Disney’s cautious debut may mark the start of something big
THE first week for ESPN+, a sports streaming service that Disney, owner of ESPN, launched in America on April 12th, had none of the razzmatazz associated with a firm known for blockbuster openings. Forget marquee matchups from the National Basketball Association. The games come from lesser-known football (ie, soccer) leagues, minor college sports and international fixtures with limited American audiences, like rugby and cricket.
This was tactical, says Kevin Mayer, the boss of Disney’s first shot at streaming in America. At $5 a month, the aim is to create a sort of mini-Netflix for sports. But Disney is loth to take customers away from the company’s lucrative ESPN networks on pay-TV. It wants to avoid the own goal of disrupting itself.
The delicate positioning of ESPN+ reflects an industry in flux. Cable networks are losing millions of subscribers to “cord-cutting”, whereby customers drop expensive pay-TV packages in favour of much cheaper internet services like Netflix. In response to this threat Disney decided to pull its films from Netflix and to develop its own internet-only entertainment service, which is scheduled to debut next year. In December the company agreed a $66bn deal to buy much of the entertainment business of 21st Century Fox, in order to gain the heft to compete with Netflix. Disney is betting that streaming is the future.
The problem is that ESPN retains tremendous value as a pay-TV business, even with subscribers and viewership in decline. Pay-TV distributors like Comcast, Charter and AT&T view live sports as the linchpin of their offering, along with live news, and feel they must offer ESPN to keep customers. Kagan, a research firm, estimates that ESPN has 86m subscribers and receives $8.14 of fees per subscriber per month from distributors, far more than any other network. Even after accounting for the high cost of sports rights, subscriber fees help make ESPN the most profitable network in America, generating an estimated $2.1bn in cash this year, says Kagan.
That makes building an audience for ESPN+ tricky. Jimmy Pitaro, the boss of ESPN, says the new service will go after the “hard-core sports fanatic” and the “underserved sports fan”. Such people may happily pay to watch, say, ice-hockey games between Ivy League schools. Neither Mr Mayer nor Mr Pitaro are saying how many subscribers they hope to lure. But for the foreseeable future they will keep the highest-profile games off the internet service. As long as ESPN continues to make billions, ESPN+ will remain in the little leagues. But its day will come.