Will ESPN go direct-to-consumer?
In the previous part of this series, we discussed subscriber losses for The Walt Disney Company’s (DIS) ESPN. In this part, we look at why ESPN could be reluctant to launch its own OTT (over-the-top) service.
Disney stated in its earnings call for fiscal 3Q15 that it doesn’t foresee a direct-to-consumer product for ESPN in the next five years. We looked at whether ESPN will go à la carte in an earlier series.
The main reason for ESPN’s subscriber losses has been viewers shifting to OTT platforms to watch sports, or viewers opting for “skinny” bundles where ESPN’s not included. Skinny bundles are add-on channel packages offered by pay-TV or cable operators for additional cost.
As the above chart indicates, while the ad-supported OTT platform Hulu Plus is priced at ~$8 per month, Dish Network’s (DISH) Sling TV is expensive at $20 per month. Disney has a 33% stake in Hulu, sharing ownership with Fox Entertainment Group (FOXA) and NBCUniversal (CMCSA).
Currently, the only OTT platform to offer ESPN is Dish Network’s (DISH) Sling TV in a skinny bundle priced at $20. According to Michael Nathanson of MoffettNathanson Research, ESPN would cost $36.30 per month if it were to go direct-to-consumer on a stand-alone basis. That would make it an expensive channel to watch.
In comparison, a subscriber pays only $6 to watch ESPN on Dish Network’s Sling TV. ESPN is about 30% of Sling TV’s basic bundle priced at $20. Even if this is still expensive, it’s far cheaper than the estimated cost of ESPN’s stand-alone OTT offering.
Why doesn’t Disney launch a stand-alone OTT for ESPN?
Disney could be unwilling to launch a stand-alone OTT service for ESPN because it’s a valuable brand. ESPN holds sports broadcasting rights to major US sports events like NFL (National Football League) games, which are extremely popular and watched live. Disney could earn substantial licensing revenues by licensing ESPN on other distributors’ OTT platforms. It would lose out on these revenues by launching its own OTT service for ESPN.
Another reason for Disney’s reluctance to launch ESPN’s OTT service could be that a stand-alone platform could be unpopular among consumers due to its high subscription cost. It would make much more sense for users to subscribe to ESPN in a skinny bundle like Dish Network’s Sling TV, where it is much cheaper.
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