A subsidiary is a company that is majority-owned by another company. The owning company, called a parent, can be a functional business selling its own products and services. It could also be a holding company whose primary purpose is owning other businesses.
Holding Company
Of these options, the subsidiary relationship provides the most balanced blend of influence and protection for the parent. A majority owner deeply influences the subsidiary's leadership team and decision-making. However, because the subsidiary remains legally independent, the owner is also insulated from the subsidiary's losses and legal issues. Mergers do not provide this separation of risk.
Buying a subsidiary is also easier, faster, and cheaper than a merger.
Disney and ESPN
Disney acquired the ABC television network in 1996. ABC, in turn, owns 80% of ESPN. Media company Hearst Corporation owns the remaining 20%.
ESPN operates separately from Disney with its own leadership team headed by CEO Jimmy Pitaro. However, Disney reports consolidated financial statements that include ESPN results. Disney also breaks out key ESPN metrics and shares the sports network's strategic highlights in its own earnings calls.
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For the quarter ending March 30, 2024, Disney reported ESPN revenue of $4.2 billion and operating income of $799 million. Disney also announced that ESPN will launch a standalone streaming channel in 2025. Disney currently offers ESPN+ within a bundled streaming package that also includes Hulu and Disney+. The new standalone ESPN is expected to be part of the Disney+ bundle.
Although subsidiaries are legally separate from their parent companies, they often collaborate. The use of ESPN programming within Disney-branded services is an example of product collaboration and synergy between parent and subsidiary.
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