Disney should shutter ABC amid FCC regulatory pressure, investment firm says

Entertainment giant Disney would be better off shutting down its ABC broadcast network and dealing with the one-off financial hit than attempting to sell off its affiliate network, an investment firm found in its analysis.

Needham wrote in a client note on Tuesday that shuttering ABC and its broadcast network would be less costly and volatile than continuing to own them or sell them. 

The firm said that Federal Communications Commission (FCC) Chair Brendan Carr’s pressure on ABC and its affiliates to take Jimmy Kimmel’s late-night show off the air temporarily following controversial comments made by the comedian about the assassination of conservative activist Charlie Kirk makes the broadcast network not worthwhile to operate.

“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 broadcast licenses too expensive and too volatile for [Disney] shareholders, in our view,” Needham wrote. 

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“We do NOT recommend that [Disney] try to sell ABC because that requires FCC consent to transfer those licenses,” the firm added.

Needham said that it would expect Disney’s revenue growth rate to increase by 40- to 60-basis-points annually over the next decade, adding about $20 billion of incremental value for shareholders while also reducing federal regulatory burdens permanently. 

Further, the firm estimated that shuttering the ABC broadcast network would cause a one-time hit of between $10 billion and $11 billion, which would represent about 5% of its more than $200 billion market cap. It added that the market could add back the written-off value of the discontinued operations.

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Needham noted TV survey data suggesting that a small percentage of the U.S. population watches ABC and that its average audience age is 58, above the key demographic of viewers under 49, which indicates the network has little ad revenue tied to it.

The firm said that instead of operating the broadcast network, Disney could stream ABC’s broadcast content on its Hulu streaming service and its ABC app, which would make it more valuable from an ad revenue standpoint.

FOX Business reached out to Disney for comment on Needham’s note.

ABC’s future with Disney came into question following Kimmel’s comments about the Kirk assassination, which prompted Carr to threaten an FCC investigation of the commentary and applaud decisions by Nexstar and Sinclair, which carry ABC affiliate networks in their portfolio, to preempt Kimmel’s program.

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President Donald Trump also suggested that the FCC could strip ABC’s broadcast license over the decision, prompting pushback from First Amendment advocates over the perceived threat to free speech and the free press.

ABC announced Kimmel’s show would return on Tuesday, though Nexstar and Sinclair said they would continue to preempt the show on their respective affiliate networks in the near-term.

Despite the controversy, one industry expert believes Disney is unlikely to look to shutter or sell ABC in the near future.

Paul Verna, vice president of content at Emarketer, said that while the “current brouhaha” over Kimmel’s show could prompt Disney CEO Bob Iger to reassess his plans for ABC.

“I don’t envision a scenario where a sale, spinoff, or shutdown of ABC TV happens any time soon.”

Verna noted that live sports TV programming still drives significant advertising and subscription revenue for Disney. ABC contributes to Disney’s audience reach and sports rights negotiations given its broadcast network.

Reuters contributed to this report.