Walt Disney (DIS 2.40%) reported better-than-expected financial results for its fiscal 2025 first quarter (ended Dec. 28, 2024). Revenue and diluted earnings per share were up 5% and 35%, respectively.
The headline numbers get all the attention. But it's best not to forget about how Disney is positioning itself for a future dominated by streaming video entertainment. Management just provided more information about what's coming.
The smartest Disney stock investors are keeping an eye on this one massive development.
Disney's sports strategy
Once again, Disney's leadership team reiterated that this fall, the business will launch its highly anticipated ESPN streaming service, called "Flagship." This will differ greatly from the current ESPN+ offering, which has 24.9 million subscribers. It also demonstrates management's focus on being a sports media powerhouse, even after the proposed Venu Sports service fell apart.
Despite Disney's traditional cable-TV networks dealing with an ongoing decline, ESPN has held up thanks to healthy advertising revenue and affiliate fees. Households continue to cut the cord. But for those that remain, sports are undoubtedly a popular draw, and engagement remains strong.
The hope is to translate this success to a streaming world. The upcoming ESPN app will be offered as a stand-alone service. But it can also be bundled with Disney+ and Hulu in a manner that can be displayed in a "one-app experience."
CEO Bob Iger is extremely optimistic that this new service will resonate strongly with sports fans. He mentioned that because it's a direct-to-consumer app, the platform can be personalized to each customer's favorite sports teams, for example. There will also be exciting capabilities, like fantasy and betting.
While management hasn't shied away from hyping up this new service, there hasn't been any commentary on pricing. "We will get really smart and strategic about pricing," Iger said.
The overarching goal, obviously, is to maximize revenue while getting this into as many households as possible.
Given that Flagship will probably show Disney's unrivaled sports rights, with games from the NBA, NFL, and NCAA college football, for example, I'd imagine this has pricing power.
NYSE: DIS
Key Data Points
ESPN's value
The leadership team also hasn't provided any details about their financial expectations for the new ESPN flagship app. Sales projections, subscriber estimates, and a path to profitability are left up to investors' imaginations. Nonetheless, it's hard to argue that ESPN isn't extremely valuable.
Disney owns 80% of ESPN. It's difficult to put a value on this.
On the one hand, generating $1 billion in annualized operating income at a 5% margin for the Sports segment isn't awe-inspiring. But on the other hand, having rights to major sports leagues locked up, as well as the expertise when it comes to pre- and post-game productions, documentaries, other content, and relationships with media personnel, makes ESPN the top destination for sports fans.
Big tech enterprises Apple, Amazon, and Alphabet, in addition to streaming pioneer Netflix, all broadcast sports to their big audiences. None of them have anything close to what Disney does with ESPN.
It's a fun exercise to try to figure out what these deep-pocketed businesses would pay to acquire ESPN to bolster their sports ambitions. Would it be $50 billion or $100 billion? I have no idea, but I'm sure it's a massive sum, particularly when you consider about how much ad revenue there is to make.
Disney's smartest shareholders are paying very close attention to any details provided leading up to the launch of Flagship. After it's introduced, it's critical for investors to understand how the service is performing, especially around subscriber growth at first.
Disney's ability to monetize ESPN, the most powerful brand in sports media, in a streaming world will be key to the company's success. Later on this year, investors will see a step in that direction.
