ESPN+: Building A Billion Dollar Business

Disney had their investor day yesterday, delivering impressive new ESPN+ content and updated subscription numbers — but should we really be that surprised?

Friends,

Media and entertainment conglomerate Disney had their investor day yesterday and provided a variety of updates on the sports front.

From a media rights standpoint, ESPN and the SEC announced a new deal that will see the weekly marquee matchup and the SEC Championship Game move to ABC starting in the summer of 2024.

The price?

A massive 10-year, ~$3 billion commitment.

For context — while ESPN will be paying ~$300 million annually for the SEC rights, current right’s holder CBS is only paying about $55 million annually currently.

Both are true:

  1. At ~$55 million annually, CBS was getting a great deal.

  2. At ~$3 billion over ten-years, ESPN is making a massive commitment.

Outside of media rights, Disney also shared significant updates regarding their sports streaming service ESPN+.

Here’s a quick summary:

  • While the standalone app will still exists, ESPN+ content will be folded into Hulu so you don’t have to jump back and forth.

  • A new daily morning program—think SportsNation reimagined—will launch on ESPN+ in January. Disney says the show will “recap the previous night’s sports action and go deep on news, highlights, and trending topics.”

  • In January, Stephen A Smith is also getting his own exclusive show on ESPN+.

  • In 2021, ESPN+ will launch a nine-part docuseries called “Man in the Arena,” which will feature Tom Brady discussing his path to each of his nine Super Bowls appearances.

  • Peyton’s Places, the football-themed documentary series hosted by Peyton Manning, is coming back for a third season next fall. They will also be expanding into other sports with episodes hosted by David Ortiz, Abby Wamback, Ronda Rousey and Eli Manning.

  • ESPN+ will release three new original movies “inspired by the real-life stories of Chris Paul, Giannis Antetokounmpo, and Keanon Lowe.

While the content update was great, and it seems like ESPN+ has a lot in the pipeline, that’s not exactly the interesting part.

What is?

Their subscriber growth.

Here’s the way I think about ESPN+ subscriber growth.

It took ESPN+ almost 2-years to get 3.5 million subscribers, but just over a year later they have 11.5 million subscribers.

How is that possible?

They introduced the Disney+, Hulu & ESPN+ bundle deal.

Think about it this way — Disney+ has over 85 million subscribers currently, with a forecast of 230 million to 260 million by the end of 2024, but how many ESPN+ subs are really just Disney+ subs that picked the economically friendly subscription package instead?

The funny part is….

It doesn’t really matter.

Monthly ARPU has dropped from $5.15 to $4.54 year-over-year due to the bundle deal, but if that number stays constant, ESPN+ will have a $1.3 billion business by 2024 based on a current projection of 25 million subscribers.

The craziest part?

At $1.3 billion in annual revenue, that would replace the majority of lost revenue from declining cable subs.

Now, they key is retaining them.

While Disney continues to purge their existing distribution network for additional ESPN+ subscribers, they’ll look to continuously add compelling content to keep subscribers from leaving.

An exclusive new show with Stephen A Smith and placing premium writers like Zach Lowe behind the ESPN+ paywall will certainly help, but more will be needed.

Ultimately, it’s a super impressive start for Disney — but in a streaming world that is dominated by competitors of size and scale, should we really be that surprised?

Hope you have a great weekend and we’ll talk Monday.


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