Leave it to Netflix (NFLX 0.73%) to turn what could've been a buyout fit for a short movie treatise into a drawn-out, binge-worthy series. The $72 billion deal for Warner Bros. Discovery (WBD 1.37%) -- that's closer to $83 billion when you tack on the assumed debt -- is still not a sure thing to close later this year.
There are antitrust hurdles for Netflix to clear here, along with potentially higher ones in Europe. Being a global juggernaut can sometimes be a curse. There's also Paramount Skydance (PSKY 1.36%) waiting in the wings.
With so many ways for this deal to die, should Netflix start thinking of a consolation prize? Would it make sense for the world's leading premium streaming service to turn to Disney's (DIS 1.45%) majority-owned ESPN if its nuptials with Warner Bros. Discovery fall apart?
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When you wish upon a star ... athlete
Before diving into the potential pairing, let's break down the ESPN ownership question. Everyone assumes that it's a Disney property, and it is, but Disney isn't the only stakeholder. Until last week, Disney owned 80% of ESPN. Privately held media mogul Hearst Broadcasting previously owned the remaining 20%. The pie slices were recut last week, after ESPN completed the sale of a 10% stake to the National Football League. Hearst now owns 18%. Disney continues to have a controlling but smaller 72% stake.
Why would Disney be willing to sell its majority stake in the leading brand for sports programming? Let's start with the burden of ownership. Fans love live sports, but it's a different world at the other end of the business. Networks are bidding against rival broadcasters and a growing number of streaming services for costly rights that increase each year, ahead of an even pricier renewal.
Disney can control the costs and capital expenditures of its theme park operations, studio productions, and content catalog. There is less wiggle room in sports, where it's at the mercy of boosting its monetization year after year.
Of Disney's three operating segments, its ESPN-helmed sports business is its laggard all the way down the income statement. Sports accounted for less than 19% of the $94.4 billion in revenue generated in fiscal 2025, and an even more problematic 16% of its segment operating income. In its latest quarter, sports posted a mere 1% year-over-year top-line increase on a 25% slide in segment operating profit. Cutting ESPN loose would immediatley improve margins. Would it really be missed if Netflix is willing to pay the same kind of juicy premium that it's now willing to shell out for Warner Bros. Discovery? After all, it's paying three times what that business was worth a year ago. Let's also not forget that Josh D'Amaro will become Disney's new CEO next month. No one should be surprised if he makes some defining signature moves.
Disney has an ecosystem that is the envy of media stocks. A big film can be leveraged into a theme park attraction and a Hulu series. Sometimes, even a classic Disneyland ride becomes a hit movie franchise and a successful consumer products line. Where does sports fit into the mix? What's the replay value of a great game? ESPN is a vanity plate. It's not really part of the engine.
NASDAQ: NFLX
Key Data Points
Netflix could ... go ... all ... the ... way
Premium digital video platforms are investing big in live sports. It's an arms race, and no one has bigger arms than Netflix. It has programming costs that it can divide among its 325 million paid subscribers.
The company is making big bets on live sports. It's been the exclusive provider of NFL games on Christmas since 2024. WWE Raw is broadcast live every week. If Jake Paul is throwing a punch -- or taking one -- it's probably happening on Netflix.
Whether Netflix would simply continue Disney's blueprint of offering ESPN over the top as a standalone service or send its namesake service to the stratosphere by taking on the live contests, Netflix has a lot to gain for a platform that can be had for roughly half of what it's willing to pay for Warner Bros. Discovery. If the current deal falters and Paramount or someone else wins the prize, it will be hard for regulators to deny Netflix this consolation prize, which would likely reduce content costs for consumers.
Netflix stock has tumbled since it tossed its hat into the ring for Warner Bros. Discovery. If it throws in the towel, the market may reward a smaller play for ESPN that would make its flagship offerings more differentiated. Netflix is serious about getting into the game of games. One deal takes it to the winner's circle.
