Needham said on Tuesday it believes media and entertainment giant Disney (NYSE:DIS) would be better off shutting down its ABC network and taking a one-time hit rather than selling it.
The research firm’s opinion comes on the heels of talk show host Jimmy Kimmel’s suspension for his comments on slain pro-Trump political activist Charlie Kirk, which triggered a public backlash against the network for restricting free speech, after which ABC decided to resume his show.
FCC Chairman Brendan Carr also recently suggested that regulators have the right to interfere with TV broadcasters, and they have to meet “public service” obligations because of the $50B-$88B of taxpayer value granted to them for free. Needham said while they understand the logic of it, the price/value tradeoff to U.S. taxpayers feels poor.
The research firm calculated a one-time write-off of $10B-$11B, representing about 5% of Disney’s $204B market cap. They believe Wall Street would add back this write-off because ABC would be accounted for as a discontinued operation.
“We ignore the value destroyed in the ABC affiliate network and the public policy value destroyed by losing ABC as an independent voice because FCC intervention has made owning broadcasting licenses too expensive and too volatile for DIS shareholders, in our view,” Needham said in its research note. “We do NOT recommend that DIS try to sell ABC because that requires FCC consent to transfer those licenses.”
They also pointed to a National MediaSpots survey that showed that only 0.5% of the U.S. population watches the network, and the average age of the audience for ABC is 58 years.
“Since the most valuable ad segments are under 49, much of ABC’s network reach has zero or low ad revenue tied to it,” Needham said.
Needham also thinks Disney should launch simulcasts of all ABC broadcast content on Hulu, in addition to its ABC app, so viewers can always watch the same content on an unregulated platform, which will preserve revenue.
“DIS’s Hulu streaming service is unregulated. It also has much younger viewers (average age of 37), which makes it more valuable per unit of attention for DIS shareholders. We suggest that DIS simulcast all ABC content created and aired and also make it available in the Hulu on-demand library,” the research firm said. “This would lower the risks to economics and viewing totals of any future regulatory interventions.”
Needham’s investment rating on Disney was unchanged at “buy,” along with its price target of $125, implying an upside of nearly 10%.