Introduction:
2023 has been a challenging year for Disney (DIS) as the company faces slowing growth in its parks business, declining linear TV viewership, and a drop in subscribers for its flagship streaming service, Disney+. In an effort to capitalize on the popularity of sports content and appeal to loyal viewers, Disney CEO Bob Iger has decided to take sports network ESPN fully over-the-top as a direct-to-consumer (DTC) platform. This move, however, comes with risks, as consumers may not be as willing to pay for a standalone sports streaming service as they were for the network bundled with traditional cable.
The High-Stakes Move:
ESPN has long been considered a key content category for attracting sports enthusiasts, but transitioning from a linear TV model to a streaming service is a challenging journey. While ESPN currently charges pay-TV operators between $8 and $9 per subscriber, its ESPN+ streaming service generates an average revenue per user of $5.64. Analysts caution that consumers may not be willing to pay the estimated $30 per month required for the streaming service to break even, especially when they are already subscribing to multiple other streaming platforms.
Consumers’ Willingness to Pay:
Research indicates that consumer interest in sports remains high in traditional linear TV, but willingness to pay for a standalone sports streaming service is low. A survey showed that over 25% of subscribers would not be willing to pay for a pure sports streaming service, with 46% willing to pay less than $10 per month and only 26% willing to pay over $20 per month. This poses a challenge for ESPN’s profitability in the streaming space, as the transition from linear to streaming lacks the mass subsidization that traditional cable offers.
The Role of Targeted Advertising:
Analysts suggest that ESPN may have to rely on targeted advertising on its streaming platform to drive profitability. Offering different incentives and the ability to turn the service on and off could appeal to the fragmented nature of sports fans and cater to those who may only be interested in certain sports or seasons.
The Oversaturated Streaming Marketplace:
Another concern revolves around consumers’ willingness to subscribe to multiple streaming services. The streaming market is already oversaturated, and consumers may be hesitant to add yet another subscription to their monthly expenses. This has led to a tap-out point, where most consumers are only willing to pay for seven to eight streaming services per month, amounting to approximately $60 to $70.
The Search for Strategic Partners:
To mitigate the risks and challenges, Disney is exploring potential strategic partnerships for ESPN’s transition to DTC. However, finding the right partner that brings value in terms of content, distribution, or capital remains a critical task. Potential partners could help de-risk the business and ensure a smoother transition to streaming. Names like Apple have been floated as possible partners due to its lucrative deal with Major League Soccer (MLS) and its global distribution capabilities.
Conclusion:
Disney’s move to take ESPN fully over-the-top as a direct-to-consumer platform is undoubtedly a high-stakes gamble. While sports content remains valuable, transitioning from traditional cable to streaming poses challenges in terms of consumer willingness to pay and the oversaturated streaming market. Strategic partnerships may be the key to success, enabling Disney to navigate the complexities of the streaming landscape. As the transition unfolds, analysts and media watchers will closely monitor ESPN’s performance and its potential impact on Disney’s overall business.
