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Activist investor Dan Loeb backs off push for Disney sale of ESPN

Yahoo Finance Live anchors discuss activist investor Dan Loeb’s decision to back off his push for Disney’s sale of ESPN.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: The Disney shares remain lower by 24% year-to-date. And so all of this excitement notwithstanding, they now have to translate that into actual profits.

BRAD SMITH: Yeah.

JULIE HYMAN: And there are some weaker parts of the business that have also been getting some attention.

BRAD SMITH: Exactly. And activist investor Dan Loeb has really been going after Disney, saying that they need to spin off ESPN. Of course, ESPN is a massive entity, especially when it comes to sports rights that Disney has been able to take on over the years.

And that's what's really allowed them to shield some of this growth as well. ESPN+, one of the particular categories as well that is looped into this overall Disney+ subscriber growth that [? Ali ?] was laying out so expertly there. I think that's particularly interesting, especially as they go more international with some of the ESPN+ approaches and licensing for other sports categories that they want to be able to broadcast here.

And so Dan Loeb stepping back off of that in a tweet over the weekend. And so we'll see exactly how that steers the management over at Disney, as they've been listening very closely to some of those analysts calls. But also, at the same time, recognizing how critical ESPN is to their business.

And even as a standalone entity, a larger question of how that would be run. But as of right now, it seems like Disney going full steam ahead with further delving into some of their investments that they've made within ESPN as part of this broader subscriber bundle as well.

JARED BLIKRE: Right, and interesting note by Bloomberg just about the cost of all these digital subscriber rights with respect to sports. Here is something. Media companies, including Disney and FOX, face a dangerous situation. $23 billion in annual sports rights costs set to jump 30% in three years as cord-cutting wipes out 25% of the pay TV user base. This exacerbates revenue and profit pressures.

Meanwhile, the play for sports by Amazon.com and Apple is pushing fees higher in marquee content outside the TV bundle. So yeah, unlock that value, Disney. Maybe spin it off. I don't know what the solution is but it looks like costs are going up and competition is ever increasing here.

JULIE HYMAN: Well, Bob Chapek bringing up the magic words, "sports betting," when he was talking about ESPN as well. Now--

JARED BLIKRE: Right to the blockchain.

JULIE HYMAN: But it feels like those words are magic in the eyes of investors. But it feels like they have yet to actually bear fruit, either for ESPN or for the sports betting companies, themselves, which are falling all over each other to attract people through promotioning.

Now, so we're at a very early stage in that sports betting industry. And we'll see-- ESPN, obviously, which has amazing brand recognition, how much it's gonna be able to really get into that industry and make-- you know, monetize it.

BRAD SMITH: Right. And you would think that they would not spin off ESPN without some type of tandem tie-in or an acquisition that they would make--

JULIE HYMAN: Something.

BRAD SMITH: --on the sports betting front to really make that an all-in-one experience. They-- as we were just looking at the numbers a moment ago, they ended Q3 with 22.8 million paid subscribers for ESPN+. Increase of about half a million there.

But I think for ESPN+ going forward, it's really gonna come back to your point to how they also integrate what is the next wave of sports betting and the fanfare that's really revolved around that. That's the point where I've got my sister texting me when she makes a sports bet. We've got to pick her teams better, though.

JARED BLIKRE: I'm gonna pick you-- I'm gonna call you when I lose.

BRAD SMITH: Yeah? [LAUGHS]

JARED BLIKRE: That's the [INAUDIBLE].

[LAUGHTER]

BRAD SMITH: Guys, coming up--