ESPN to Go Direct to Consumers by 2025, Iger Says
While the cable bundle continues to pull a George Costanza, with subscriber counts shrinking to new lows with each passing month, ESPN is enjoying a bit of a growth spurt. The brand’s stateside operations, which account for nearly 90% of the Walt Disney Co.’s overall sports business, generated $3.46 billion in revenue in the quarter that ended Sept. 30, good for a 1% year-over-year lift. Domestic operating income came in at $987 million, good for a 16% increase versus $850 million.
Speaking to investors on the company’s fourth-quarter earnings call Wednesday evening, Disney CEO Bob Iger said that “building ESPN into the preeminent digital sports platform” is one of four key opportunities for the Mouse House.
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“We are already moving quickly down this path,” Iger said, before reiterating remarks he made this summer regarding Disney’s search for one or more strategic partners for ESPN. While much of the focus has been on firming up an alliance with Big Tech (read: Apple, Amazon), the company also has had talks with the top sports leagues.
Iger did not provide any further detail regarding these conversations, saying only that Disney is looking to reinforce ESPN’s core strengths as it begins readying a shift to a direct-to-consumer universe, a transition he said will happen sometime in 2025. “Basically. as we prepare to take ESPN in a DTC direction, we believe we have opportunities to strengthen our hand with entities that can provide technology support, marketing support or more content,” Iger said. “We’ve engaged in conversations with a number of different entities, and I can say that there’s considerable interest. I imagine we’ll have more to say in the coming months.”
The launch of a standalone DTC platform does not spell doom for the linear TV business; in fact, domestic revenue and operating income have grown in each of the last two years, despite the ever-dwindling pay-TV bundle. In keeping with its quarterly financial growth, ESPN in this fiscal year delivered its highest ratings in four years.
As was demonstrated by the compromise Disney hashed out with the cable giant Charter/Spectrum earlier thus fall, ESPN isn’t going to disappear from your cable lineup overnight come 2025. Iger said the legacy network will continue to be available as part of the traditional bundle, while the DTC service will be offered “on a true a la carte basis.” In other words, the disruptive asteroid strike may be inevitable, but it’s not going to kill all the dinosaurs at a stroke in order to give rise to the eventual ruling class of digital mammals.
Among Disney’s other objectives is to make its streaming unit profitable by the end of 2024. Streaming losses narrowed to $387 million from a loss of $1.41 billion in the prior-year period, although growth of the ESPN+ platform is slowing down considerably. Per Disney’s 10-K filing, ESPN+ now boasts 26 million paying subs, up just a touch versus 25.2 million.
Linear advertising revenue at ESPN was up 1% year-over-year, while affiliate revenue dipped 5% as higher rates were offset by subscriber declines. As noted on the call, sports rights now account for 40% of Disney’s overall content spend.
While he did not give an explicit read on the fate of some of the company’s other linear networks, Iger appeared to change course on his earlier musings on a possible sale of the ABC broadcast network. The exec said Disney would “continue to evaluate options for each of our linear networks,” before adding that “significant long-term cost-cutting opportunities have arisen” at the TV division. At least for the near term, an ABC sale now seems unlikely, especially in light of the lift the broadcast network has given the Monday Night Football franchise.
As Iger noted during the Q&A session, Disney will have more news to impart regarding its foray into partnerships at a later date. The smart money’s on a tech tie-up rather than bringing a league into the fold, as the latter arrangement would be rife with conflicts of interest. As Iger noted, the strength of ESPN “relative to the backdrop of notable industry declines,” demonstrates the intrinsic value of sports and the 44-year-old brand itself.
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