Do you have any thoughts on ESPN's reported affiliate fees of $7-9 a box per month? Aren't those a huge risk to Disney down the line as people cut the cable?
We need to break down ESPN between what it is today (or really what is was pre-ESPN+) and what it will become in the future.
Today, as I noted in the article, it's the primary driver of more than $25 billion in linear channels revenues. In a world where pay-TV subs decline at a low or mid-single digit annualized rate, they can hold the top-line through affiliate fee rate increases. That said, I think this system is likely to fall apart at some point in the coming years, which will require a meaningful transition.
That brings us to the future. As we're seeing this transition unfold, my read is that Disney, with ESPN and ESPN+ (really the U.S. Disney DTC bundle), is best positioned to not only maintain, but actually to strengthen its position in U.S. sports media rights. You can see companies like NBCU pulling back in a big way, which leaves Disney to pick up the pieces. It will take some time for this all to play out (you need subs, distribution, etc.), but Disney is already laying the ground work for this new world with their recent rights agreements (see the NHL, UFC, SEC Football, the MLS, other soccer leagues, etc.).
I think this is an important part of the Disney thesis, and one that most people see quite differently than I do. They view ESPN as a risk, whereas I see it as a key piece of the puzzle and a major opportunity over the long run. I should probably put together a post that lays out my thoughts in further detail.
Do their rights agreements allow users to view sports over streaming? I believe one cannot watch MNF on ESPN+. If users cut cable and got ESPN+ it would be a wash, but then again I don't even watch ESPN these days unless its a MNF or a good Sunday night baseball game. I really do wish I could cut the cord but need local TV provider (NESN) for the Red Sox. Combined with the recent Scarlett Johannson lawsuit, it looks like Disney is having these hiccups getting full DTC across all their media properties. I think in the long term it serves customers and Disney best to have a direct relationship but it seems like the legacy contracts and relationships with linear TV, theaters, other distribution is holding them back.
Sorry I love DIS but I have this inherent bias against ESPN after the whole Patriots Deflategate thing. Hopefully it hasn't been skewing my judgement as I've never made DIS a giant position even though I thought Iger's book was great. Since COVID I sleep at 8p and get up at 4a so I have some time to work before my kids wake up. Most of my sports consumption has been through highlights and MLB.tv condensed games. Cable is sort of useless except for live sports. ESPN has made me dread DIS puking ESPN subs; as operating leverage can really hurt going the over way. Between my wife/kids/myself our TV consumption is probably 40% Youtube Ad-Free, 20% Netflix, 20% Prime Video or purchases on Prime, 20% D+ (unless there's new Mando or Marvel series).
To your point, Disney will have to execute in order to command their fair share of user's time in this new world; there's A LOT of competition. But it's not just about content - it's about distribution and packaging (the U.S. Disney DTC bundle) as well. I think they've played their hand well so far. They will need to continue doing so in the years ahead.
Thanks again for the comment!
P.S. I'm a big Ravens fan. We've lost to the Patriots in big games on a number of occasions (as you know!), so it pains me to say this - Brady is the GOAT.
Yes, their rights agreements include streaming (Chapek at a recent analyst event: "That flexibility for us as we need to pivot towards a direct-to-consumer ESPN+ type platform has been an important component that we insist upon for each one of these deals."). On that point, I think it's important to consider how effective the combination of ESPN and ESPN+ can be for rights holders as they think about navigating this transition as well.
Do you have any thoughts on ESPN's reported affiliate fees of $7-9 a box per month? Aren't those a huge risk to Disney down the line as people cut the cable?
Hi Tony,
We need to break down ESPN between what it is today (or really what is was pre-ESPN+) and what it will become in the future.
Today, as I noted in the article, it's the primary driver of more than $25 billion in linear channels revenues. In a world where pay-TV subs decline at a low or mid-single digit annualized rate, they can hold the top-line through affiliate fee rate increases. That said, I think this system is likely to fall apart at some point in the coming years, which will require a meaningful transition.
That brings us to the future. As we're seeing this transition unfold, my read is that Disney, with ESPN and ESPN+ (really the U.S. Disney DTC bundle), is best positioned to not only maintain, but actually to strengthen its position in U.S. sports media rights. You can see companies like NBCU pulling back in a big way, which leaves Disney to pick up the pieces. It will take some time for this all to play out (you need subs, distribution, etc.), but Disney is already laying the ground work for this new world with their recent rights agreements (see the NHL, UFC, SEC Football, the MLS, other soccer leagues, etc.).
I think this is an important part of the Disney thesis, and one that most people see quite differently than I do. They view ESPN as a risk, whereas I see it as a key piece of the puzzle and a major opportunity over the long run. I should probably put together a post that lays out my thoughts in further detail.
Thanks for the thoughtful question Tony!
Do their rights agreements allow users to view sports over streaming? I believe one cannot watch MNF on ESPN+. If users cut cable and got ESPN+ it would be a wash, but then again I don't even watch ESPN these days unless its a MNF or a good Sunday night baseball game. I really do wish I could cut the cord but need local TV provider (NESN) for the Red Sox. Combined with the recent Scarlett Johannson lawsuit, it looks like Disney is having these hiccups getting full DTC across all their media properties. I think in the long term it serves customers and Disney best to have a direct relationship but it seems like the legacy contracts and relationships with linear TV, theaters, other distribution is holding them back.
Sorry I love DIS but I have this inherent bias against ESPN after the whole Patriots Deflategate thing. Hopefully it hasn't been skewing my judgement as I've never made DIS a giant position even though I thought Iger's book was great. Since COVID I sleep at 8p and get up at 4a so I have some time to work before my kids wake up. Most of my sports consumption has been through highlights and MLB.tv condensed games. Cable is sort of useless except for live sports. ESPN has made me dread DIS puking ESPN subs; as operating leverage can really hurt going the over way. Between my wife/kids/myself our TV consumption is probably 40% Youtube Ad-Free, 20% Netflix, 20% Prime Video or purchases on Prime, 20% D+ (unless there's new Mando or Marvel series).
To your point, Disney will have to execute in order to command their fair share of user's time in this new world; there's A LOT of competition. But it's not just about content - it's about distribution and packaging (the U.S. Disney DTC bundle) as well. I think they've played their hand well so far. They will need to continue doing so in the years ahead.
Thanks again for the comment!
P.S. I'm a big Ravens fan. We've lost to the Patriots in big games on a number of occasions (as you know!), so it pains me to say this - Brady is the GOAT.
Tony,
Yes, their rights agreements include streaming (Chapek at a recent analyst event: "That flexibility for us as we need to pivot towards a direct-to-consumer ESPN+ type platform has been an important component that we insist upon for each one of these deals."). On that point, I think it's important to consider how effective the combination of ESPN and ESPN+ can be for rights holders as they think about navigating this transition as well.