Disney announced a corporate restructuring today that CEO Bob Chapek says will “accelerate the transition to a real direct-to-consumer priority company” in the media business. What this means is a focused emphasis on their OTT streaming platforms, Disney+, ESPN+, and also Hulu.
Chapek said that he wouldn’t characterize this as a response to the Covid-19 pandemic, but that it accelerated the rate of change. There will be what he calls a “newly centralized global distribution team” that is tasked with optimizing the proper content channels to distribute content through.
Disney has had a number of business units hurt by the pandemic, including movies and theme parks. In California, Disney chairman Bob Iger is in a battle with governor Gavin Newsom where Disneyland cannot open even though Disney World has been open in Florida for months.
An emphasis on direct-to-consumer streaming will inherently mean further movement away from their previous modes of distributing movies through theaters. It will probably happen a little slower, but sports will also continue to migrate away from traditional TV networks.
With movies, the questions for blockbusters are whether to put them exclusively in theaters and for how long. The pandemic forced Disney to release Mulan on Disney+ for about $30 on pay-per-view. In the CNBC interview, Chapek didn’t play his cards exactly on what they’re going to do with things like Star Wars or big comic book franchises, but emphasized giving consumers the choice between whether to experience movies with the amenities of the theater experience or in the comforts of their own homes.
So, not only will Disney+ be the home of everything in their accumulated Disney, Pixar, and Fox libraries — the choice is also going to be there for new premium content and fast. In July, AMC theaters and NBCUniversal agreed on a deal to dramatically shorten the exclusive theater window to just 17 days. What will Disney pursue with their theater partners here?
As of May, Disney+ had 54.5 million subscribers. On CNBC today, Chapek said its growth metrics were surpassing all expectations.
The sports transition is going to happen, too, but the existing distribution models are trickier to unwind. We reported last week that ESPN is bracing for major cost cuts and potential layoffs of hundreds of employees. In the story, we talked about how ESPN is on this years-long transition from being primarily focused as a cable company to their streaming future on ESPN+.
ESPN president Jimmy Pitaro heads Disney’s sports unit in the newly announced corporate structure.
ESPN went from slightly over 100 million cable subscribers in 2010 to slightly over 80 million earlier this year. This affects every cable network. Cable news has been thriving in viewership for a number of reasons, but it is still facing the subscriber declines of the rest of the industry. The issue for ESPN in particular is that they have by far the biggest subscriber fees of anyone in the business.
This is the rough math: Between ESPN and ESPN2, the subscriber fees total about $10 a month. They’ve lost about 20 million subscribers, which is $200 million a month, which is about $2.4 billion a year in lost revenue.
The combined entity of Disney/ESPN/ABC is going to be a player in live sports for the foreseeable future, whatever it looks like. The company just wrested away the SEC Game of the Week package away from CBS to become the conference’s exclusive football distributor. All industry speculation points towards Disney making a considerable push to add an NFL package to a rights deal that already totals $1.9 billion per year and to try to vault into the Super Bowl rotation. Their NBA partnership could not be on more solid ground. When MLB added extra playoff games this year, almost all of them went to ESPN/ABC.
As of June, when the price of ESPN+ went from $4.99 a month to $5.99, there were 8.5 million subscribers. ESPN+ has some college sports rights, MLB, Top Rank Boxing, soccer (Bundesliga, Serie A, FA Cup, MLS), and PGA Tour. In August, you needed ESPN+ to see Tiger Woods, Justin Thomas, Rory McIlroy, and Brooks Koepka live in the first round of the PGA Championship. They are also the exclusive home to $64.99 UFC PPVs.
Like with movies, the question is where to distribute everything. One platform cannibalizes another but you’re in effect moving things from one bucket to another when that makes sense. The timing in part depends on the rate of subscriber losses for ESPN and even ABC. With the cable sports networks, 80 million times $10 a month times 12 months in a year is still $9.6 billion. But what’s the bottom? When?