Disney (DIS 2.46%) added another million subscribers to ESPN+, its direct-to-consumer (DTC) sports entertainment video service, over the last five months. That keeps pace with the service's first five months since launch.
Adding 2 million subscribers in less than a year is an impressive feat. HBO Now, for example, added just 800,000 subscribers in the same amount of time.
Disney has some advantages in growing ESPN+, and it can take what it's learned from the launch of the service and apply it to the forthcoming debut of Disney+ and the ongoing expansion of Hulu. Here's how Disney grew ESPN+ so quickly, and how it can use the same tactics and more to grow its DTC business.
One of the biggest contributors to ESPN+'s growth over the last five months was the launch of UFC Fight Night. "The very first UFC Fight Night under our new five-year rights deal led nearly 600,000 fans to sign up for the service," Disney CEO Bob Iger told investors on the company's first-quarter earnings call.
Check out all our earnings call transcripts.
Having excellent content is key to attracting and retaining an audience. ESPN+ launched without much more than content ESPN deemed not good enough to air on its linear television networks. Adding exclusive niche content like UFC provides sustained value for many subscribers. ESPN will continue to make deals for streaming content rights with various sports leagues in order to round out the service.
Netflix (NFLX -0.66%) understands the importance of content in attracting subscribers. The company amortized $7.5 billion in content spend in 2018. Of course, Netflix is capable of spending that much due to its massive audience of nearly 140 million global subscribers. But investors shouldn't discount ESPN's ability to spend on content thanks to the cash flow from its cable networks and other platforms. As a whole, ESPN already spends more than Netflix on content rights.
Disney+ and Hulu will benefit from high-value exclusive content rights as well. Disney+ will be the streaming home to Disney's theatrical releases starting with Captain Marvel. Disney is also developing several exclusive releases for Disney+ in both film and serialized storytelling.
Hulu, meanwhile, benefits from access to next-day streaming rights to many of the top television programs. It also has increased access to back catalogs of series produced by its parent companies. Series like 30 Rock and It's Always Sunny in Philadelphia were reclaimed from Netflix.
A massive platform for promotion
ESPN+ also benefits from a massive audience across various channels to which it can promote ESPN+. Its flagship cable networks have 86 million subscribers. Its website and mobile app reach 115 million people in any given month. Its radio stations reach 32 million.
ESPN has been able to use those platforms to promote ESPN+. People with the app installed, for example, might receive a push notification that their favorite team or a big event is streaming on ESPN+ tonight. People watching a game on ESPN2 might learn they can see similar events by subscribing to the direct-to-consumer service.
Netflix noted marketing its original content is an important part of attracting a larger audience. (What good does great content do you if nobody knows about it?) As such, it made a massive investment in marketing last year, and its marketing budget will stay elevated. Disney can keep its marketing budget low thanks to having a built-in audience to promote its services.
Disney+ can benefit from similar advantages to ESPN. The Disney Channel has 89 million subscribers in the U.S., and its international audience is absolutely massive (225 million subscribers). Millions of people come streaming through the gates of Disney's parks every year. Disney has even more platforms to experiment with marketing its service than ESPN.
Both services might be able to piggyback on the growth of Hulu, which recently surpassed 25 million subscribers. Iger noted the company plans to offer the option to bundle its services together and receive a discount. Hulu already offers add-on plans for other premium streaming services, so a shift to promote Disney's own services isn't a big stretch.
With great content and a built-in audience to market its services to, Disney ought to be able to continue growing its direct-to-consumer services at a relatively quick pace. That should make for a short transition period for the company as a whole before it shows improved revenue and profit growth in the long term.