While The Walt Disney Co. continues to chart growth in sports streaming platform ESPN+, the bigger announcement for sports programming at its Dec. 10 investor event focused on the linear cable channel.
The company's larger streaming strategy took center stage for much of the four-hour meeting, but executives acknowledged that sports programming presented different challenges than general entertainment in the online distribution market.
Asked what it would take for ESPN to emerge as a stand-alone direct-to-consumer player over time, Disney CEO Bob Chapek deflected.
He called transitioning to direct-to-consumer in the sports arena "a much more complicated equation" because ESPN has to secure the content rights externally.
For now, Chapek said Disney believes its "hybrid model" is best. He acknowledged the "tilt" to streaming for ESPN is not quite as strong as with the company's direct-to-consumer, general entertainment and Disney+ businesses. However, he said, "it's still tilting, just not quite as aggressively because we don't think the time is right as a measurement of what would be right for our shareholders at this moment."
ESPN+ continues to grow and counted 11.5 million subscribers as of Dec. 2, with Disney now forecasting it will 20 million to 30 million subscribers by the end of fiscal year 2024. Early next year, ESPN+ will become available through the Hulu LLC interface, where subscribers can sign up and access the content within the Hulu app.
Meanwhile, network ESPN remains at the top of the traditional TV ecosystem as the most expensive basic-cable channel. Kagan, a research unit within S&P Global Market Intelligence, estimates that ESPN alone will drive some $7.34 billion in affiliate in annual affiliate fees in 2020, based on an average subscriber base of 80.1 million and an average monthly per-subscriber fee of $7.64. As to 2021, Kagan estimates that ESPN will generate just under $7.90 billion in affiliate revenue on an average per-monthly fee of $8.97 across 73.4 million subscribers.
The network will garner an estimated $2.08 billion in net advertising revenue in 2020 and $2.35 billion in 2021, according to Kagan.
ESPN is still "over-monetizing" in the 80 million pay TV homes that remain and does not have enough premium rights or economics to proffer a substitute product, wrote Moffett Nathanson analyst Michael Nathanson in a report following Disney's investor day. "At best, ESPN+ is complementary and, for now, that is how it is being managed."
ESPN+ offers an array of college sports, some MLB and NHL games, soccer matches, including MLS and Germany's top-flight Bundesliga, as well as Top Rank Boxing and UFC. The latter's pay-per-view cards have helped ESPN+ pin new subscribers.
At the Dec. 10 event, Jimmy Pitaro, chairman, ESPN and Sports Content, highlighted the service's upcoming PGA Tour Live coverage, which will tee up four live feeds covering up to eight groups per tournament.
Pitaro also told investors that ESPN+ would be adding an exclusive daily morning highlights program, recapping the previous night's action through the lens of opinion, debate and social media. Stephen A. Smith, the "First Take" star and ESPN personality, also will be featured on a new studio show on the streamer.
The major sports announcement at the Dec. 10 investor day event, that ESPN (US) will have full rights to the powerful Southeastern Conference football package as of the 2024-25 school year, fortified the company's linear position. ABC (US) will also assume a prominent role in airing the SEC games alongside ESPN.
"Heading into the event, we did not expect Disney to go rogue and announce a new unbundled ESPN service to better serve the 30 million broadband-only homes or to blow up the theatrical window a la Warner Media," wrote analyst Nathanson. "We had heard that some investors were hoping for this and we just don't understand why this is a smart strategy at this moment in time."
The SEC deal will include an element of streaming. Beginning with the 2021-22 school year, ESPN+ will have the rights to stream as many as 14 nonconference football games and up to 20 nonconference men's basketball games annually. But the most important aspects of the pact, valued at a reported $300 million annually, calls for ABC in 2024 to move into the Saturday 3:30 p.m. ET slot currently held by CBS (US) and also allows for contests to air in ABC's Saturday prime-time window. Disney's broadcast network will also televise the conference title game.
Extending through 2034, the deal is co-terminus with a separate 20-year contract that provides more than 1,950 SEC games each year across the conference's 21 sports on ESPN networks and SEC Network.
The SEC Network, according to Kagan, will average some 55 million subscribers and $567.3 million in affiliate revenue this year and $530.9 million in 2021 from 50.2 million subscribers. Net ad revenues are estimated at $26 million and $24.8 million, respectively.