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Remember when Netflix Inc. split its DVD-by-mail service and then-new streaming plan, enraging subscribers who had been receiving both to pay more for the same level of service?
Well, there isn’t much different in what the Walt Disney Co. is doing with its new ESPN+ streaming service, which is likely to grow and change just as Netflix’s streaming service has since 2011.
ESPN launched the direct-to-consumer offering Thursday, its first foray into so-called over-the-top, or OTT, streaming services. It is an attempt to address one of the biggest complaints from Disney investors over the past two years: Consumers cutting the cable cord and therefore slicing the amount of cash Disney receives for its sports programming.
Amid the cord-cutting phenomenon, Disney has also been dealing with stratospheric increases in the costs for sports content, with professional and college leagues demanding more for the live games that are the largest portion of a dwindling amount of television shows that viewers still watch as they occur (and accept the commercials that are included). The twin pressures of fewer consumers willing to pay for ESPN content and greater costs to provide that content have led to layoffs at ESPN and struggles for Disney stock.
Disney responded with an acquisition, but not the kind to which we have grown accustomed to as the company has vacuumed up popular content-creators like Pixar, Marvel and “Star Wars” creator LucasFilm. Instead, the company bought a majority interest in BamTech, a spinoff from Major League Baseball that has become a leader in developing streaming services.
The first result of the marriage of a tech startup and legacy content provider is a newly updated ESPN app and the ESPN+ subscription option, which arrived nearly two years after it was originally announced. Disney hopes that consumers will pay $4.99 a month, or $50 for a year, to access a long list of games and other content to which it has the rights but is not showing on the channels for which cable subscribers pay roughly $8 or $9 a month through their cable bills.
Many of those games were already available, however, as part of a digital channel known as ESPN3 that will live on, according to the company. ESPN has long had an app, called WatchESPN, that offered live streams of all of its channels as well as many ESPN3 games it was not airing on its TV stations. ESPN+ bundles many of those streams it offered to subscribers in WatchESPN with other previously free services and some niche sports and original programming for a fee, and offers that service in the same app as streaming versions of ESPN channels available only to cable subscribers.
”Those subscribers are already paying more than $100 a year for ESPN content,” BTIG analyst Rich Greenfield said in a telephone interview. “Now, they’re being asked to pay another $60 a year for the least compelling parts of that content.”
ESPN pushed back against that characterization in an email to MarketWatch, saying “the majority of ESPN+ programming is new and additive to our existing networks.”
“We believe that the content offering is very compelling for avid sports fans as well as passionate fans of niche and underserved sports,” an ESPN spokeswoman said. “And at $4.99/month, we believe it’s an attractive offering compared to others currently in the marketplace for the audiences we are trying to reach and serve, while at the same time offering flexibility to subscribers.”
Specifically, ESPN+ will include college sports from smaller conferences such as the Big West and Ivy League, with most of the action from larger conferences, such as the Southeastern Conference and Atlantic Coast Conference, still restricted to cable subscribers; live coverage of tennis and golf tournaments that include the ability to choose which feed to watch; professional soccer, including access to the Major League Soccer streaming service and certain English Football League, United Soccer League and UEFA Nations League games; boxing matches, through a deal with Top Rank Boxing; as well as cricket, rugby, Canadian Football League and other sports more popular outside the United States.
In addition, the full “30 for 30” documentary series, including Oscar-winner “O.J.: Made in America,” will be available on-demand at all times, and the latest addition to that catalogue — ”The Last Days of Knight,” about the downfall of former Indiana University basketball coach Bobby Knight — will be an ESPN+ exclusive. Other original content is also planned for ESPN+ exclusively, including a new show called “Detail” helmed by former Los Angeles Lakers star Kobe Bryant.
“We also will have a nightly hockey program throughout the playoffs, are developing a regular boxing program (more details to come) and are exploring shows for other segments as well (for example, MMA, cricket, etc),” the ESPN spokeswoman said.
Much of that content — a ton of small-college sports, tennis tournaments and many of the niche sports — was available to cable subscribers through WatchESPN, though some of it is new thanks to deals ESPN has announced in recent months, such as with MLS and Top Rank.
For an example of bundling of previously free content into the paid service, look at one other offering ESPN has pushed: Major League Baseball and National Hockey League games.
“For both MLB and NHL, ESPN+ will offer a game a day throughout the season — more than 180 games — as part of the $4.99,” the spokeswoman pointed out. “Those are games not available on our networks or other networks nationally. The only place those appear other than ESPN+ is if somebody buys the full MLB.TV or NHL.TV package.”
Those games, however, have been free to anyone for years. The MLB and NHL streaming services have long offered free games to non-subscribers — one a day for MLB, several a week for the NHL — in an attempt to draw in new customers to their streaming services. MLB has even broadcast its free daily games to other countries through Alphabet Inc.’s YouTube.
ESPN’s partnerships with MLB and the NHL also highlight Disney’s difficult path to offering direct-to-consumer services while attempting to support the lucrative cable bundle. In partnering with the two sports leagues, ESPN has the opportunity to make its new app something of a sports-focused “skinny bundle,” perhaps even including those leagues’ broadcast networks in addition to their streaming services. That potential would only grow if Disney’s acquisition of parts of 21st Century Fox is approved, as it will include broadcast rights to local broadcasts of many MLB and National Basketball Association games.
A platform of sports content from several sources, especially if offered without the need for cable subscriptions, could be a death knell for the cable bundle. Sports fans have largely held on to cable subscriptions because they are typically the only way to watch local sports teams — those broadcasts are typically blacked out on streaming services — as well as ESPN and other national sports networks.
At launch, though, ESPN's app is nowhere near that kind of offering. Current subscribers of the MLB and NHL streaming services won’t be able to watch that content through the ESPN app at launch. ESPN is offering subscriptions for those plans, but viewers must sign up through the ESPN app and pay Disney their subscription fee ($25 a month for MLB), similar to signing up for the services through a cable provider. Current subscribers will still have to visit those services’ dedicated apps instead of accessing all their paid sports content in ESPN’s app.
The new ESPN app and ESPN+ streaming service appear to be something of a test for Disney, which plans to launch similar offerings for non-sports content, as well as a warning to cable providers that Disney has a plan should they fail to keep the bundle alive. ESPN admitted that several features not available at launch are under consideration for the future, including pay-per-view events and bundling subscriptions with a similar effort on its website, ESPN Insider.
“We will continue to build the programming portfolio, actively, in the months and years ahead,” ESPN told MarketWatch.
That makes the service that launched Thursday unlikely to move the needle for Disney or consumers, as some investors may have hoped. ESPN is offering a 30-day free trial for consumers who sign up by April 18, and a seven-day free trial for other interested parties
”We’re going to see a niche-sports over-the-top service that allows Disney to learn more about the direct-to-consumer business,” BTIG’s Greenfield said. “If this was about getting tens of millions of subscribers, it would have everything.”
When Netflix separated its streaming and DVD-by-mail businesses, the company was not yet producing and distributing its own original content on the streaming service, instead offering mostly older shows and movies that could easily be found on cable or elsewhere. With ESPN+, Disney appears to have something similar to Netflix’s early attempt, with the same potential to be something much different down the line.
Disney stock fell 0.4% after the new service and app launched Thursday. Shares have declined 11.2% in the past year amid concerns about ESPN, while the Dow Jones Industrial Average — which counts Disney as a component — has increased 17.1%.