Disney CEO Iger: ESPN could one day be sold direct

[Tugg Speedman]

Disney CEO Iger: ESPN could one day be sold direct

http://www.cnbc.com/2015/07/27/disney-ceo-iger-espn-could-one-day-be-sold-direct.html

Walt Disney chief Bob Iger said Monday he sees ESPN as a media property that could be eventually sold directly to consumers like Time Warner's HBO, but not in the next five years.

"If we end up seeing more erosion in the so-called multichannel [cable and satellite TV] bundle, quality will win out," he told CNBC's "Squawk Box."

"While the business model may face challenges over the next few years, long term for ESPN ... they'll be fine. They have pricing leverage, too," Iger said. "Disney [Channel] is another ... brand and product that could be sold directly to the customer."

Disney owns ABC television and ESPN, theme parks and resorts, and movie studios under the Walt Disney Pictures, Pixar and Marvel banners.

"Technology is the most disruptive force that so-called traditional media ... is facing," he said.

"[But] we decided to view technology as a friend, not a foe," he continued, to bring better customer experiences across all of our businesses from making media look crisper on HD televisions to mobile and online viewing apps to enhanced attractions at theme parks.
China 'most exciting opportunity' in a long time

With Shanghai Disneyland set to open in about a year, Iger said he's not too worried about the recent meltdown in the Chinese stock market, which fell nearly 8.5 percent overnight.

"We opened up a new Disney store in Shanghai a few months ago, and I was there the week before last, [it's] still doing extremely well," he said.

"We haven't opened the theme park yet. So we don't fully know, but the research that we've done so far suggests that the Chinese consumer is not really in terms of its behavior indicating there's an issue," he added.

"We believe in that market for a Disneyland big time," he continued. "It's probably the most exciting opportunity the company has had in a long time, and definitely the most exciting opportunity we've ever had outside the United States."

Shanghai Disneyland is a joint venture between Disney and entities owned by the Chinese government.
Disney's bet bets on superheroes, 'Star Wars'

Over the weekend, Disney-Marvel's "Ant-Man" again won the domestic box office—just beating out Sony's Adam Sandler comedy "Pixels," which pulled in a disappointing $24 million in its debut.

"Ant-Man" made an estimated $24.8 million in its second weekend—breaking above $106 million in total U.S. and Canadian ticket sales and more than $120 million worldwide, according to Box Office Mojo.

The first 11 movies in Marvel's shared super-hero universe have grossed more than $8.5 billion at the global box office.

Read MoreWhat 'Ant-Man' says about Marvel's phase four

With Marvel firing on all cylinders, Disney is also about to reboot the "Star Wars" franchise—with "The Force Awakens," set for release in December. It's the first of three films being produced since Disney bought Lucasfilm in 2012 for $4 billion.

"I've seen the film without most of its special effects and without most of its music," Iger said. "I can't wait for the world to see it."

"We're making standalone films which we've announced, two," he said—referring to a project exploring the backstory of a young Han Solo and "Star Wars: Rogue One" involving a heist surrounding Death Star plans.

The six previously released "Star Wars" films have grossed more than $4.4 billion at the worldwide box office since 1977.

[Tugg Speedman]

Disney’s Bob Iger: Inevitable that ESPN Goes Direct-to-Consumer
http://blogs.wsj.com/cmo/2015/07/27/disneys-bob-iger-inevitable-that-espn-goes-direct-to-consumer/

Walt Disney Co. Chief Executive Bob Iger said on CNBC Monday morning that “there’s an inevitability” to ESPN peeling itself away from the traditional pay TV bundle.

“I think eventually ESPN becomes a business that is sold directly to the consumers,” Mr. Iger said.

ESPN, which is majority-owned by Disney, could use information from that direct consumer relationship to customize its product and enable more personalization, which will engage fans in a “much more effective way,” he said.

Mr. Iger cautioned that such an offering is not “right around the corner”; even five years down the line, he believes there won’t have been “significant change” in the pay TV business.

ESPN already has indicated it has interest in streaming some sporting events directly to consumers. Last fall, when it renewed a long-term rights deal with the National Basketball Association, the network began laying plans for an online video service that would allow people who aren’t pay TV customers to stream live regular season games. Earlier this year, ESPN created a streaming service to offer the ICC Cricket World Cup to American fans without requiring that they have a cable subscription.



But selling ESPN’s channel, as a whole, outside the pay TV bundle would be a major escalation of that strategy. Other media companies including CBS Corp. and Time Warner’s HBO have taken the plunge with over-the-top services, but as a broadcaster and premium cable channel owner, respectively, they have different business models than ESPN.

