In July, ESPN revealed it has been on the hunt for a strategic investor, one that could help it transition to a direct-to-consumer platform. That search could soon be over, with Walt Disney CEO Bob Iger telling investors this afternoon, “I imagine we will have more to say about this in the coming months.”
During that call, Iger identified technology companies and sports leagues as the most likely candidates to ink a deal.
“We believe we have an opportunity there, as we bring it in the direct-to-consumer direction to strengthen our hand when we do that by partnering with either tech companies that can provide us with marketing, technology support, customer acquisition help, or sports leagues that can provide us with more content,” Iger said. “It’s that simple.”
Iger described the talks as going well and characterizing market interest as high. Whether sports leagues would want to get into bed with ESPN is unknown. Leagues like the NFL and NBA have multiple media partners, so buying equity in one could reshape those relationships. And the leagues already have their own media organizations that compete with ESPN for viewers.
Securing an investor for ESPN is not critical, Iger added, because Disney is fully capable of taking the sports channel DTC on its own.
“There are obviously complexities to it but not complexities that are hurdles that are so high that we can’t jump over them,” Iger said. “And we’re going to continue to explore it.”
Questioned about the travails of the regional sports channel universe, Iger notably did not rule out a DTC ESPN securing local media rights.
“The technology that we will have for ESPN DTC will give us the ability to provide local sports in a pretty robust way, basically, what the RSNs are doing, but we’re not really aiming to do so by taking on significant risk,” Iger said. “So if we can find the right kind of business arrangements and partnerships, I think we will look very seriously at providing local sports as part of that platform.”
Iger did not put a deadline on when ESPN DTC goes live, but he did clarify that ESPN’s linear business will not go away. While the cable bundle universe has declined from a peak above 100 million subscribers to less than 70 million today, it still serves a big market.
“Our plan when we bring ESPN direct to consumer, which is inevitable, which is going to happen and we’re planning for it, is to try to have what I’ll call a soft landing, which is continuing to make it available as part of the bundle for those people that want to remain in the bundle or people who feel that the bundle still has value to them,” Iger said.
The economics of the cable bundles obviously will change when the sports ESPN shows are not exclusive to the linear platform. That would suggest a steep subscriber fee for a DTC ESPN to compensate for lower subscription fees from cable distributors. Also, sports channels like ESPN are the glue holding the bundle together, so it remains to be seen whether it can survive when fans have the option of getting ESPN digitally.
Currently, ESPN’s streaming platform is ESPN+, which shows sports not aired on linear channels. Subscribers to the streaming outlet grew 800,000 from July 1 to 26 million on September 30, according to Disney’s earnings release. Disney’s streaming business, which includes Hulu and Disney+, lost $420 million in the most recent quarter, down from a $1.4 billion loss in the same quarter of 2022. Iger projects digital break even next year.
The Disney earnings report is the first to break out ESPN’s financials as a separate business. The network had revenues of $3.455 billion in the most recent quarter, up 1 percent from the year-ago period, while operating profit rose 16 percent to $987 million.
Iger clearly is bullish on the future of ESPN despite the linear world’s troubles and the uncertain profitability of streaming platforms, pointing out that the cable channel is the number one brand on TikTok. “With about 44 million followers, which is an incredible statistic, ESPN is a very popular, high demand and in-demand product in the United States,” Iger said.
