Post by bulkey on Aug 2, 2023 17:09:33 GMT -5
This being summer and ESPN being so closely tied to UConn (convincing Maya to choose the Huskies over Tenn and all....), I'm posting this entire article (minus the last several paragraphs which add nothing) from the NYTimes. What I emboldened is the whole point, really.
Kevin Draper and Brooks Barnes
Aug. 2, 2023, 5:00 a.m. ET
ESPN has been Disney’s financial engine for nearly 30 years, powering the company through recessions, box office wipeouts and the pandemic. It was ESPN money that helped Disney pay for acquisitions — Marvel, Lucasfilm, Pixar, 21st Century Fox — and build a streaming service, transforming itself into a colossus and perhaps traditional media’s best hope of surviving Silicon Valley’s incursion into entertainment.
Those days, ESPN’s best, are over.
With its dual revenue stream — fees from cable subscribers and advertising — the sports juggernaut continues to earn billions of dollars for Disney. In the first six months of the 2023 fiscal year, Disney’s cable networks division, which is anchored by ESPN and its spinoff channels, generated $14 billion in revenue and $3 billion in profit.
The problem: Wall Street is fixated on growth. Revenue for those six months was down 6 percent from a year earlier, as profit plunged 29 percent.
Disney is now exploring a once-unthinkable sale of a stake in ESPN. Not all of it, Robert A. Iger, Disney’s chief executive, has made clear. But he wants “strategic partners that could either help us with distribution or content,” he said during an interview with CNBC last month. Disney has held talks with the National Football League, the National Basketball Association and Major League Baseball about taking a minority stake.
Underscoring the complexity — and urgency — Mr. Iger has brought in two former senior Disney executives, Kevin Mayer and Thomas O. Staggs, to consult on ESPN strategy with James Pitaro, the channel’s president, and help put together any deal. Their return, earlier reported by a Puck newsletter, was confirmed by two Disney executives who spoke on the condition of anonymity to discuss internal matters.
“It is really tricky in this cord-cutting environment to see the real growth opportunities available to ESPN,” Steve Bornstein, a former chief executive of ESPN, said in an interview. Still, “they have a great hand,” he added, reeling off strengths like the numerous rights the network has to air live games, its digital assets and a popular website.
“There is so much uncertainty in what Bob meant,” said Michael Nathanson, a media analyst at MoffettNathanson.
Mr. Iger declined to comment. Disney is scheduled to report quarterly earnings next week. Analysts expect per-share profit to have declined 11 percent, as the company contends with disappointing box office results, softening attendance at Walt Disney World and two striking Hollywood unions.
Whatever might be in ESPN’s future, its problems are easy enough to understand.
The bulk of ESPN’s revenue comes from what are called affiliate fees. These are monthly fees that cable providers — like Comcast, Charter Communications and Cox — pay ESPN for the right to offer its television channels to households. Last year around 71 million United States households paid for a television package that included ESPN, and those cable providers, in turn, paid ESPN an average of $8.81 per month for each home, according to S&P Global Market Intelligence.
S&P Global Market Intelligence estimates that ESPN has also taken in more than $2 billion annually in advertising in recent years.
But cord cutting has been hurting both those revenue streams. A decade ago, more than 100 million households received ESPN, meaning 30 million fewer households get ESPN today than in 2013. ESPN has consistently raised its affiliate fee to offset this decline, but its ability to continue doing so will be limited in the coming years: By 2027, fewer than 50 million homes will pay for cable television, according to PwC, the accounting giant.
At the same time, ESPN’s costs are exploding. ESPN will pay an average of $2.7 billion annually over the next decade for the right to show the N.F.L., a 42 percent increase from what it used to pay. It will soon negotiate with the N.B.A. on a potentially very expensive renewal of its rights agreement.
According to Disney’s financial filings, it will pay $10.8 billion this year for sports programming. It has future commitments totaling about $57 billion, with some of its contracts running well into the 2030s. These contracts are a result of a spending spree the company has undertaken to head off deeper-pocketed tech companies, which are also hungry for sports programming, and to stock its nascent ESPN+ streaming service.
“The cord-cutting phenomenon is a response to the increasing cost of cable, and indeed the increasing cost of cable is due in part to the increasing cost of sports rights,” said Roger Werner, a former ESPN chief executive who helped create the dual revenue stream. “There is a causality there.”