ESPN, the most expensive channel in the standard cable bundle, has lost 3.2 million subscribers in a little over a year, as “cord-cutting” and “cord-shaving” pick up, Nielsen data shows.

If ESPN were to offer a direct-to-consumer streaming service, it would have to charge about $30 a month per customer to make the same money as it does under its current pay TV distribution model, some analysts say.

ESPN’s rate would depend on how many of its current subscribers it thinks it can retain in an ‘a la carte’ world. If only 20% of its current subscribers sign up, it would have to charge about $33 to ensure its revenue isn’t dented, according to an analysis by Nomura Securities analyst Anthony DiClemente. But if 40% subscribe, ESPN could charge about $16.

[Tugg Speedman]

Chicos, question ...

If ESPN unbundles and offers itself as a stand alone product, how does it survive?

Specifically, in an unbundled world, why doesn't the NFL, through the NFL network and nfl.com take back their content and offer it directly to consumer and keep 100% of the revenue (not sharing it with ESPN).  Ditto the NBA, MLB, NHL, BTN, Tennis Channel, Gold Channel and so on.

Once we get off the bundle, why do the major sports (content providers to ESPN) need ESPN?  Why don't they offer it directly?

[brandx]

Disney’s Bob Iger: Inevitable that ESPN Goes Direct-to-Consumer
http://blogs.wsj.com/cmo/2015/07/27/disneys-bob-iger-inevitable-that-espn-goes-direct-to-consumer/

Walt Disney Co. Chief Executive Bob Iger said on CNBC Monday morning that “there’s an inevitability” to ESPN peeling itself away from the traditional pay TV bundle.

“I think eventually ESPN becomes a business that is sold directly to the consumers,” Mr. Iger said.

ESPN, which is majority-owned by Disney, could use information from that direct consumer relationship to customize its product and enable more personalization, which will engage fans in a “much more effective way,” he said.

Mr. Iger cautioned that such an offering is not “right around the corner”; even five years down the line, he believes there won’t have been “significant change” in the pay TV business.

ESPN already has indicated it has interest in streaming some sporting events directly to consumers. Last fall, when it renewed a long-term rights deal with the National Basketball Association, the network began laying plans for an online video service that would allow people who aren’t pay TV customers to stream live regular season games. Earlier this year, ESPN created a streaming service to offer the ICC Cricket World Cup to American fans without requiring that they have a cable subscription.



But selling ESPN’s channel, as a whole, outside the pay TV bundle would be a major escalation of that strategy. Other media companies including CBS Corp. and Time Warner’s HBO have taken the plunge with over-the-top services, but as a broadcaster and premium cable channel owner, respectively, they have different business models than ESPN.

ESPN, the most expensive channel in the standard cable bundle, has lost 3.2 million subscribers in a little over a year, as “cord-cutting” and “cord-shaving” pick up, Nielsen data shows.

If ESPN were to offer a direct-to-consumer streaming service, it would have to charge about $30 a month per customer to make the same money as it does under its current pay TV distribution model, some analysts say.

ESPN’s rate would depend on how many of its current subscribers it thinks it can retain in an ‘a la carte’ world. If only 20% of its current subscribers sign up, it would have to charge about $33 to ensure its revenue isn’t dented, according to an analysis by Nomura Securities analyst Anthony DiClemente. But if 40% subscribe, ESPN could charge about $16.

I have been saying all along that it is inevitable. Just a matter of time and the form that it will take.

The death watch for linear television has been going on for a while.

[brandx]

Chicos, question ...

If ESPN unbundles and offers itself as a stand alone product, how does it survive?

Specifically, in an unbundled world, why doesn't the NFL, through the NFL network and nfl.com take back their content and offer it directly to consumer and keep 100% of the revenue (not sharing it with ESPN).  Ditto the NBA, MLB, NHL, BTN, Tennis Channel, Gold Channel and so on.

Once we get off the bundle, why do the major sports (content providers to ESPN) need ESPN?  Why don't they offer it directly?

1. $$$$$
2. $$$$$

[Tugg Speedman]

1. $$$$$
2. $$$$$

What are you saying?

[chapman]

What are you saying?

Translations:

1. $$$$$

Hosting or outsourcing the infrastructure to support that kind of operation is pricey.  The leagues currently sell their media rights for massive fees, and put the huge risk on the networks to find the ROI on it. 

2. $$$$$

ESPN can't maintain their current profitability without being part of a bundled package.  But ESPN itself is a bundling of the major sports, minor sports, professional, college, and even Little League. 


