M&E Connections

Analyst: ‘Too Early’ to Gauge Impact of New ESPN Streaming Service for Disney

Disney CEO Robert Iger on Feb. 6 provided more details about the new ESPN direct-to-consumer app that will be launching this spring — including the fact that the streaming service will cost $4.99 a month — but it’s still too soon to gauge what impact the service will have on the company’s future performance, according to Pivotal Research Group analyst Brian Wieser.

“Discussion of the new ESPN direct-to-consumer app took on a central role in management’s commentary” on the earnings call that Disney held Feb. 6 for its first quarter (ended Dec. 30), Wieser noted in a research note Feb. 7. But, “while we can imagine that there will a significant number of hard core sports fans who will embrace a well-designed product with a sufficient volume of incremental content, we think it remains too early alter forecasts by much to account for the product,” Wieser said.

Disney plans to offer “a completely re-conceived and redesigned ESPN app which will deliver important new services and experiences to users,” Iger said on the call. “The changes will be dramatic, with more compelling visuals, as well as an easy, intuitive interface and exceptional video and sound quality,” he said, adding: “Users will also enjoy an increasingly personalized experience as the app blends explicit choices with implicit behavior to curate a unique mix of specific, relevant content tailored to the taste of each individual user.”

The new app will provide three main features, he explained, saying: “It will provide countless scores and highlights, as well as podcasts and other sports information with a more user-friendly mobile interface. It will enable access to live streams of all ESPN’s networks providing consumers or subscribers to multi-channel packages. And it will feature our new ESPN Plus subscription service.

Powered by BAMTech’s proprietary technology, the service will offer a greatly expanded array of programs and live events for sports fans who want even more content, as well as for fans interested in sports and events not currently featured on the main channels.

This subscription service will feature thousands of additional live events, giving fans access to more leagues, more teams and more games than ever before, including Major League Baseball, Major League Soccer and the NHL, along with a rich array of college sports, as well as Grand Slam Tennis, boxing, golf, rugby and cricket that aren’t available on the ESPN linear networks. Additionally, ESPN Plus will feature the full library of ESPN Films, including the highly acclaimed 30 for 30 documentary series; and we’re also creating a robust slate of high-quality original content exclusively for this platform.”

Disney paid $1 billion for a 33% stake in video streaming company BAMTech and then invested an additional $1.6 billion to increase that stake to 75% and acquire control of BAMTech.

The new ESPN streaming service will be available on various platforms at launch, including Google’s Android and Chromecast, as well as Apple’s iOS and tvOS, with “more to follow,” Iger said, without elaborating. He added: “We plan to invest further in the direct-to-consumer feature, adding more live games and produce sports programming, along with even greater personalization in the years ahead.”

During the Q&A with analysts, he went on to say the app will offer “tons of scores and highlights and new stories about sports — and that will be highly personalized, both implicit and explicit.” The app will “use BAMTech engine, data collection, data management and all of the bells and whistles from a personalization, customization perspective that that can provide,” he said, adding: “Machine learning elements of it will enable the app to determine what someone is interested in and feed them more of that as they use the app more.”

Iger didn’t provide a specific date for the ESPN app launch. He also didn’t provide any significant new details about the new Disney direct-to-consumer streaming service that will be launching in late 2019. But he disclosed that Disney is “close to being able to reveal at least one of the entities that’s developing” one of the “few” Star Wars series that is being developed for the Disney app. Because that deal “isn’t completely closed, we can’t be specific about that,” but he said: “We are pleased with the level of interest among the creative community in creating not just Star Wars, but other series for this Disney app.”

Netflix will continue to have the rights to stream Disney movies made in 2016, 2017 and 2018 “for quite a long period of time thereafter with a window for us to use them ourselves,” Iger also said. But he reiterated that the films Disney makes in 2019 and beyond “will be sub-licensed or licensed to our own platform” instead and will include Disney, Marvel, Pixar and Lucasfilm movies. Disney will “talk at a later date about our intentions regarding the Fox studio output, but obviously Hulu is a possibility in that regard,” he said. Fox has an “existing output deal already with HBO that will last longer than by a few years the deal that we have with Netflix,” he pointed out.

Disney is still awaiting regulatory approval for its planned purchase of a large percentage of 21st Century Fox’s film and TV assets for $52.4 billion, Iger disclosed. For now, Disney, Fox and Comcast’s NBCUniversal each own a 30% stake in Hulu, while Time Warner’s Turner Broadcasting System (TBS) has a 10% stake in that on-demand streaming company.

It’s “ultimately our intention — and this acquisition [of the Fox assets] clearly will enable this even more — to create and to ultimately grow a global direct-to-consumer business that will take advantage of the production output that the combined companies will have, whether it’s on the television side or on the network side,” Iger said on the call.

Iger spent the past several weeks meeting with several business leaders at Fox, “gaining insight that will be invaluable when it comes to integrating our organizations once we have regulatory approval,” he said. “After these discussions, I’m even more enthusiastic about the businesses we’re acquiring and the management teams that are leading them,” he said, adding the purchase “will deliver more content and the production capabilities and talent to produce even more,” as well as “enhance our direct-to-consumer initiatives with platforms, technologies, brands and existing customer relationships to build on.” The acquisition will also “greatly diversify our businesses geographically,” he said.

Disney reported first-quarter revenue grew 4% from a year ago, to $15.4 billion, while profit jumped 78% to $4.4 billion ($2.91 a share) from $2.5 billion ($1.55 a share). But much of the revenue growth came in Disney’s Parks and Resorts division, where sales were up 13%. Media Networks revenue was flat at $6.2 billion, while Studio Entertainment revenue dipped 1% to $2.50 billion and Consumer Products & Interactive Media revenue fell 2% to $1.445 billion.