At the same time, it is confronting the turbulent economics of the streaming era.
ESPN+ shows thousands of games annually, but very few are the biggest N.F.L., college football, N.B.A. or baseball games. Those marquee matchups are reserved mostly for ESPN and ABC, which is also owned by Disney (and potentially for sale). Sports leagues are reluctant to allow media companies to offer games exclusively on streaming platforms, where they almost always reach much smaller audiences than on network or cable television.
As of April, ESPN+ had 25.3 million subscribers, though only five million people paid for it directly, according to Disney’s financials. The bulk of ESPN+ subscribers bought it as part of a discounted bundle with the far more popular Disney+ and Hulu streaming services.
Mr. Nathanson, the analyst, called ESPN+ a “complementary” product, something attractive mostly to die-hard sports fans.
The question, then, is when will Disney offer ESPN as a stand-alone streaming channel, allowing people to buy it à la carte, and not as part of some larger package of channels they don’t really want?
“We haven’t said when, but we do know that it will happen,” Mr. Iger said on CNBC.
Pricing, however, is an enormous obstacle. Offering ESPN à la carte will assuredly hasten the erosion of the cable bundle, which is held together mostly by sports.
“The current cable bundle, if you are a sports fan, is probably the optimal way to watch sports content because the majority of sports are in that bundle,” Mr. Nathanson said.
Affiliate fee increases for other Disney channels will slow, or even decrease, when they are sold on their own without ESPN. Cable providers are likely to be far more aggressive in offering cheaper, skinny bundles that do not include ESPN channels.
Disney’s family of sports channels currently earn somewhere north of $12 per month in affiliate fees for each cable subscription, according to S&P Global Market Intelligence. Estimates vary widely, but if ESPN offered its cable channels à la carte, it would most likely have to charge an astonishingly high fee for the streaming service, perhaps $40 or $50 per month, just to maintain its current revenue.
“It is not easy,” Mr. Nathanson said. “It really is not. That is why they have been reluctant to do
To pay for the rights, ESPN has cut back in other areas — primarily original programming — and relied more heavily on a handful of its most famous personalities, like Stephen A. Smith. Once justifiably proud of never having undergone layoffs, the company has seen six waves of layoffs since 2015, including one that affected a number of high-profile executives and on-air personalities in June.
Kevin Draper and Brooks Barnes
Aug. 2, 2023, 5:00 a.m. ET
ESPN has been Disney’s financial engine for nearly 30 years, powering the company through recessions, box office wipeouts and the pandemic. It was ESPN money that helped Disney pay for acquisitions — Marvel, Lucasfilm, Pixar, 21st Century Fox — and build a streaming service, transforming itself into a colossus and perhaps traditional media’s best hope of surviving Silicon Valley’s incursion into entertainment.
Those days, ESPN’s best, are over.
With its dual revenue stream — fees from cable subscribers and advertising — the sports juggernaut continues to earn billions of dollars for Disney. In the first six months of the 2023 fiscal year, Disney’s cable networks division, which is anchored by ESPN and its spinoff channels, generated $14 billion in revenue and $3 billion in profit.
The problem: Wall Street is fixated on growth. Revenue for those six months was down 6 percent from a year earlier, as profit plunged 29 percent.
Disney is now exploring a once-unthinkable sale of a stake in ESPN. Not all of it, Robert A. Iger, Disney’s chief executive, has made clear. But he wants “strategic partners that could either help us with distribution or content,” he said during an interview with CNBC last month. Disney has held talks with the National Football League, the National Basketball Association and Major League Baseball about taking a minority stake.
Underscoring the complexity — and urgency — Mr. Iger has brought in two former senior Disney executives, Kevin Mayer and Thomas O. Staggs, to consult on ESPN strategy with James Pitaro, the channel’s president, and help put together any deal. Their return, earlier reported by a Puck newsletter, was confirmed by two Disney executives who spoke on the condition of anonymity to discuss internal matters.
“It is really tricky in this cord-cutting environment to see the real growth opportunities available to ESPN,” Steve Bornstein, a former chief executive of ESPN, said in an interview. Still, “they have a great hand,” he added, reeling off strengths like the numerous rights the network has to air live games, its digital assets and a popular website.
“There is so much uncertainty in what Bob meant,” said Michael Nathanson, a media analyst at MoffettNathanson.