As an example, how many people will really pay to watch the NBA if it's not on ESPN, if SportsCenter isn't hyping Lebron's next game every day, but they instead have to pay for the NBA directly?  Enough people, and at enough of a price to risk the $930 million per year deal they just signed to supply their content to ESPN and Turner?  Sure, the NBA has scheduling and marketing obligations as part of the deal, but the risk to recoup that $930 million is now on the networks. 

Heck, just to support the infrastructure mentioned above, the NBA is going to be charging a ridiculous $6.99 per game to watch on demand out of market games next year that are already outsourced to networks.   How much would they need to charge if they had to take care of the full demand for their product via streaming, market that product, air a pre-game show, air a post-game show that covers just the NBA, bring a camera crew and announcers to every game, and all the while bear the risk of low subscription levels if the Knicks, Lakers, and Sixers continue to stink?

[ChicosBailBonds]

Still a long ways a way.  They earn so much of their money through carriage fees it is incredible.  Furthermore, their contracts with rights holders for the next 10 years has them on the hook for massive payouts.

There are also massive protections in place right now with MFNs that don't allow them to just sell direct to the consumer even if they wanted to.  Eventually, sure, but that's down the road.

The way it could survive is one of several options.  Get a ton of people to buy the product cheaply....not going to happen.  Get 35% of the folks to buy it and pay a lot....might happen, but then they also have to worry about piracy and the other crap form the society that thinks stuff should be for FREEEEEEEEEEE.    Create massive advertising inducements and try to monetize that way....that gets you part of the way there.

Ultimately, I don't know.  That's a tough nut they are going to have to crack.  They are trying to build in outs into their contracts now, but the MVPDS are also building out protections for themselves as well.  They have put in a lot of money for sports properties which is risky, but historically they have had to bare little risk.  The risk was put up by the DIRECTVs, Time Warners, Comcasts of the world.  That paradigm changes when you start selling direct....now the risk shift is all on the channel, not the distributor.

[brandx]

Translations:

ESPN can't maintain their current profitability without being part of a bundled package.  But ESPN itself is a bundling of the major sports, minor sports, professional, college, and even Little League. 


As an example, how many people will really pay to watch the NBA if it's not on ESPN, if SportsCenter isn't hyping Lebron's next game every day, but they instead have to pay for the NBA directly?  Enough people, and at enough of a price to risk the $930 million per year deal they just signed to supply their content to ESPN and Turner?  Sure, the NBA has scheduling and marketing obligations as part of the deal, but the risk to recoup that $930 million is now on the networks. 

Heck, just to support the infrastructure mentioned above, the NBA is going to be charging a ridiculous $6.99 per game to watch on demand out of market games next year that are already outsourced to networks.   How much would they need to charge if they had to take care of the full demand for their product via streaming, market that product, air a pre-game show, air a post-game show that covers just the NBA, bring a camera crew and announcers to every game, and all the while bear the risk of low subscription levels if the Knicks, Lakers, and Sixers continue to stink?

Excellent.

[Tugg Speedman]

You cite costs but this is wrong.  They already spent that money. 

They already have the build-out.  The all broadcast on their own network (see the Thursday night game on the NFL network).  Baseball already pays the broadcast talent directly.  See MLB.tv, you can buy every MLB game to stream (and/or every radio broadcast) right now on their website.  See the tennis channel.  They have hours of Live tennis every day from around the world.  They employ the broadcasters and they also stream it live on tennischannel.com.  They all have .com that stream the games.

And that infrastructure is not as expensive as you think.  I subscribe to flotrack (track & field) and cycling.tv.  These are low budget streaming that broadcast every event under the sun with commentators in HD.  It's not bad (yes not as good as a network production) and they charge $5 and $7/month.  Point is I think you greatly overestimate the costs to a league that gets billions in licensing fees.

Remember Iger said "there is an inevitability" that ESPN is going away from the bundle.  So it's not happening for a few years.  But once it does happen (and the big boss expects it will), all the major sports have their own infrastructure NOW so why not keep it all for yourself?  Which business model makes more sense?  Sell it or broadcast it yourself?

[Tugg Speedman]

Translations:

ESPN can't maintain their current profitability without being part of a bundled package.  But ESPN itself is a bundling of the major sports, minor sports, professional, college, and even Little League. 

ESPN does not think this.  Bob Iger does not think this. (Warren Buffett called Iger the best CEO in the world today.) 

ESPN thinks they are leaving the bundle someday soon and they are going to make more money when they do.  That is why they built out espn3.com

I agree with ESPN with my one caveat/question ... will the major sports decide to cut ESPN (and all networks) out and sell it themselves and keep 100% of revenues?

