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Walt Disney
faces several tough choices as CEO Bob Iger looks to get the stock moving in the right direction again. One area which needs more work is the long awaited launch of a full-scale streaming service for ESPN, which currently only broadcasts its most valuable content via pay-TV partners.
No one doubts that the launch will eventually happen. Iger reiterated the plan for the sports broadcaster to eventually pursue a complete direct-to-consumer model on the
Disney
(ticker: DIS) earnings call this week. However, the timeline and strategy are still unclear.
Disney doesn’t want to anger its pay-TV partners by launching the service too quickly and jeopardize the money it makes from offering ESPN as part of cable bundles. But delaying the switch for several more years could see it lose ground in the fast-shifting world of sports streaming.
One danger is that the sports leagues –which Disney is hoping might invest in ESPN– will move ahead with other streaming options in the meantime.
An example was on show this week as the National Football League said Thursday that it would show cable channels NFL Network and RedZone directly to consumers via its own NFL+ streaming service. It shows the NFL’s approach to diversifying among streaming services, which includes moving the NFL Sunday Ticket package from DirecTV to
Alphabet’s
(GOOGL) YouTube TV with a reported rights price of $2 billion a year.
Sports right have ballooned in value which is good for sports leagues, but there’s little incentive for them to bind themselves to ESPN and Disney could face a steeper price to eventually secure their content for its streaming platform. It also means the economics of the launch become more challenging.
Disney’s existing streaming service ESPN+ only offers limited live sporting events but not flagship NFL and NBA content. It is priced at $9.99 a month and had 25.2 million subscribers at the end of its latest quarter, down slightly from 25.3 million in the prior quarter.
Analysts at KeyBanc wrote in a recent research note that a survey showed the majority of consumers wouldn’t be willing to pay more than $10 a month for a pure sports streaming service. The KeyBanc analysts estimated an ESPN streaming service with 25 million subscribers would probably need to charge $33 a month to break even.
There are some ways to potentially supplement streaming income such as sports betting. However, Disney’s sale this week of exclusive rights to the “ESPN Bet” trademark to
Penn Entertainment
(PENN) for 10 years for $1.5 billion in cash and $500 million worth of stock warrants fell short of previous hopes for a sports-betting licensing deal.
Disney might be determined to hold onto ESPN but it doesn’t seem clear about how to take it forward successfully. That’s likely to be a drag on the stock for some time to come.
Write to Adam Clark at [email protected]
Read the full article here
