Disney’s ESPN is coming off a rough fiscal first quarter as ratings and advertising declines and higher programming costs combined for an 11% year-over-year drop in operating income for the cable division. Disney chairman-CEO Bob Iger emphasized during a conference call with Wall Street analysts Tuesday that an expanding array of digital distribution options will be key to the future growth of the sports powerhouse.
Iger affirmed that ESPN will launch a branded standalone streaming service later this year, in partnership with BAMTech, the digital technology firm in which Disney bought a $1 billion stake last year. He also talked up the prospects for ESPN to offset the industry-wide trend of declining subscriber rates via from traditional MVPDs through gains from the handful of upstart streaming channel packages that are in the works. That list includes the service coming from Hulu, in which Disney is an investor. Disney’s brands including ESPN are on the recently launched DirecTV Now service, and on Dish Network’s Sling TV and Sony’s PlayStation Vue. Iger said the company has done a deal with yet another nascent digital MVPD service that has yet to be formally unveiled.
The new entrants and the direct-to-consumer capabilities offered by BAMTech will make Disney and ESPN, a huge driver of overall profits for the company, well-positioned to ride out the stormy seas in the pay-TV marketplace. Iger would not comment on pricing or the timing of the ESPN-branded service rollout, other than to say it was on target for this year.
“We understand there’s going to be disruption but we have to be a disruptor too,” Iger said. “Our investment in BAMTech is aimed at being just that.”
Iger said that Disney’s deals with emerging digital distributors require their channels to have the broadest possible carriage on the services. He speculated that the lower cost $40-$50 monthly bills offered by the new entrants could leave consumers with more money to spend on other video services. “I can tell you our full intent is to go out there aggressively with direct-to-consumer (offerings of) ESPN and other Disney-branded properties,” he said.
Iger enthused that the technological capabilities offered by the BAMTech crew have “blown us away.” Direct-to-consumer programming packages would also have the benefit of giving Disney far more control over audience usage data. “The potential is for data to generate great revenue from advertising, something we don’t have today because a lot of our distribution comes through third parties,” he said. “We don’t get access to that information.”
Disney execs had prepared Wall Streeters for the hit that ESPN would take in the fiscal first quarter from the increase in rights fees for its new NBA contract, among other costs. It also took a revenue hit because of the timing of three college bowl games this year that shifted into the fiscal second quarter. Iger stressed that continued investment in ESPN was crucial to keeping it a must-have brand in the expanding universe of channels and content suppliers.
“In reality the best approach to doing well in a world that is disrupted is to have great content and tell great stories,” Iger said. “The most important thing for ESPN is to continue to support and nurture their program offerings.”