Anna Nicolaou and Alex Barker of the FT digging into the ESPN component of Disney’s content picture:
The ESPN cable channel has been shedding viewers for years, with signed-up customers down to 80m on average this year from 90m in 2016, according to the data group Kagan. Last year, Mr Iger and Mr Mayer discussed moving some of ESPN’s popular sports programming to its streaming service as early as 2022, after the expiry of licensing contracts requiring games to be broadcast on ESPN’s cable channel, according to people familiar with the talks.
Adapting sports to streaming is particularly punishing because media companies have to pay hundreds of millions of dollars every few years for the broadcast rights to games. Prices have risen as broadcasters such as Fox and NBC have looked to compete with ESPN, locking the network into a costly, rigid business model that would be difficult to convert.
“When they did those deals, they did not anticipate ESPN would go from 95m subs to 80m,” said a former senior Disney executive. “In the long term it created a real question about how ESPN can be profitable.”
The writing for all of this has been on the wall for quite some time — I wrote about “The 9 Bullet Points of Doom for ESPN” over five years ago, for example — but it has been a slow bleed (which Disney/ESPN has tried to alleviate with layoffs and continuing to purposefully shed expensive talent).
The biggest news for ESPN out of Disney’s most recent announcements was the addition of SEC football (taking the contract from CBS). But that’s not even until 2024. And that’s for the core channel (and ABC), not ESPN+, the streaming option. The biggest news there was probably a new Stephen A. Smith show (or the new Mighty Ducks movie — lol) — no actual sports content bombshell, yet.
To match its cable profits, ESPN Plus would need to be priced at $40-$45 a month, according to the former chief executive of one streaming service who warned that “there is not a spreadsheet in the universe that gives you similar economics to pay TV”. In the latest quarter ESPN Plus reached 10m subscribers who paid on average only $4.54 a month.
And that’s why. There’s currently an order-of-magnitude chasm to cross with regard to price. Five years ago, analysts were saying a streaming ESPN with sports rights would probably cost $30/month. As I wrote at the time:
It puts the onus on Disney/ESPN to figure out their cable-less model. And because they’re making so much from the cable status quo, the numbers ain’t pretty. Needing to charge $30/month may be an understatement. Remember, it’s not the norm for these stand-alone services to have the same level of advertising that television does. The kids may not stand for it.
The price keeps going up. And will likely keep going up. Which means we’re not going to see the streaming of all major games any time soon. There will be an increasing number of one-offs (as Amazon and others have done), but they’re more about testing the waters (on both sides).
The math will likely never work unless there’s a fundamental re-thinking and re-structuring of the current contracts. Per above, Disney/ESPN are thinking about it and trying to figure out a way to make it work, but it’s hard to see how they fully get there. It may take Amazon or another non-legacy streaming deciding the cost is worth it for ancillary benefits. The worldwide loss-leader in sports, as it were.
