When The Walt Disney Company ousted CEO Bob Chapek in November and returned Bob Iger to his old post, the main questions in sports swirled around ESPN. Would Iger seek to sell ESPN? Would he slow down buying sports rights, or dismantle ESPN the TV network and move it all to streaming on ESPN+?
Iger began to answer some of those questions Wednesday in his first earnings call with analysts since his return. In his absence between CEO stints, some investors grew more vocal in demands for Disney to sell ESPN. One Wall Street firm predicted an ESPN sale this year.
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Iger threw cold water on that idea, even though a new reorganization he unveiled on the call includes ESPN getting stripped out of Disney’s media and entertainment group. The sports network will operate in its own standalone silo within the larger entertainment conglomerate. It is now one of three divisions — the others are theme parks, and media and entertainment.
“We were fairly certain when we created this structure and broke ESPN out on its own, that it would lead to questions like this,” he said of one such query from J.P. Morgan analyst Philip Cusick about whether ESPN standing alone within the company meant it was being primed for a sale. “We did not do it for that purpose. Actually, ESPN is a differentiator for this company, it is the best sports brand in television. It’s one of the best sports brands in sports. It continues to create real value for us. It is going through some obviously challenging, challenging times because of what’s happened to linear programming (with cord cutting). But the brand of ESPN is very healthy. And the programming of ESPN is very healthy. We just have to figure out how to monetize it.”
Disney on the call disclosed it will be laying off 7,000 employees and seeking $5.5 billion in cost savings. Will any of that come out of ESPN? Iger didn’t quite say. If some does, it would not appear that much. In discussing the cost cuts, Iger said the company expected to deliver $3 billion in savings on the content side, but added: “not in sports.”
Iger conceded the company needed more scrutiny about inking news sports rights deals, but he added some caveats. First, ESPN is already locked into expensive long-term agreements with the NFL and the SEC. The big deal hanging out there is the NBA, whose contracts with ESPN and Turner expire after the 2024-25 season.
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The NBA’s current deals are worth $25 billion, and some reports have the basketball league wanting to triple that. If true, Iger appeared unfazed.
“The one that’s looming is the NBA, I know that’s on people’s minds,” he said. “This, which is a product that we’ve enjoyed having and hope to continue to enjoy having, because not only its volume, but its quality. ESPN has been selective in the rights that they bought. I’ve had long conversations about this with (ESPN president) Jimmy Pitaro. And we’ve got some decisions that we have to make coming up — not anything particularly large, but on a few things, and we’re simply going to have to get more selective.”
Any speculation that Iger might make a change in leadership there was put to bed when he said Pitaro would continue managing the sports media giant.
Iger’s comments on the NBA contrast with one made by David Zaslav, CEO of Turner parent Warner Brothers Discovery, who said in November his company doesn’t “have to have the NBA.”
The major challenge for all media companies is the balance between streaming and linear TV, with Disney no exception. Tens of millions of subscribers have fled the cable bundle system over the last few years for streaming services. The problem for companies like Disney is those streaming services bleed money. For example, Disney reported a $1.1 billion quarterly loss for Disney+ (this includes Hulu and ESPN+), projecting it would make its first profit at the end of next year. Disney also reported its linear networks, which include ESPN, earned $1.2 billion in the quarter.
Disney did not break out how much ESPN+ is losing, reporting only that the service’s subscribers rose 600,000 to 24.9 million. Migrating sports content from linear ESPN to streaming ESPN would chip away at the red ink.
“We’re in a very interesting transition period, but one, I think, is inevitably heading toward streaming,” Iger said.
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In that vein, Iger seconded his predecessor’s commitment to one day shifting ESPN entirely to streaming. But not yet.
“Is the shift inevitable? The answer is yes,” Iger said. “But I’m not going to give you any sense of when that could be. Because we have to do it obviously at a time that really makes sense for the bottom line and we’re just not there yet. And that’s not just about how many subscribers we could get. It’s also about what is the pricing power of ESPN, which obviously ties to the menu of sports that they’ve licensed.”
(Top photo: Kevin Sullivan / Getty Images)