Could acquiring Netflix or Twitter help Disney dispel ESPN worries?

ESPN results have been a noted drag on parent corporation Disney’s stock price for most of the last year, and that’s jump-started the conversation about Disney selling or spinning off the Worldwide Leader. That idea carries pros and cons, though, and while it’s discussed in this Bloomberg piece from Monday about ESPN’s future, the more interesting idea raised in there may be about Disney expanding, not contracting. Several of those who spoke to Bloomberg think the company’s future may involve buying a major tech company:

Acquisitions could be an integral part of Disney’s strategy. The company has looked at Twitter Inc., people with knowledge of the matter said in September, and in August agreed to plunk down $1 billion for one-third of BAMTech, the streaming arm of Major League Baseball, which powers Disney’s Watch ESPN app as well as online programming for HBO. The company has also been mentioned as a possible suitor for Netflix Inc.

…Others, such as analyst Rich Greenfield of BTIG LLC, sense [Disney CEO Bob] Iger wants to do a big deal, whether it’s with Twitter, Netflix or someone else.

“Maybe Iger and Disney are simply trying to signal confidence in ESPN in hopes of getting their stock up as they plan to make a major acquisition,” Greenfield said in a report last month. “Hard to remember a time in history when Disney has talked so openly about not being strategically complete.”

The talk of “not being strategically complete” is particularly interesting, as that would seem to go against the idea of a full sale of ESPN. It’s also worth considering in terms of the media landscape; as that Bloomberg piece notes, many other media brands are trying to get bigger, with AT&T trying to buy Time Warner and Fox looking to pick up the rest of Sky. In that world, it may make sense for Disney not just to hang on to ESPN, but also to pick up other companies.

Getting into tech helps Disney diversify their sources of income, too, as we noted with their BAMTech acquisition. Moves for the likes of Twitter or Netflix could help them make money off the cord-cutters abandoning ESPN. And there could be further synergies, on the sports side and beyond; acquiring Netflix or Twitter could help Disney use those platforms to promote content from ESPN, ABC, Disney’s movie studios and more. There’s also the chance of a “ESPN+Netflix” bundle, which might be very appealing to a certain subset of cord-cutters. Both the Netflix and Twitter rumors have been around for a while, and there may well be something to them. A final point in favor of Disney making a major acquisition involves Iger himself; his contract as CEO expires in 2018, and the surprise departure of Disney COO Thomas Staggs back in March means there’s no longer an obvious successor for him. He may well desire to make a splashy move before then to buttress his legacy and have the company looking stronger as he leaves, and a big acquisition might just be the ticket.

Of course, all of this comes with caveats. Disney is certainly not the only company with an interest in buying the likes of Netflix or Twitter; there are plenty of suitors out there, especially for the former (as unlike Twitter, it has a proven and impressive monthly revenue model). There are plenty of other tech companies that might be desirable acquisitions for Disney, too. And we don’t even know that Disney is assuredly looking to buy, or that they wouldn’t both buy a tech company and still sell or spin off ESPN; there is a case for them to loosen their ties to the Worldwide Leader, particularly when it comes to short-term stock prices. There’s a lot of uncertainty around what will come next. However, the idea of a big tech acquisition as further diversification and potential strategic synergy with ESPN has plenty of merit. It will be interesting to see if it comes to pass.

[Bloomberg]