[ChicosBailBonds]

ESPN does not think this.  Bob Iger does not think this. (Warren Buffett called Iger the best CEO in the world today.) 

ESPN thinks they are leaving the bundle someday soon and they are going to make more money when they do.  That is why they built out espn3.com

I agree with ESPN with my one caveat/question ... will the major sports decide to cut ESPN (and all networks) out and sell it themselves and keep 100% of revenues?

Damon Phillips built ESPN3, one of my good friends.  Former colleague of mine at Directv.  He played linebacker at Stanford. 

Bob Iger is a great CEO.   Iger also knows the reality that they can't go it alone right now.  Costs do matter, because you need revenue to offset those costs.  They are on the hook for massive costs and pulling out of a bundle puts their revenues in considerable danger.

Remember, they are in bundled packages of about 90% of all television packages sold.  Of that 90%, only about 30% to 35% even want it.  That means they are taking is massive revenues from people that don't even want their service.   That is what they need to solve for, and that is also why he is saying "some day", because they can't solve for it right now.  Not only that, their own contracts with DISH Sling, Directv, Verizon's new Go90 (you probably haven't heard of that one yet, but it's coming) REQUIRE a bundle....on THEIR insistence.   They are skinny bundles, but bundles nonetheless.

[Benny B]

What are you saying?

[Tugg Speedman]

Damon Phillips built ESPN3, one of my good friends.  Former colleague of mine at Directv.  He played linebacker at Stanford. 

Bob Iger is a great CEO.   Iger also knows the reality that they can't go it alone right now.  Costs do matter, because you need revenue to offset those costs.  They are on the hook for massive costs and pulling out of a bundle puts their revenues in considerable danger.

Remember, they are in bundled packages of about 90% of all television packages sold.  Of that 90%, only about 30% to 35% even want it.  That means they are taking is massive revenues from people that don't even want their service.   That is what they need to solve for, and that is also why he is saying "some day", because they can't solve for it right now.  Not only that, their own contracts with DISH Sling, Directv, Verizon's new Go90 (you probably haven't heard of that one yet, but it's coming) REQUIRE a bundle....on THEIR insistence.   They are skinny bundles, but bundles nonetheless.

What you accurately describe is an inefficient and mis-priced market (paying for bundled channels allowing ESPN to generate more revenue than they would as a stand alone).  That is why the bundle will eventually fail (emphasis on eventually).

The question is what causes the bundle to fail?  Is it a new disruptor like Uber or will it be existing players cause it to fail.  And what happens to ESPN when they are forced to go alone?

If I'm reading you properly, when the bundle fails, ESPN is in deep trouble.  Their revenues take a big hit but their costs (rights to sports properties, not cameramen) remain.

[GOO]

ESPN may have no choice in the future but to offer it as a standalone in addition or without a bundle.  ESPN will make a lot less money when they do this for the reasons often cited by Chicos.

What does that mean when ESPN has a lot less revenue when the bundles with ESPN go away or are not being subsidized by all cable subscribers? It means that conferences and leagues better have a plan B on how to make up some of the revenue they won't have coming from ESPN.

Big changes will be on the way in the next 5 years, and the loss of revenue will flow down hill and affect all sports with inflated budgets and inflated payrolls. 

[martyconlonontherun]

The way it could survive is one of several options.  Get a ton of people to buy the product cheaply....not going to happen.  Get 35% of the folks to buy it and pay a lot....might happen, but then they also have to worry about piracy and the other crap form the society that thinks stuff should be for FREEEEEEEEEEE.    Create massive advertising inducements and try to monetize that way....that gets you part of the way there.

I don't think the majority of people think it should be free, but the price has gotten out of hand for television contracts. I think people are willing to pay a fair price to watch the games to cover the cost of placing the games on tv and generating some profit for those involved, but it has gotten out of hand and the bubble is bursting. People don't want to pay huge bundle fees because these channels out bid each other for the rights to host the games. They then passed along the costs. If ESPN can't get 50% of the usual subscribers to pay $15 a month, they are charging too much. Luckily for them, they get 10% of the subscribers pissed off enough once a year when big game is on that they give in. As much as Marquette and the new bucks arena has benefited from these contracts, they are bubble and I'm glad it's bursting. There's no reason watching live sports can't be more reasonably priced besides for the multiple layers of unneccessary distribution.

[mu03eng]

Keep in mind, a lot of the TV distributors are also ISPs which ESPN would require to support a delivery mechanism independent of bundle.  How does ESPN get around that and reduce costs as the ISPs will just jack their rates or cut back on bandwidth.