Disney’s ESPN Network is going direct-to-consumer

Disney’s ESPN network is going direct-to-consumer, and CEO Bob Iger reaffirmed Wednesday that it’s “not a matter of if, but when,” as the company explores various potential strategic partners.

Disney and ESPN made headlines earlier this week when it inked an exclusive 10-year licensing deal with casino company Penn Entertainment, allowing it to use the ESPN branding to launch online sports betting brand ESPN Bet. Penn is operating the sports book and paying $1.5 billion to use ESPN’s name, marketing and talent, along with the option for ESPN to buy Penn stock. Disney believes there’s an opportunity to significantly grow engagement with ESPN viewers, via the Penn partnerships, particularly young consumers, Iger said this week.

On Disney’s quarterly earnings call Wednesday Iger also reiterated the inevitability of ESPN’s flagship linear channels going to DTC, saying “the team is hard at work looking at all components of this decision, including pricing and timing.”

There has been several earlier reports on the linear ESPN channels DTC move and how it could be approached. Iger tells CNBC that the company was searching for a strategic partner in the shift to streaming, potentially offering an ownership stake.  That includes reported early talks with leagues themselves as well as potential interest from tech and telecom players. It’s also been reported that ESPN will create a streaming sports hub as a destination for all live sports.

This week as Disney reported fiscal year 2023 Q3 results, Iger confirmed that the company is looking for strategic partnerships across distribution, technology, marketing, and content opportunities “where we retain control of ESPN,” citing notable interest “from many different entities.”

The chief executive also pointed out that ratings continue to climb on the main linear ESPN channel even with accelerated cord-cutting.

“This rating strength creates tremendous advertising potential across the board,” Iger said. “Our total domestic sports advertising revenue for linear and addressable is up 10% versus the prior year adjusted for comparability, which speaks to the fact that the sports business stands tall and remains a good value proposition.”

In Disney’s latest quarterly results domestic linear advertising was down year over year though ESPN-specific ad revenue grew by 4%. ESPN ad sales for the current quarter to date are pacing down, which executives attributed in part to the absence of Big Ten programming.

Overall Disney’s linear networks marked revenue declines in the quarter, dropping 7% year over year to $6.7 billion. Operating income also decreased by $580 million (or 23%) year over year to $1.9 billion, including declines in both cable and broadcast domestically.  

However, it’s worth noting that streaming doesn’t bring the lucrative carriage fees that Disney receives from traditional distributors per subscriber for including ESPN in their cable or satellite lineup, even if those pay TV customers don’t watch the channel. But as cord-cutting continues that also means fewer linear subscribers and related revenue.

Iger during the call acknowledged that Disney “benefited greatly from the distribution support in the old business model from cable and satellite,” whereas DTC can be more of a go-it-alone play, but noting there could be opportunity for another party to help to that front. The company is “extremely encouraged” by the interest it’s had already, he said.

According to Iger, the strategic partnerships that Disney looks to build and is in discussions over, are aimed at: One, increasing the content ESPN offers, and two, potential distribution and marketing support.

News Source: Streaming Broadcaster