With the economics of sports powerhouse ESPN decaying, going direct to consumer is probably inevitable, Disney CEO Bob Iger conceded.
On Disney’s earnings call Tuesday, Iger fielded tons of questions about ESPN, which is getting a lot of attention from both analysts and management.
On the call, the company said that ESPN’s ad revenues in the calendar first quarter were down 1% excluding three extra college bowl games this year. The main concern about ESPN, the loss of subscribers to cord-cutting and skinny bundles, accelerated to 3%.
With the traditional cable model getting squeezed, analysts asked if ESPN would go direct to consumer.
“We don't have plans right now to take ESPN as it is currently distributed on both new and traditional distributors and go direct with it. Will that eventually happen? I think probably, but there is no plans right now to do that,” Iger said. “There are complications as it relates to our current relationships with distributors, and frankly, we don't really feel that we've got a great need to do that.”
Disney is planning to launch a Disney branded direct-to-consumer product this year, taking advantage of under-used sports rights ESPN already has and the technology Disney acquired when it bought a stake in BAMTech.
“But currently, we don't have plans to take the channel and just basically make it available direct, but I'm guessing that – and I'm not giving you any timetable at all – but it's not very near, but there is an inevitability to that,” Iger said.
Iger said that Disney and ESPN were aware of the challenges it faces and are working to make changes.
“John Skipper and the ESPN team have made a number of moves already on the personnel front and will continue to in terms of moving people around and making the best of, basically, the talent that ESPN has,” Iger said.
“In addition to that, they are looking at some program changes overall in terms of how the networks are programmed, all with an eye toward addressing not only where consumers are today but improving our non-life sports programming numbers. And we're not sitting on our hands.”
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Iger said that moving into the fast-growing mobile space was ESPN’s best chance to expand and remain relevant with a new generation of sports fans.
“ESPN is taking a number of steps on their mobile business, particularly consolidation of their apps and improving engagement, interface with the consumer, customization, personalization and use of video on the apps to grow engagement significantly,” he said. “The numbers have been tremendous and also, I should add, the watch app which is also really working nicely, and that's going to continue to grow and they've got fairly big plans to do that.”
He noted that ESPN’s app is now customizable with a more prominent video player, which means a user is more likely to see a highlight from his favorite sports and favorite team.
And ESPN is working with its advertisers to create packages that combine TV, digital and mobile. “We fell bullish about it,” Iger said.