It's official. As was widely expected, The Walt Disney Company (DIS +1.78%) will be launching a stand-alone streaming version of sports-focused cable channel ESPN later this year, at a price point of $29.99 per month. Its effective monthly price will be even lower for consumers who also subscribe to Disney+ and Hulu.
The launch of this service also likely marks the beginning of the end of the cable television industry as known today, even if it doesn't mean an immediate and complete collapse.
Here's what investors need to know.
Image source: Getty Images.
Disney is taking on already-battered competition
The world knew it was coming sooner or later -- CEO Bob Iger confirmed it in early 2024. The only question then was the timing, price, and the prospective impact that a cooperative sports-centric streaming package from Disney, Fox, and Warner Bros. Discovery might have on the overall marketability of a streaming service that only included ESPN's programming. That joint venture between Disney, Warner, and Fox has since been indefinitely blocked by a federal court, but Disney is clearly proceeding with its plans to offer an affordable version of ESPN that doesn't require a cable subscription.
That's a problem for cable companies like Comcast's (CMCSA 0.56%) Xfinity and Charter Communications' (CHTR +1.63%) Spectrum, both of which were already bleeding cable customers.
The graphic below tells the tale. Xfinity shed another 427,000 cable-television customers last quarter to bring the count down to just under 12.1 million, for perspective, extending a long-lived decline from the 2013 peak of nearly 23 million. Spectrum's TV headcount now stands at 12.7 million customers, thanks to last quarter's loss of 127,000, well down from its peak more than a decade ago.
Data source: Comcast Corp. and Charter Communications Inc. Chart by author.
These two cable powerhouses aren't unique in their customer attrition either, even if they are the biggest with the most customers to lose. Consumer market research outfit eMarketer reports the total number of paying cable-television customers in the United States has been culled by one-third of its 2013 peak, with non-cable households eclipsing cable TV's headcount of last year.
The advent of a streaming version of ESPN, however, could prove even more problematic for the cable business by accelerating this attrition for a couple of related reasons.
Ripe for (major) disruption
Again, the cable-television industry was already on the ropes, and as such, makes an easy target for a novel newcomer.
To the extent the cable TV business had any hope for a turnaround, though, it's now been wiped away.
See, Disney's ESPN isn't just a well-known and well-loved sports venue. It's the leading name of the sports-television market, accounting for nearly 30% of the nation's total sports viewership, according to numbers from TV ratings agency Nielsen. Adding Disney's ABC sports-branded programming to the mix pumps that number up to more than 40%.
Connect the dots. It's not just the biggest name in the business. Disney's got size-based leverage to exert in a myriad of ways.
NYSE: DIS
Key Data Points
Don't be surprised to see other studios mirror Disney's move, either, albeit with less scale and lower-priced streaming bundles of their sports-based programming.
Fox and Warner Bros. Discovery have already shown interest in looking beyond conventional cable for distribution of their sports-centric content, while several standard streaming services like Paramount's Paramount+, Warner's Max, and even Amazon's Prime also air the occasional exclusive sporting event. Most professional sports leagues and even a handful of individual teams now even offer their own streaming packages.
The point is, once Disney blazes the trail, the launch of many other new sports-centric streaming platforms from major studios wouldn't be a major leap.
That's a problem for the cable television industry for one simple reason. That is, live sports is the single biggest reason consumers still pay for cable television. A recent survey performed by CableTV.com indicates that 27% of these subscribers still pay a steep monthly price specifically for access to sports programming. The next-nearest reason is consumers' comfort with conventional cable, although it's difficult to imagine most of these people not being comfortable enough at this point to at least consider an alternative.
Whatever's in the cards, it works against cable companies' bottom lines.
Finally, at a turning point -- or the edge of a cliff
There was a time when content producers and content creators like Disney were in a symbiotic relationship, where the two parties helped one another without hurting one another. That's not the situation anymore. These relationships evolved into competition just a few years back. Now, with Disney's direct foray into the most important sliver of the television arena, it's become a full-blown competition that cable companies can't win -- studios just don't need middleman distributors anymore.
More to the point for investors, what's bad for an already beleaguered cable TV industry is good for Disney, and perhaps even disproportionately better.
Whereas the cable industry only pays Disney on the order of $10 per month per subscriber for the right to air ESPN's programming, Disney will be collecting three times that amount by selling the exact same content directly to subscribers. While sports currently makes up a little less than one-fifth of Walt Disney's revenue and roughly one-tenth of its operating income, both could swell if this new streaming-ESPN venture works out.
Bottom line? Cable stocks like Charter and Comcast were already tough to own. Now they're even less compelling. Conversely, The Walt Disney Company is finally addressing the ongoing shrinkage of its linear (cable) TV arm with a business model it's already proven it's great at. It brings plenty of marketing firepower to the table as well. This just might be the catalyst needed for the long-awaited turnaround from Disney stock.
