While it's true The Walt Disney Company's (NYSE:DIS) ESPN is struggling, investors should take the media's reporting on this subject with a grain of salt. Although The Wall Street Journal and other Fox-owned properties blame politics, ESPN's problem is closer to home: sports.

Deadspin notes that since 2015, when cord-cutting began in earnest, nearly every cable network has lost subscribers. Political networks MSNBC and Fox News have fared better than most by losing "only" 6% and 7% of their subscribers, respectively, the latter matching ESPN, while sports-based networks NBATV, MLB, and Golf Channel have lost 18%, 14%, and 10%, respectively.

The combination of expensive sporting broadcast rights combined with shrinking subscribers have squeezed margins, but ESPN may finally have a plan to reverse this trend by increasing digital monetization.

Three people sitting on a couch looking at a smartphone with one person holding a soccer ball and a bowl of popcorn on the table in front of them.

Image source: Getty Images.

Digital content monetization is key

ESPN's troubles started under prior president John Skipper. Skipper chose to ignore the growing threat of streaming to his network's business model, eventually thinking cable losses would ameliorate. Even worse, Skipper continued to sign large deals with leagues for broadcast rights with many observers arguing he overpaid for the content.

After Skipper left the network, citing an extortion attempt to disclose his cocaine addiction, it was widely expected Pitaro would face reality and attempt to make digital-content monetization a priority, as he was the prior chairman of Disney's consumer products and interactive media.

Exclusive content is a smart move

Disney acquired the majority stake of Bamtech in 2017 to build out its streaming presence, and ESPN has used the technology to offer ESPN Plus, a $4.99-per month streaming service. Unfortunately for sports fans, live-broadcast content is significantly limited when compared to the traditional cable networks as popular leagues have been apprehensive about wide-scale streaming, fearing it will devalue content.

However, ESPN's league agreements afford it essentially unlimited usage of sports clips, athlete interviews, and other non-live content that it can monetize. Pitaro's plans appear to use this to bring exclusive content to its app, finally treating looking at the app experience as separate from cable content.

Recently, the company started producing a version of SportsCenter exclusively for its app. Hosted by midnight SportsCenter anchor Scott Van Pelt, the "show" is less than five minutes long and quickly summarizes the day's events.

A sports platform company?

The potential of ESPN's digital strategy is perhaps best represented by Kobe Bryant's show Detail, an in-depth game-tape analysis of NBA playoff games. Written and directed by Bryant, the show is only available for ESPN Plus subscribers.

It's notably early to declare Bryant's show a success, but it appears to be a solid business model for Disney, specifically because it transforms ESPN from a traditional media network to more of a platform and distribution company, essentially acting as a gatekeeper and hub for athletes to produce low-overhead content using ESPN's existing library.

The brilliance in the idea is that it can be easily scaled by signing partnerships with athletes for similar content, letting retired athletes across leagues produce content and share their insight with fans. If even moderately successful, it's likely to grow ESPN Plus' digital subscriber base, which will allow the company more effectively monetizing the growing cost of broadcast rights and return the division (and hopefully the stock) to growth.