Tuesday was a massive day of news for ESPN, with the company formally announcing its long-rumored (talks were “in advanced stages” in April, and a deal was reported in June) purchase of a 33 per cent share in Major League Baseball’s spinoff BAM Tech, plus making its longanticipated plans to launch an over-the-top service (but not one that includes content from ESPN’s TV platforms) official ahead of Disney’s earnings call. Compared to the past two quarterly earnings calls, this one was relatively good news for ESPN. Disney’s earnings and revenue both came in above analyst expectations, and despite subscriber losses, ESPN was generally an asset rather than a liability this time, as Yahoo’s Daniel Roberts writes:

This time around, ESPN did well. The network is part of Disney’s cable networks division and accounts for more than half of the division’s revenue, and that revenue was up 1% in the third quarter to $4.2 billion. The division’s operating income also rose 1% to $2.1 billion. Disney pointed specifically to ESPN as the source, adding that other parts of the cable networks division, not ESPN, held the division back from even better growth.

“The increase in operating income was due to growth at ESPN, partially offset by a decrease at the Disney Channels, lower equity income from A&E and lower Freeform results,” it said in a press release. “The increase at ESPN was due to affiliate and advertising revenue growth, partially offset by higher programming costs. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers and an unfavorable impact from foreign currency translation.”

So, there are definitely some good signs for ESPN here despite the subscriber drop (to a Nielsen-estimated 88.78 million homes, down from 90.98 million homes in February), and the long-anticipated launch of an over-the-top product available to those who don’t have cable subscriptions may be a further boon for them. However, it’s important to note that this won’t just be WatchESPN, as ESPN’s current over-the-top plans will focus just on ESPN3 content, not content available on the ESPN TV platforms. From their release about the BAM Tech acquisition:

BAMTech will also collaborate with ESPN to launch and distribute a new ESPN-branded multi-sport subscription streaming service in the future. The direct-to-consumer service will feature content provided by both BAMTech and ESPN, and include live regional, national and international sporting events.

Current content on ESPN’s linear networks will not appear on the new subscription streaming service. More details about the new service will be announced in the months ahead.

“Bringing a multi-sport service directly to fans is an exciting opportunity that capitalizes on BAMTech’s premier digital distribution platform and continues ESPN’s heritage of embracing technology to create new ways to connect fans with sports,” said John Skipper, ESPN President and Co-Chair, Disney Media Networks. “As WatchESPN continues to grow and add value to the multichannel video subscription, this new service will be an outstanding complement.”

Another interesting element here is that the BAM Tech valuation appears to have decreased. It was at $3.5 billion in June when ESPN was reported as buying a one-third stake, which would have been over $1.1 billion, but the price is now apparently down to $1 billion as per ESPN’s release. That seems like a very smart deal for ESPN, considering that BAM Tech is involved with streaming everything from HBO Now to the NHL, the PGA Tour and the WWE Network and that they already provide the infrastructure for Watch ESPN; it’s also notable that ESPN has the option to buy a majority stake in BAM Tech down the road. This does appear to link ESPN even more closely with Major League Baseball, though, and suggests they won’t be able to try saying they don’t want MLB contracts going forward.

As per ESPN’s standalone service, that will be a very interesting topic to watch as time goes on. It makes sense that they’re offering only a “WatchESPN lite,” as that’s what Disney executives’ public comments have suggested for some time,  but will cord-cutters and cord-nevers actually buy in for something that only offers ESPN3 content? We’ll see as time goes on. It’s notable that Disney stock still fell 1.3% after hours, despite seemingly-positive news from ESPN; that suggests that investors aren’t all that bullish on the company’s ability to keep growing despite declining subscribers. It will be interesting to watch and see if this over-the-top service helps boost the numbers of people ESPN draws revenue from, and if it can help turn around the narrative around the company.

[Yahoo Finance]

 

 

About Andrew Bucholtz

Andrew Bucholtz is a staff writer for Awful Announcing.