Good afternoon!

The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.

Each fiscal quarter, The Medium identifies three or four new trends that have momentum and seem poised to play out at a larger scale in 2023. These key trends pinpoint dynamic and constantly evolving developments in the media marketplace that are emerging from incremental shifts or fundamental changes. The bi-weekly mailings analyze these trends as developments emerge in real-time. 

Read the three key trends The Medium will be focused on in Q4 2023. This essay focuses on "In the shift from wholesale to retail models, there are many business models that delight consumers but no single, dominant one."

The $11.46 billion in cash on Disney’s balance sheet will take a 75% hit at some point within the next four weeks. Disney announced yesterday that it expects to pay Comcast’s NBCUniversal $8.61 billion by December 1st—plus an amount to be determined in 2024—for its 33% stake in Hulu. The looming burden for Disney will be to pay down $44.5 billion in debt with less cash. So, Disney finds itself in a position where its long-term bet on growth has devolved into a hyper-focus on managing its balance sheet for the foreseeable future. 

It is not alone. Every other legacy media company that took on billions in debt to fund libraries is stuck in the same short-term game plan. Growth will not come from streaming— Disney has lost $2.1 billion over the past three months, alone, according to a recent filing with the SEC—so the cash for paying down billions in debt will come from cost-cutting measures (e.g., Warner Bros. Discovery) or alternative business models like content licensing. 

That short-term financial reality contrasts with the long-term trend of media business models shifting from wholesale to retail. There was no better example of this disconnect than the recent report that deputies of Disney CEO Robert Iger have been pushing for “a bolder transformation of Disney from gaming licensee to gaming giant” by merging with Electronic Arts (EA). Disney’s balance sheet reflects three key challenges with this proposal: First, Disney has limited resources to solve for that path. Second, its focus on solving for its balance sheet means “bold” is neither financially nor operationally a near-term option for a necessary long-term solution. 

The third key challenge may be the most important: Iger and his deputies are the architects of Disney’s balance sheet challenges, and they have no background in gaming. They have no background in streaming, either: Both Hulu and BAMTech ($3 billion) were bolt-on acquisitions, and not built in-house. Their balance sheet reflects cash being used to pay down both the debt funding its misguided streaming strategy and to cover the losses of that strategy. There is no reason to believe a bet on gaming would result in a different trajectory. 

But, a spin-out of Hulu and a pivot towards gaming increasingly seem to be the bets they need to make. The question is how it—and other legacy media companies—can make that pivot while servicing debt and struggling in streaming.

Key Takeaway

There is an inevitable overlap between gaming and streaming on its way. The mostly necessary focus of both Disney and Warner Bros. Discovery management teams on their balance sheets has resulted in a weird dance between good business instincts, debt service, and bad execution towards this future. 

Total words: 1,700

Total time reading: 7 minutes