Thursday, August 10, 2017

Report: Disney's Streaming Service Could Be A Game-Changer

The Walt Disney Co. finally unveiled its plan to offer an over-the-top video streaming edition of ESPN for the growing number of fans who want live sports — but not the big cable bill that a previous generation paid.

The LA Times reports the question now is whether the revenue generated by the new service to be launched in 2018 will be enough to offset the subscriber dollars that go away every time a household decides it can do without cable. It may take a few years for that to happen, but the consensus in the sports TV industry is that Disney could not afford to wait any longer to find out.

While ESPN continues to be a significant profit center for Disney, the migration of viewers to streaming continues to cut into the revenue it receives from pay-TV providers.

Disney this week reported a 22% third-quarter drop in operating income in its media networks unit, which houses ESPN and ABC. Within the cable networks group, which includes ESPN, segment operating income was down 23% to $1.46 billion. Disney attributed the drop-off, in part, to higher programming costs — including $400 million toward a new NBA TV contract — and lower advertising revenue at ESPN, which fell 8% in the quarter due to smaller audiences.

Every household that decides to cancel its pay-TV subscription means less revenue for ESPN, which commands the highest carriage fees of any network — commanding around $7 to $8 out of every monthly cable bill, according to SNL Kagan. In other words, cable and satellite TV companies pay ESPN about $8 a month for every household that receives the sports channels.

ESPN was in 100 million cable and satellite households in 2011. It’s now at 87 million households, according to Nielsen data, as streaming video has become a way of life for the current generation of TV viewers, many of whom are foregoing a pay-TV subscription.

The new ESPN over-the-top offering meant to appeal to streaming video users will not be the same channel that cable subscribers currently receive. It will be a separate service available through the ESPN app and offer access to thousands of live events from Major League Baseball, the National Hockey League, Major League Soccer, Grand Slam Tennis, and various college sports organizations.

But the service could become more robust over time. Walt Disney Chairman Bob Iger said the company will have the ability to deliver the ESPN channels directly to viewers if the number of pay-TV subscribers continues to deteriorate, but indicated there would be an impact on the revenue it receives from cable and satellite providers.

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