Disney; it’s direct or die
August 13, 2018
Disney is the ultimate media brand and a genuine giant that is determined to be ever bigger with the takeover of 21C Fox. And many parts of the empire are still money machines.
But it was a new and very small part of the group that drew some attention in the results. ESPN+ is symbolic of the existential threat facing Big Media and its wholly unsurprising failure to thrive is the kind of sign that has driven Disney to commit big to Direct To Consumer with so-called ‘Disneyflix’.
ESPN has paid a very, very, great deal of money for sport rights that mostly carry on to the early-mid 2020s. It has no idea how it can keep the margins up on these deals – its cable customers are suffering from cord cutting and advertisers have more and more alternative options. Probably the most symbolic rights deal was with the NBA; ESPN paid $24 billion in 2014 for a nine-year deal. Google it and among the top headline entries are: ‘NBA deal killing Disney stock’ and ‘ESPN execs split on NBA deal.’
ESPN+ is an attempt to use copious ‘B-roll’ to go ‘behind the scenes’, ‘under the skin’ – ‘beneath the helmet’ of the sports they paid billions for. It also runs sports that ESPN hasn’t bought the right to sell on its pay-TV platform customers – that would be sports that no one cares much about in the US. It’s about as interesting as it sounds, and as popular. Disney chief Bob Iger said ESPN+ was ‘a marathon not a sprint’ and ‘it’s exceeding expectations’ though he did add that expectations had been relatively low. No kidding, Bob.
ESPN+ must have proved beyond all doubt to Disney that the economics of sports rights are the economics of the mad house if you are the middle man (media company) shaken down by the rights holder who knows you need their content, and stabbed in the front by the networks who equally know you need their distribution. It is a death spiral, and ESPN is circling the drain. Disney will likely walk away from sport and not look back.
But Disney is big, diverse and smart, and I’m sure Iger isn’t kidding himself. Fox realised that alone it didn’t have the content or the brand to go direct. With Fox on board, Disney has both; it may be the only traditional media player who has the ammunition and the stones to take on Netflix and Prime in both departments. Hence Disneyflix; it isn’t a roll of the dice, it is the dice.