Moving ESPN To Streaming Is A Dangerous Proposition
Perhaps the most important task that Disney CEO Bob Iger has in front of him is to take ESPN into streaming.
With linear TV business on the decline, Iger and ESPN chairman Jimmy Pitaro have told anyone that would listen that the future of the worldwide leader in sports is in the direct-to-consumer business.
Photo: Disney
Sports have long been viewed by the industry as the key content to lure in viewers. With television changing, however, whether or not those fans will follow from cable bundles to subscription services, remains to be seen.
If ESPN were to move its live sports to streaming, the price point for ESPN+ would be a far cry from what customers are used to paying.
What Would A Streaming Version of ESPN Cost?
Currently, ESPN charges pay-TV operators between $8 and $9 dollars per subscriber, per an estimate from SNL Kagan.
According to analysts, a full-blown ESPN streaming service would need to cost at least $30 a month in order to break even, not to mention turn a profit.
Photo: ESPN
“In a future world of streaming, it’s à la carte. Meaning if you want to pay for it you have to actually go out and pay for it. There isn’t going to be somebody subsidizing you,” Brandon Nispel, equity research analyst at KeyBanc Capital Markets, told Yahoo Finance.
Research has shown that while customers are happy to pay for sports as part of their linear TV packages, the same is not true for streaming.
Image Credit: ESPN
Will Customers Pay?
The risk, though, is that while audiences are willing to pay for the network as part of the traditional cable bundle, they may not be so interested in subscribing to a standalone streaming service.
“From our survey work, we found consumer interest in sports is relatively high in linear. Though willingness to pay in streaming is low: we found >25% of subscribers would not be willing to pay for a pure sports streaming service. 46% of subscribers would be willing to pay <$10/month. And 26% would pay >$20/month.”
Photo: ESPN
“The future profitability in sports is really the question,” Nispel said. “How many people would sign up and then what’s the profitability profile? Going from linear to streaming is much more difficult because you don’t have the masses subsidizing.”
The solution for Disney may be to offer the service at a lower price and then try to make money through targeted advertising.
Photo Credit: Android Authority
As a result, ESPN will likely “have to give that minimum price to generate as many possible subscribers as they can, but the real way to make money is going to be from targeted advertising on the service,” said Macquarie analyst Tim Nollen.
Bringing In Partners
As part of Disney’s plans to bring the worldwide leader in sports to streaming, Bob Iger has floated the possibility that Disney could bring in strategic partners.
Disney has repeatedly had exploratory talks with major sports leagues including the NFL, NBA, and MLB.
Photo: Chip Somodevilla/Getty Images
“I really struggled with understanding why the leagues would do that,” KeyBanc’s Nispel said. “It seems almost like a conflict of interest, if you will because the leagues get paid by ESPN. If they have ownership in ESPN, they would be sort of favored to continue to provide the rights to ESPN over others.”
As Disney faces a future in streaming, it will be critical that Iger get ESPN right.
Photo: Disney
The next possible update on the future of the network could come on August 9, when Disney reports its quarterly earnings results.
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