Good afternoon.

To remind you, The Medium identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the media marketplace. The key trends help you answer a simple question: "What's next for media, and where's it all going? How are the pieces lining up for business models to evolve, succeed, or fail?"

Read the three key trends The Medium will be focused on in Q3 2023. This essay focuses on "Legacy media companies are throwing in the towel on their bets to own the consumer relationship in streaming and beyond".

Addendum: After Monday’s mailing, a subscriber suggested it was not clear how I imagined ESPN’s DTC app being integrated into Xumo.

Xumo is an over-the-top (OTT) play for aggregating third-party streaming services. It aims to solve a pain point for streaming consumers by making “search and discovery across live, on-demand and streaming video seamless and incredibly simple for consumers.” In Comcast’s Xumo Joint Venture with Comcast and Cox, it licenses its Xfinity Flex streaming platform, Flex-operated devices and associated voice-controlled remotes to those partners. Comcast also contributes its smart TV business (XClass) and free ad-supported streaming service Xumo to the venture. 

I was envisioning a Disney partnership with Comcast making ESPN+ a default across all Xfinity devices — X1 linear and Flex broadband set top boxes— or over 32 million TV and/or broadband households. Add in Charter’s reach (30 million) and Cox’s (6 million), and you get 68 million as the potential reach.

After Disney CEO Robert Iger told CNBC’s David Faber that Disney’s linear business “may not be core” to the entertainment giant, the question is what the implications of that statement may be for Disney (NOTE: Disney staff were worried by these implications, enough to have a meeting with Iger on Monday). 

Nominally, it would lose some or all of $8.5 billion, its 2022 annual operating income for the Linear Networks. That has provided a healthy cushion for Disney’s overall business, and especially the $4 billion in losses from its Direct-to-Consumer division. With those losses, the Operating Income generated by its Disney Media and Entertainment Distribution segment is nearly halved.  

Ideally, any sale would recoup a multiple of that operating income in the form of cash. One question is who will value those assets enough to pay that multiple. Or, as The Wall Street Journal’s Joe Flint analogized on Twitter yesterday: 

“If you don't have a lawn, there isn't much reason to own a lawnmower. And everyone who has a lawn wants to tear it out.”

The other question is whether Disney's DTC business can reach profitability in 2024, a promise made to investors over the past three years. It was reported last week by multiple outlets that “some Disney executives have expressed doubts about whether the company can hit that target” by 2024. So, a sale of its linear networks would force both the management team and the board into an outcome where they would need to solve for both the loss of 50% their operating income without streaming, and the future of their DTC business after having under-delivered. 

The continued loss of $4 billion per year is not an option, especially given that Disney has $10B in cash and at least $9B of that is owed to Comcast in January 2024. 

How should Disney evolve under these circumstances? Here are three different attempts at an answer.

Key Takeaway

Let's assume the outcome where Disney has sold off its linear networks and is flush with billions of dollars in cash. Iger will need a playbook for Disney’s post-linear chapter. Does Netflix, EA or former CEO Bob Chapek's Disney Prime vision offer the best playbook?

Total words: 2,500

Total time reading: 10 minutes