney and CEO Bob Iger for a while now. Rich believes that Disney has done too little to respond to the changing shifts of consumers away from linear TV to digital. He specifically has attacked ESPN's shedding of linear subscribers in the traditional cable bundle and how it's been too slow to launch a direct-to-consumer over-the-top version.
In a recent blog post, Rich lays out what he would do today if he had Bob Iger's job running Disney:
- Stop Buying Back Stock
- Terminate ESPN President John Skipper
- Buy Twitter and Reinvent SportsCenter
- Buy Spotify To Plant Direct-to-Consumer Roots
- Acquire EA or Activision
I don't agree with some of Rich's points.
Why is it necessary to stop buying stock? Continuing to do so doesn't preclude them from looking at future attractive deals.
Skipper doesn't deserve to be fired. He is very well-liked within ESPN. He made some comments 18 months ago to the Wall Street Journal about requiring new hires to the Worldwide Leader to bring their cable bills on campus to demonstrate their loyalty to the cable bundle which seemed tone-deaf, but his comments since have been on the mark. He's cutting costs (although he's likely going to have to do more). All their bidding on sports rights a couple of years ago seems smart now rather than stupid, with live sports viewership up in Q1 vs. a year ago compared to scripted shows demonstrating declines.
I actually think it's more likely that Skipper re-ups with ESPN again in 2018 when his contract is up rather than him getting sacked. (He has some good internal potential successors too.)
M&A should certainly be considered, but a huge buy is not the way to go. Disney is riding high currently as a result of three canny acquisitions: Pixar, Marvel, and Lucasfilm -- all done by Iger.
In Rich's blog post, he brings up the transformational Disney acquisition of Capital Cities/ABC back in August 1995. Back then, the deal valued Capital Cities at $19 billion. That made it the second biggest deal of all-time after KKR/Nabisco. The deal also brought Bob Iger to Disney to start working under Michael Eisner and later succeed him.
The day before Disney bought Cap Cities/ABC, Disney's market cap was only $29 billion, or only 60% of the combined value of the companies. Talk about betting your company on a big deal.
To put that into modern-day perspective, Disney today is worth $170 billion in market cap. To make a similarly-sized "bet the company" type of transformational deal, Disney would need to spend $113 billion. That would definitely get some business press attention.
Another way of thinking about it is to think of Rich's M&A list. Disney could buy all the targets mentioned at their current market caps -- Twitter for $13 billion, Spotify for $12 billion (its rumored target IPO price), EA for $37 billion, Activision for $45 billion, and add a 10% premium for good measure for a total of $117 billion.
It's hard to imagine Disney doing such a series of deals today, yet that's how enormous the Capital Cities deal was at the time.