Mr. Iger declined to comment. Disney is scheduled to report quarterly earnings next week. Analysts expect per-share profit to have declined 11 percent, as the company contends with disappointing box office results, softening attendance at Walt Disney World and two striking Hollywood unions.
Whatever might be in ESPN’s future, its problems are easy enough to understand.
The bulk of ESPN’s revenue comes from what are called affiliate fees. These are monthly fees that cable providers — like Comcast, Charter Communications and Cox — pay ESPN for the right to offer its television channels to households. Last year around 71 million United States households paid for a television package that included ESPN, and those cable providers, in turn, paid ESPN an average of $8.81 per month for each home, according to S&P Global Market Intelligence.
S&P Global Market Intelligence estimates that ESPN has also taken in more than $2 billion annually in advertising in recent years.
But cord cutting has been hurting both those revenue streams. A decade ago, more than 100 million households received ESPN, meaning 30 million fewer households get ESPN today than in 2013. ESPN has consistently raised its affiliate fee to offset this decline, but its ability to continue doing so will be limited in the coming years: By 2027, fewer than 50 million homes will pay for cable television, according to PwC, the accounting giant.
At the same time, ESPN’s costs are exploding. ESPN will pay an average of $2.7 billion annually over the next decade for the right to show the N.F.L., a 42 percent increase from what it used to pay. It will soon negotiate with the N.B.A. on a potentially very expensive renewal of its rights agreement.
According to Disney’s financial filings, it will pay $10.8 billion this year for sports programming. It has future commitments totaling about $57 billion, with some of its contracts running well into the 2030s. These contracts are a result of a spending spree the company has undertaken to head off deeper-pocketed tech companies, which are also hungry for sports programming, and to stock its nascent ESPN+ streaming service.
“The cord-cutting phenomenon is a response to the increasing cost of cable, and indeed the increasing cost of cable is due in part to the increasing cost of sports rights,” said Roger Werner, a former ESPN chief executive who helped create the dual revenue stream. “There is a causality there.”
At the same time, it is confronting the turbulent economics of the streaming era.
ESPN+ shows thousands of games annually, but very few are the biggest N.F.L., college football, N.B.A. or baseball games. Those marquee matchups are reserved mostly for ESPN and ABC, which is also owned by Disney (and potentially for sale). Sports leagues are reluctant to allow media companies to offer games exclusively on streaming platforms, where they almost always reach much smaller audiences than on network or cable television.
As of April, ESPN+ had 25.3 million subscribers, though only five million people paid for it directly, according to Disney’s financials. The bulk of ESPN+ subscribers bought it as part of a discounted bundle with the far more popular Disney+ and Hulu streaming services.
Mr. Nathanson, the analyst, called ESPN+ a “complementary” product, something attractive mostly to die-hard sports fans.
The question, then, is when will Disney offer ESPN as a stand-alone streaming channel, allowing people to buy it à la carte, and not as part of some larger package of channels they don’t really want?
“We haven’t said when, but we do know that it will happen,” Mr. Iger said on CNBC.
Pricing, however, is an enormous obstacle. Offering ESPN à la carte will assuredly hasten the erosion of the cable bundle, which is held together mostly by sports.
“The current cable bundle, if you are a sports fan, is probably the optimal way to watch sports content because the majority of sports are in that bundle,” Mr. Nathanson said.
Affiliate fee increases for other Disney channels will slow, or even decrease, when they are sold on their own without ESPN. Cable providers are likely to be far more aggressive in offering cheaper, skinny bundles that do not include ESPN channels.
Disney’s family of sports channels currently earn somewhere north of $12 per month in affiliate fees for each cable subscription, according to S&P Global Market Intelligence. Estimates vary widely, but if ESPN offered its cable channels à la carte, it would most likely have to charge an astonishingly high fee for the streaming service, perhaps $40 or $50 per month, just to maintain its current revenue.
“It is not easy,” Mr. Nathanson said. “It really is not. That is why they have been reluctant to do
To pay for the rights, ESPN has cut back in other areas — primarily original programming — and relied more heavily on a handful of its most famous personalities, like Stephen A. Smith. Once justifiably proud of never having undergone layoffs, the company has seen six waves of layoffs since 2015, including one that affected a number of high-profile executives and on-air personalities in June.
