There will be big news in 2023, according to a new report from Wells Fargo analyst Steven Cahall, who makes his new year predictions for the media business.
Top of the list is Disney setting in motion a spin off for ESPN and ABC. That would start by launching an a la carte streaming version of ESPN. (More on this below.)
Cahall also thinks that Warner Bros. Discovery will complete its turn from being all-in on streaming to being a content "arms dealer," generating revenue by selling its movies and TV shows to third-party platforms.
Paramount could also be better off with the arms dealer strategy, but Cahall says he isn’t as optimistic that the company will sell its bullets and bombs.
In terms to mergers and acquisitions, Cahall sees a quiet year, with Lionsgate spinning off its studio and Disney possibly selling Hulu to Comcast.
Underpinning Cahall's outlook is the view that cord cutting will be closer to 10% than 5% in 2023. He estimates that pay TV will lose 6.5 million more subscribers next year.
He also sees streaming subscriber growth slowing to 86 million in 2023 from 114 million in 2022. He notes that between 85% to 90% of U.S. households already have an SVOD service.
The ad market will also be putting pressure on the media industry profit and revenue picture. Cahall sees traditional advertising hurt by the growth of AVOD options and core advertising spending down by mid-single-digits, complicating upfront negotiations.
The cable business will lose 158,000 broadband subscribers, even though fixed wireless pressures are reduced because fiber headwinds are accelerating, Cahall said. Video subscriber losses will be greater than 10%, with profit from video dropping $800 million.
In general Cahall paints a negative picture for media in 2023. For investors, he likes Disney, Netflix, Fox, Lionsgate and Imax. He advises avoiding AMC Networks, Paramount, station owners and WWE.
Speaking of Disney, Cahall’s take is that CEO Bob Iger “is returning to the company to make big changes.” The analyst thinks unloading ESPN makes Disney an attractive pure play IP company.
Under pressure from activist investor Dan Loeb, spinning off ESPN was considered by former CEO Bob Chapek, who lost his job when Iger re-took the CEO chair.
Cahall thinks that in the first half of the year, Disney will announce cost cutting and balance sheet initiatives. “This is the precursor to something more dramatic for ESPN/ABC. We think a spin announcement could come in the second half of the year,” he said. ■
