Showdown at ABC

Disney chief Robert Iger has turned his attention to his flailing network, ABC, and its president, Stephen McPherson, sources tell the Daily Beast’s Peter Lauria. Is a sale on the horizon?

Disney chief Robert Iger has turned his attention to his flailing network, ABC, and its president, Stephen McPherson, sources tell The Daily Beast’s Peter Lauria. Is a sale on the horizon?

The upcoming finale of Lost will be especially poignant for ABC Entertainment President Stephen McPherson. Not out of any affinity for the show—he famously fought against airing the science-fiction mystery—but rather because its ratings trajectory mirrors that of ABC in general, and McPherson in particular. Lost started out wildly successful—its largest audience came during its initial season—then declined.

With Disney Chief Executive Robert Iger garnering praise for his stewardship of the company, particularly an overhaul of the movie division, as evidenced by a glowing profile in The New York Times yesterday, three sources with direct knowledge of the situation say he will now focus directly on ABC and McPherson. Despite Iger’s insistence to the Times that he doesn’t feel a need to sell ABC, such a move, these sources insist, remains a possibility.

McPherson is famously abrasive and is universally regarded as one of the most disagreeable executives in Hollywood.

“There’s no growth at ABC, they are stagnating, and at some point you stop being able to live with stagnation,” says one former Iger colleague who talks with him regularly.

The numbers tell part of the story. In 2004, the year McPherson took the reins, Lost debuted, in lockstep with Desperate Housewives, Dancing With the Stars, and Grey’s Anatomy. ABC Entertainment broadcast revenue, which includes the ABC network, television stations owned by parent company and other items, jumped from $5.4 billion to $6.6 billion two years later. From there, however, revenue has steadily declined, and by the end of last year had retreated back to $5.7 billion, with another decline anticipated this year, as indicated by ABC News, which laid off 25 percent of its workforce.

Part of the story is also personal. Known as an intense competitor, McPherson is famously abrasive and is universally regarded as one of the most disagreeable executives in Hollywood. His has icy relationships with producers, talent agents, and even the stars on his own shows, and there are many people within the Magic Kingdom and outside its walls that would love to see McPherson fail. And that means that the pressure is on McPherson, known for expletive-laced outbursts and an inability to take criticism. McPherson and his boss, Anne Sweeney, are known to dislike each other—he thinks she’s a suit; she thinks he’s out solely for himself, those who know them say—and there’s little doubt that she would relish the opportunity to dismiss him with prejudice.

Iger, one of the few executives McPherson is known to get along with the two go biking together often—directly ran ABC in the '90s. He’s consistently opposed any suggestions about divesting ABC. But last month, in response to a question at Disney’s annual shareholder meeting about selling or spinning off ABC, Iger gave McPherson a vote of no-confidence, suggesting that all of the company’s assets were subject to strategic review based on operating performance.

Representatives for Disney and ABC declined comment.

McPherson proponents point out that he deserves credit for establishing a hit comedy night for ABC on Wednesdays. Modern Family is both a ratings and critical success, and that show has helped establish The Middle and Cougartown as solid ratings performers. “He reinvented the half-hour sitcom this year and got a new scripted franchise for ABC,” says a television industry agent who works with Disney.

Additionally, Castle has developed into a solid 10 p.m. drama, The Bachelor experienced a resurgence, and Dancing With the Stars has exploded anew, beating Fox’s long-dominant American Idol in total viewers for two straight weeks, the first time that has happened in five years.

But these successes mask the network’s deeper problems. ABC lost more total viewers than any other broadcast network from 2006 to 2009, and so far this year has seen the largest ratings decrease season-to-date when compared to the same time last year, according to a recent report from Horizon Media. The drop has been even more marked among the coveted 18-49-year-old demographic. ABC ranks dead last among the four broadcast networks in ratings for that demographic (inching past NBC if sports is factored out).

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Further, for every new success on ABC’s schedule, there is a corresponding failure. While Modern Family is a hit, Hank was an utter flop and quickly canceled. Castle scored with audiences but Eastwick did not. V has performed admirably, but even network insiders admit that Flash Forward hasn’t lived up to expectations.

Of McPherson, a friend who requested anonymity because of their personal relationship says, “He’s hit a couple singles and doubles, but television is a home run business, and everyone at Disney is waiting for him to hit the long ball.”

Perhaps that’s why McPherson has 27 programs in development for next season, according to the Horizon Media report, tied with CBS for the most of any network. He needs that one massive watercooler show to quiet the critics, of which there are many.

Realististically, Iger needs to give McPherson a bit of time. Buyers for ABC are extremely limited in the current financing environment. One option, says Caris & Co. analyst David Miller, would be transitioning ABC into a cable network. By doing so, in addition to advertising, Disney would create a second revenue stream for ABC in the form of carriage fees. But that process, Miller estimates, could take three years or more.

Meanwhile, in the short-term, speculation swirls, including rumors that former Lifetime CEO Andrea Wong, who ran alternative programming at ABC under Iger and who has a temporary office on the Disney lot, could eventually take over.

Insiders say that it remains McPherson’s job to lose. “As soon as someone gets the job as studio head, rumblings begin that they are going to get fired and they continue as long as that person has the job,” says an ABC insider. “People say that stuff all the time, but Stephen’s not going anywhere.”

Adds another source familiar with Iger’s thinking: “Stephen hasn’t had enough time yet to prove himself with both the network and studio under him. “He’ll be in place for another development season at least.”

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Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, Black Men, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.