Disney CEO Bob Iger has promised in every earnings call this year that ESPN will soon go “direct-to-consumer,” making the cable TV sports channel finally available as a standalone streaming product.
But tinkering with ESPN is a delicate matter given that it accounted for one-third of Disney’s operating income in the most recent quarter. On Wednesday, Iger likened it to a “soft landing” and outlined how he intended to position ESPN to capture digital dollars without blowing up its existing TV business.
“Our plan for when we bring ESPN to direct-to-consumer is to have a soft landing,” Iger said in a conference call. “We’ll continue to make it available in the [pay-TV] bundle and make it available in a true, a la carte basis in its DTC form.”
As consumers increasingly cancel their cable subscriptions in favor of streaming services, legacy media companies with television businesses are shifting content to meet consumers where they are at. For Disney, that has meant staking billions on a collection of streaming services consisting of Disney+, ESPN+, and Hulu—a joint venture with Comcast that Disney said last week it would acquire in full. Disney said on Wednesday that it will start testing a combined Hulu and Disney+ streaming app in December, with plans to launch it in early 2024.
While Disney's current ESPN+ offers a limited a selection of online sports content, the forthcoming direct-to-consumer ESPN streaming service is expected to be far more comprehensive, including the live sports available on cable TV.
Iger has said shifting ESPN from its traditional television channel to a direct-to-consumer product is not a question of “if” but “when.” While that may be the case, Iger’s comments suggest Disney isn’t ready to give up its linear business any time soon. When Disney launches the streaming platform, “We’ll see where we end up in the blend of consumers that stay in the bundle and those that leave,” he said. “As we model ESPN into the future, we see that in some cases, it’ll continue to be sold as part of the bundle.”
Because ESPN's linear TV business generates significant ad revenue, the transition to a standalone streaming service carries significant risk, as media analyst Brian Wieser wrote in his Madison and Wall newsletter Wednesday following Disney's earnings report. "If ESPN becomes primarily available to subscribers who pay for it a la carte, then presumably this would mean fewer casual fans would watch ESPN’s programming, reducing the relative value of the network as an advertising vehicle," Wieser wrote. On the other hand, he said, if ESPN's overall reach can surpass rival services, then "it could still fare almost as well in the future as an advertising platform as it does now."
The challenge of getting the balance right may explain Iger's desire to strike strategic partnerships before launching the standalone ESPN product. The Disney CEO said that the company has had talks with various potential partners, including sports leagues that could provide additional content, and technology companies to help with marketing and customer acquisition.
Disney’s stock popped in after-hours trading following its earnings report, selling up 3% at $87 per share. The company reported better-than-expected profit and subscriber numbers, as well as an aggressive cost-cutting plan that pleased investors. Its quarterly revenue of $21.2 billion fell short of analysts’ expectations.
“If we were to sit back and leave ESPN alone as part of the linear bundle, we know certainly where that would bring us,” Iger said during the call. “It certainly wouldn’t bring us in the growth direction.” Revenue for Disney’s linear television business decreased 9% year-over-year, its fourth quarter earnings report shows. ESPN revenue is up 1% from the same time last year.
