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ESPN could become stand-alone streaming service, but not yet

Disney execs said that ESPN “could one day be a fully stand-alone streaming service -- just not yet,” according to Jolie Lash of THE WRAP. Disney CEO Bob Chapek said that Disney “is trying to preserve the ‘huge’ cash flow” generated by its linear networks “before jumping into” a direct-to-consumer decision like that. Chapek: “We’ve very conscious of our ability to go more aggressively into the (direct to consumer) area of ESPN. ... We know that at some point when it’s going to be good for our shareholders, we’ll be able to fully go into an ESPN DTC offering, we fully believe that there is a business model there for us that’s going to enable us to regain growth on ESPN+, in a full DTC expression.” Currently ESPN+ "does exist as a limited standalone service," however for those who want to see games that air on the broadcast ESPN networks, they will "need a cable package." Chapek “declined to address” profitability model but said that if they do go forward making ESPN+ a la carte, he "expects it to be very attractive” to sports-loving consumers. Chapek noted that most of the “top shows” of the year on linear television are sports programs, and with “a brand like ESPN in the Disney family, they’re looking ahead to business possibilities” (THEWRAP.com, 5/11).

CRUNCHING THE NUMBERS: THE ATHLETIC’s Daniel Kaplan noted Chapek “did not put a timeline” on the transition, which would be “economically ruinous today.” Though the cable bundle that carries ESPN “is in decline, it is still very profitable.” It “could be years before Chapek’s vision is real.” Disney reported linear networks "earned $2.8 billion" in the most recent quarter that ended April 2. This money “comes largely” from the subscriber fees ESPN and its network of affiliates, like ESPN2, charge cable distributors to carry its content. Disney’s DTC division, which includes Disney+ and ESPN+, lost $887M in Q2. The company “ascribed the losses” at ESPN+ to high sports programming costs and a decrease in income from UFC pay-per-view events due to “a drop in average buys per event.” Disney “needs many more subscribers” at ESPN+ to “make it profitable,” and clearly “expects the disparate results between linear and direct-to-consumer to one day change.” Whether the cable bundle “could survive” with ESPN available as a subscription-only stream is “surely a question.” But at some point “as more events bleed” into ESPN+, “fans might question whether it would be cheaper to cut the cord and get the stream” (THEATHLETIC.com, 5/11). In L.A., Ryan Faughnder notes Disney+ “added nearly 8 million subscribers” during Q2. The service now “has 137.7 million subscribers.” ESPN+ "added 1 million subscribers," bringing its total to 22.3 million (L.A. TIMES, 5/12).

RAPID REAX: LightShed Partner Rich Greenfield stated that Disney “should sell Hulu and reinvest either in Roblox or in Netflix. Keep ESPN, slim it down, maybe not spend as much there.” CNBC’s Becky Quick said, “When you see revaluations on the street looking at things so differently, you are going to see CEOs rethinking what makes sense in these environments.” CNBC’s Andrew Ross Sorkin noted Greenfield has been in the past the “greatest proponent of streaming” (“Squawk Box,” CNBC, 5/12). G Squared Private Wealth Partner & CIO Victoria Greene said Disney “absolutely blew it out of the water” with their online subscriber numbers but “you’re seeing costs rise a little bit at ESPN.” Greene: “Their intellectual property is just better than everybody else’s” (“Closing Bell,” CNBC, 5/11).

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