O, October, the sports fan’s greatest month! How may we celebrate your many gifts? Baseball playoffs are underway, college and pro football are sorting the contenders from the pretenders, and the NHL and NBA are just starting their endless seasons. It’s Peak TV: Sports Edition.
And right in the middle of it all is Disney-owned ESPN, sitting on huge rights deals in all those major sports, and more besides. Most nights, especially here in October, the channel features at least one live primetime sports event, and usually far more, running across multiple linear channels plus its anemic ESPN Plus direct-to-consumer app.
Also read: Disney Gets Monday Night NFL Wild Card Game for ESPN, ABC
For most of the past 30 years, ESPN has been one of the Mouse House’s biggest profit centers. It’s both basic cable’s must-have basic-tier service, and its most expensive, generating nearly $10 a month for Disney from all those 70 million or so remaining U.S. cable households out there, according to research firm Kagan.
That eye-popping revenue is around four times the per-sub take for any other national broadcaster or cable network, Kagan said. Importantly, it’s also more than double Disney’s monthly per-sub revenue from ESPN Plus. Disney execs must stare across that big and painful revenue delta as they ponder what’s next for their sports cash cow.
Also read: NFL Offer of 'Sunday Ticket' Streaming to Non-DirecTV Subscribers Just an 'Error,' DirecTV Says
Worse, the best way to make ESPN Plus worth more to viewers (so Disney can charge more) is to add more live sporting events. Move too fast to make ESPN Plus more like ESPN, and Disney will tick off cable operators paying for exclusivity. Not incidentally, it will further hasten the decline of the linear bundle and ESPN’s enterprise value.
ESPN is far from the only sports provider locked in what I’ll call Time Machine Transition, trying to move from the stable sinecures of its cable past to the uncertain potential of its DTC future.
Sinclair’s clutch of Bally’s-branded regional sports networks are being cobbled into a Nearly National Sports Network, an aggregation of more than 40 pro sports franchises streaming direct to consumers beginning next April, for a reported $23 per month. What does the Bally’s NNSN do to its RSN cable deals? What does it mean for ESPN/ESPN Plus subs and pricing?
Fox Sports 1, the What’s Left of Rupert’s sports empire after he sold his regional sports networks in the Fox-Disney mega-deal, is also locked in linear amber, with less appetizing DTC prospects. Might it become a premium tier on Tubi, which is adding a lot of lower-value sports programming already?
The NFL, meanwhile, is seeking a strategic partner for its NFL Sunday Ticket, NFL Network, RedZone and digital media properties. The NFL provides traditional TV with its most popular programming, so crucial that the Big Four broadcasters willingly paid double to re-up their deals in last summer’s rights negotiations.
But as analysts LightShed Partners pointed out in a recent end-of-summer post, the NFL’s owned-and-operated media properties surely will not remain linear forever.
“While NFL ratings are holding up better on linear TV than any other sport or entertainment content, the underlying TV business is shrinking,” wrote LightShed’s Rich Greenfield, Brandon Ross and Mark Kelley. “If the NFL wants to lean into the future and grow its reach, it needs to shift its digital assets to streaming. There should be an entire world built around pro football, original content, sports betting, merchandise, tickets, etc., not to mention incorporating college football.”
They posit a purely digital NFL product partnered either with a big media company (ESPN/NBC/Fox) or sports gambling book (DraftKings/FanDuel). One other possible NFL partner is Amazon, which just spent $11 billion for Thursday Night Football rights and has a sports-minded new CEO in Andy Jassy who’s also minority owner of Seattle’s NHL expansion franchise.
We can see a glimmer of that future in the five-year deal announced Wednesday between ESPN and the NFL that creates first-ever Monday night playoff games involving wild card teams. The Wild Card Monday night telecast starts Jan. 17, and also will stream on ESPN Plus, with running commentary there from Los Bros. Manning, Eli and Peyton (who, it’s worth noting, aren’t bothering to do their uneven but wildly popular schtick on the Plus during a string of boring mid-season matchups).
Disney will be making long-term decisions like these at a complicated time, and not just because of the pandemic’s crushing initial impacts on its parks, resorts and cruise line. Corporate savant Bob Iger retires as chairman at year’s end, finally removing his looming presence over successor CEO Bob Chapek. A host of other senior execs from the Iger era are also heading out by year end, including long-time Studios Chairman Alan Horn, who just announced his retirement.
Wall Street hasn’t been as enamored of the company since share prices peaked in March over the continued rise of Disney Plus. Since then, share prices have been mostly flat, and dove notably when Chapek warned at an investor conference that Q4 subscriber growth is likely to be in “the low single-digit millions.”
In response, Wells Fargo analyst Steven Cahall cut the company share-price target 6 percent amid what he called a “reset” in streaming subscribers. To be sure, Cahall remains bullish on Disney, but that bull is ambling, not charging.
The challenge facing the NFL is almost exactly the one facing ESPN. Indeed, LightShed analysts suggested Disney spin off ESPN and ABC into a separate unit while they still have considerable market value.
And reports still circulate that Disney is seeking a sports-book sponsoring partner for ESPN, for a mere $3 billion. Sports gambling is so superheated right now, with multiple players spending heavily for market share, that it’s possible some one will actually pony up. Certainly, Chapek’s voiced far more positive comments about gambling tie-ups than did Iger, who worried about mixing gambling with Disney’s family-friendly brand.
ESPN’s other challenge is whether it can actually appeal to audiences beyond its U.S. base. Unlike other streamers, which can drive growth by opening localized operations around the globe, the “Worldwide Leader” is ironically likely to find a lot less international interest in much of its sports portfolio.
Baseball is a regional sport (few watch teams outside their backyard), with an international appeal that’s limited to parts of East Asia, Mexico, the Caribbean, Central America and the northern tier of South America.
The NFL may rule U.S. airwaves, but years of London games have yet to make the sport more than a stubbornly North American phenomenon. And nobody elsewhere cares about the Alabama and SEC, much less other college football.
The NBA has the broadest international appeal, and can travel well, but the NHL can’t even get ESPN sports radio hosts to talk about it most days. That’s hardly a recipe for a globe-girdling Netflix-style expansion.
A spinoff and jump to DTC seems unlikely in the short term, but ultimately inevitable.
Cord-cutting means ESPN keeps getting smaller, even as it clings to its past. How much longer can Disney squeeze its golden goose before those eggs turn to tin? Given the cost of all those sports rights deals, what price would a DTC ESPN need to charge to sustain itself? Would sports fans gulp, and pay up?
I’ve already written about the uncertainties facing Hulu, both Disney’s most lucrative DTC offering and its most in transition, especially after President Kelly Campbell decamped two weeks ago to a similar gig at Comcast’s Peacock. Indeed, Chapek has much to resolve there too.
But in terms of Disney’s long-term profitability, Hulu is nice, while ESPN is essential.
Perhaps Chapek, freed of the Iger regime’s lingering presence, will figure out exactly the right time to yank the DTC rip cord, sending ESPN soaring into its future, freed of cable’s earthly chains and perhaps further buoyed by a lucrative sports book deal. Then maybe investors can justify rejoining the ESPN team.
