Please ensure Javascript is enabled for purposes of website accessibility

Disney Takes the Next Step Toward Transforming the Company

By Adam Levy - Updated Apr 4, 2018 at 1:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Disney's first wholly owned streaming service will launch April 12.

Walt Disney (DIS -0.70%) restructured the organization last month as it prepares to sell various streaming services directly to consumers. Disney already has its toes in direct-to-consumer video streaming with its stakes in Hulu and BAMTech, but in a few days it will launch its first wholly owned streaming service, ESPN Plus.

ESPN released details of the upcoming ESPN Plus streaming service, which will cost $4.99 per month and feature:

  • One MLB and NHL game during each day of their respective seasons.
  • Over 250 MLS games, including the exclusive rights to the Chicago Fire.
  • Various boxing matches.
  • Coverage of 31 PGA tour events.
  • Thousands of college sports events.
  • Wimbledon, U.S. Open, and Australian Open tennis.
  • Hundreds of international rugby and cricket matches.

Subscribers will also have access to original shows and films and on-demand programming.

Person on stage at an ESPN event

Image source: ESPN.

"[A]n exciting new era of innovation"

"The launch of [ESPN Plus] marks the beginning of an exciting new era of innovation for our media businesses -- one defined by an increasingly direct and personal relationship with consumers," said Kevin Mayer, the head of Disney's new direct-to-consumer and international division, in a press release.

Disney is making a big bet on direct-to-consumer businesses, and ESPN is in particular need of innovation. After years of steadily increasing its affiliate fees and advertising revenue, both are starting to feel pressure from cord-cutting. ESPN subscribers have dropped from 99 million at the end of fiscal 2013 to just 88 million at the end of last year. As viewership declined, ESPN's advertising revenue has followed, and affiliate fees are barely able to offset the drop.

ESPN invested heavily in sports rights, which it used to justify continued price increases to distributors. But as more and more people cut the cord or search for less expensive entertainment options, ESPN has typically fallen by the wayside in most households.

ESPN Plus is the plan to get the most out of its expensive sports rights by using more niche events to attract an audience, and then rely on original programming to keep them subscribing month after month. The company plans to use personalization algorithms (a la Netflix) to suggest content to users based on their previous interactions with ESPN's digital properties. And it has a lot of user data: 112 million unique visitors spent over 1.4 billion hours consuming digital media from ESPN in 2016.

In the past, ESPN may have simply launched a new cable network to get its ballooning content portfolio to consumers. But with viewers rebelling against the bloated cable bundle, it necessitated a new strategy.

Will anyone subscribe?

It's clear ESPN Plus is not a mainstream product. But it's put together a nice package of content that should be able to attract a small audience. The package could become even more compelling following the acquisition of Twenty-First Century Fox (FOXA).

Fox has the rights to various MLB games, big NASCAR events, college football and basketball divisions, lots of European soccer, the FIFA World Cup, UFC fighting, and more.

ESPN doesn't need ESPN Plus to attract a ton of new subscribers every year. It's losing a couple million subscribers to its flagship network every year. If it can make up for those lost subscribers with increasing affiliate fees and some ESPN Plus subscribers, it'll be in good shape.

The real question, though, is whether ESPN Plus can hold onto subscribers. People might sign up for a month to watch Wimbledon tennis or the The Players Championship golf tournament, but they can easily cancel the next month.

Without any experience in direct-to-consumer products, Disney may not be prepared for the challenges of user retention. That's something investors should pay close attention to in management's commentary on the streaming service over the next few quarters.

Importantly, ESPN Plus is more of a niche product than Disney's planned Disney-branded streaming service coming in 2019. Launching now and learning the ropes of a direct-to-consumer service with ESPN Plus could set up the Disney-branded service for faster success.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$102.42 (-0.70%) $0.72
Twenty-First Century Fox, Inc. Stock Quote
Twenty-First Century Fox, Inc.
FOXA

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.