Fast Times at Sun Valley High

David Zaslav
Warner Bros. Discovery C.E.O. David Zaslav, center. Photo: Kevin Dietsch/Getty Images
Dylan Byers
July 6, 2022

“Everybody is way down,” a notable media executive told me this morning while shuffling between meetings here at the Allen & Company conference in Sun Valley. This was not his assessment of the mood at the conference, per se—indeed, most executives I’ve seen or spoken with here seem quite chipper and upbeat, as they almost always do at Herb Allen’s annual confab. It is, rather, an obvious, dispassionate assessment of where things stand financially in the wake of the Netflix sell-off and an absolutely brutal correction in the market: Reed Hastings and Ted Sarandos have seen Netflix’s share price fall 66 percent since the last time they were here. Bob Chapek’s Disney is down 45 percent. David Zaslav, who launched Warner Bros. Discovery at $24-a-share in April, is down 44 percent to $14 a share. None of these men seem at all unhappy, but they do appear at least momentarily humbled.

The market conditions have changed the tone and focus of the Sun Valley gossip, in myriad ways. At the macro-level, it’s shifted some of the conventional wisdom about the M&A landscape. For years, Sun Valley media merger intrigue centered on whether Shari Redstone might be ready to sell Paramount—a relatively small prize in Hollywood’s race for scale. This year, the chatter has shifted to the future of Netflix and Disney, once-dominant media giants that now find themselves more vulnerable than they ever imagined. At an $82-billion market cap, Netflix has never been more attractive from a price perspective, as my partner Bill Cohan ably notes. And might an activist investor move in on Disney and try to position the Magic Kingdom for a sale? At $95 a share, the pervasive wisdom goes, anything is possible.

More immediately, the Netflix slowdown has changed the strategic outlook for all media companies vis-a-vis streaming. Before the fall, when there seemed to be no ceiling to Netflix’s subscriber growth, Disney and Warner Bros. Discovery’s linear businesses were seen as a drag on their share price. While still highly lucrative, these low-to-no growth businesses were in structural decline and hung like an albatross around Chapek and Zaslav’s necks, preventing their companies from being valued at the coveted “Netflix multiple.” As I reported last fall, when Disney was trading at $174-a-share, Chapek even enlisted his deputies to explore the strategic rationale for spinning off ESPN in order to position Disney as more of a pure play (with a parks business). And as I’ve since reported, Electronic Arts approached Disney earlier this year to discuss a possible ESPN-EA tie-up. (The talks never went anywhere.)

Now that Netflix subscriber growth has hit a ceiling, the dual-revenue stream model—linear, plus streaming—all of a sudden looks a lot more attractive, at least in the near-term. And with interest rates rising and a potential recession in the offing, Wall Street has rediscovered the value of businesses that produce real cash. Indeed, I’m told reliably by an executive here in Sun Valley that Chapek has now abandoned the effort to spin off ESPN. This sudden turnaround almost certainly reflects a recognition that live sports, the linchpin of the entire linear ecosystem, will be even more significant to Disney’s bottom line in a world where the streaming landscape is uncertain. (A Disney spokesperson declined to comment, but pointed to Chapek’s comments in earnings statements about the importance of ESPN to Disney’s future.)

Disney’s renewed commitment to ESPN comes at a time when tech giants like Amazon and Apple are getting more aggressive about live rights, which is another much-discussed topic this week. There is a shared feeling among media executives and league commissioners alike that consumers, especially young consumers, are being disadvantaged by deals that keep the best games on linear and stretch them out across multiple channels and platforms. A more consumer-friendly model might see media companies taking ownership stakes in the leagues and providing viewers all-access passes to games through their apps. Eddy Cue’s recent deal with Major League Soccer, which will make Apple TV the exclusive home for M.L.S. games for a decade, is seen as a template for what these deals might look like.

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