Apple-ESPN Strategic Partnership or Acquisition Is ‘No Brainer,’ Analyst Says
Despite much speculation on Wall Street and in the media that Apple should buy Disney, one analyst believes that there’s a simpler solution that could benefit both parties: a strategic partnership or acquisition of ESPN.
In a research note to clients on Wednesday, Wedbush analyst Dan Ives said that an ESPN deal would be a “no brainer.”
“We believe Apple would be much more interested in the ESPN asset than Disney overall as Cupertino is focused on a number of other key strategic initiatives with an acquisition of the Mouse not making a ton of sense in our view,” Ives wrote. “That said, acquiring ESPN ($50 billion+ price tag likely) would make a ton of strategic sense, gain valuable sports content, major TV rights across each of the major professional and college sports packages, and change the cross-sell opportunities and attractiveness of Apple TV looking ahead while putting Apple on the sports map globally speaking.”
He adds that the “strong relationship” between Disney CEO Bob Iger and Apple CEO Tim Cook would “only help potential collaboration on this front and at a minimum could include major distribution partnership rights between Apple TV and ESPN and help both platforms in a number of ways over the coming years.”
“While there are a myriad of moving parts in this Disney strategic situation and many complicating factors including a hawkish FTC/Khan which continues to be a headline risk (bark worse than bite), we believe Apple could now seriously pursue ESPN in its efforts to gain much needed live sports content,” the note concluded.
In a CNBC interview in July, Iger revealed that Disney was on the hunt and had already had “some conversations” with potential strategic partners for ESPN who could help with content or distribution. Disney has had talks with sports leagues including the NFL, NBA and MLB about becoming minority investors in ESPN, CNBC previously reported.
“We’ve received notable interest from many different entities, and we look forward to sharing more details at a later date when we’re further along in this process,” Iger said during Disney’s third quarter earnings call.
Iger has emphasized that Disney wants to stay in the sports business and that taking ESPN fully direct-to-consumer is an “inevitability, though an exact timeline for its launch and eventual pricing remain unclear. Bloomberg Intelligence believes the launch could come as early as 2025. At $20 per month, ESPN would need 8.1 million subscribers by 2026 to offset losses in affiliate revenue from cord-cutting, analyst Geetha Ranganathan estimated in an Aug. 7 note to clients. She added that the service might also bring in $6 to $7 a month in ad revenue per subscriber.
Iger recently brought in former Disney executives and Candle Media co-CEOs Kevin Mayer and Tom Staggs to consult on the company’s streaming strategy and linear TV business, with the pair set to work with ESPN chairman Jimmy Pitaro to analyze and develop strategic options for the sports network.
When asked on the earnings call about a potential sale of Disney to a tech company or otherwise, Iger said he wouldn’t speculate.
“Obviously anyone who wanted to speculate about such things would have to immediately consider the global regulatory environment. I’ll say no more than that,” he told analysts. “It’s just, it’s not something that we obsess about.”
Ives’ comments come as Apple reported over 1 billion paid subscriptions in the third quarter of 2023, up 150 million during the last 12 months. The company’s Services segment does not break out sales or subscription figures by category, but includes Apple TV+, Apple Arcade, Apple Fitness+, Apple News+, Apple Music and iCloud.
Apple has aggressively been adding sports to its streaming service, with the most recent move being an exclusive 10-year MLS streaming soccer deal back in June 2022. Wedbush, which estimates that Apple TV+ has over 50 million paid subscribers, said that Lionel Messi’s decision to sign with Inter Miami has “since massively catalyzed the number of MLS Season Pass subscriptions around the world.”
While acknowledging that Apple is well known for being opposed to big M&A, he pointed out that “the market is quickly changing and Apple recognizes that in this streaming arms race there is a “closing window” for the stalwart to acquire content and cement its footing in the live sports content arena.”
Wedbush maintained its outperform rating on Apple stock, with a 12-month price target of $230.
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