https://www.marketwatch.com/story/disneys-approach-to-streaming-espn-could-determine-the-future-of-television-2018-05-08
Opinion: Disney’s approach to streaming ESPN could determine the future of
television
Jeremy C. Owens
The Walt Disney Co. could break the cable bundle completely. Instead, Disney is
going to collect some of the money that runs through its channels while
building streaming ammunition in case a war with the bundlers ever happens.
That is why the recent launch of the ESPN+ streaming service in a new ESPN app
are important in the continuing transformation of how video content is
consumed. It is the first step in Disney’s role in supporting and helping
solidify a new normal for how we will interact with our televisions: Taking the
additional targeted “tiers” and other goodies that cable companies have
traditionally offered and selling them directly to consumers in separate apps.
In the traditional cable system, companies like Comcast Corp. would sell
consumers a base collection of channels, then offer smaller bundles aimed at
specific interests, such as sports, for additional monthly fees. The content
providers who produced the channels were paid, which made Disney—and especially
ESPN, with more than a half-dozen channels that could be the base of additional
sports tiers—a monster money machine.
As consumers have moved away from the bundle and toward ad-free streaming
services like Netflix Inc., ESPN has lost subscribers just as the price of live
sports content has skyrocketed, because fans will watch games live and stomach
the commercials that come with it. That squeeze from both sides—lower revenue,
higher costs—has damaged Disney’s stock price, but not enough for Disney to go
nuclear with a streaming ESPN option that would forego the billions it collects
from cable companies.
Instead, we have reached a middle ground. Cable companies and other providers
are offering “skinny bundles,” mobile-friendly packages that offer fewer
channels at a lower price. While many of those offer the same additional tiers
as their larger predecessors, consumers are instead supplementing with Netflix
or other streaming services, most of which are not the traditional content
providers like Disney.
Disney has decided that a system of smaller bundles and outside additions is
the future, buying a majority stake in streaming-technology company BamTech to
deliver its own on-demand services. The first offspring of that marriage is
ESPN+, which will be followed next year by a Disney offering that includes
popular content that will eventually be removed from Netflix.
While the ESPN+ that Disney announced ahead of launch mostly comprised sports
and content that subscribers already had access to, it is rapidly growing with
the addition of niche sports and targeted studio shows. The plan feels similar
both to ESPN’s beginning as a cable network in the early 1980s—when sports like
lacrosse and low-budget studio shows were the norm—and the approach on its
website, which parcels out the wonkiest content for hard-core fans into a
subscription plan called ESPN Insider.
At a media event in Oakland, Calif., just after the launch last month, ESPN
executives stressed that ESPN+ was a work in progress, with plenty of plans for
studio shows and new deals aimed at these niche fans. They especially played up
deals for boxing, American soccer leagues and cricket, and discussed potential
additions of more content.
ESPN proved executives weren’t blowing smoke Tuesday morning with the biggest
addition to ESPN+ yet. The company landed a five-year deal with UFC, the mixed
martial-arts league that has devoted followers, for 15 fights and an assortment
of series and studio shows to be aired on ESPN+. Most important, it will
include the rights to sell pay-per-view fights, an additional avenue for ESPN
to collect viewers’ money.
Disney Chief Executive Robert Iger had previously hinted that ESPN+ could move
into pay-per-view for specific events, but UFC will be the first test. That is
Disney taking yet another moneymaker that has typically been the domain of
cable companies for itself, cutting out a middleman and helping to make up for
the lost ESPN subscription fees while setting ESPN+ to eventually become
something much more than it is now.
“Our goal here is to create a sports marketplace on ESPN+, and that will
include a number of sports that we’ve already licensed and sports that we are
in the process of licensing, including the deal that we announced today, as
well as the sum of the sports that we would be acquiring as part of the 21st
Century Fox acquisition and then there are opportunities to license beyond what
we’ve already done,” Iger said in a conference call Tuesday after Disney
reported second-quarter earnings.
Disney could try a similar approach with its other streaming service, which
will include premium content from Marvel, “Star Wars” studio Lucasfilm, Pixar
and its own Disney-branded material. For instance, it could sell or rent its
movies not long after they leave movie theaters, or even while they are still
in theaters, avoiding any of the typical “windows” for such content that offers
middlemen exclusive time periods to rent or sell such content. Many consumers
are currently renting or buying digital movies through Apple Inc. or Alphabet
Inc.’s Google services, and Disney could aim to cut them out just as it has
Netflix.
“In order for [the Disney streaming service] to be successful longer term, it
has to become the destination to watch Disney, Marvel, ‘Star Wars,’ and Pixar
product,” Iger said Tuesday. “And that means ultimately weaning ourselves of
product being available any other place except for the current linear channels
that are in the marketplace.”
The key for Disney is to be in control of its own future, so it is not caught
flat-footed if the video ecosystem continues to undergo seismic change. In a
few years, it could theoretically bundle all its assets into a
direct-to-consumer offering that completely bypasses the bundle, or just
continue on the path of picking off easy money from others to make up for lost
fees from cable subscribers. Either way, it has power in negotiations with
cable companies desperate to stay in consumers’ lives.
For those consumers, the approach means the dream of full a-la-carte television
purchasing is not in sight, and the current version is not always easy to use.
The new ESPN app, for example, requires a user to sign in with an ESPN account
for ESPN+, and a cable login for access to streams of content airing on linear
networks. ESPN has a deal with Major League Baseball, which created BamTech, to
stream its MLB.TV package of games on the platform, but launched without the
ability for current MLB subscribers to access that content due to technical
issues involving all the different authentications.
The result so far is a reorganized bundle spread across different apps with
separate billing—a more confusing system that at least has more on-demand
options and choice, and works on a multitude of devices. If that system is
where the future of television lies, thank (or blame) Disney.
Disney shares declined about 1% in late trading Tuesday after the company
reported earnings. The stock has declined 8.6% in the past year, as the Dow
Jones Industrial Average, which counts Disney as a component, has gained 16%.