An ailing ESPN is bad, bad news for Disney theme park fans
If you want to learn more about the long-term future of Disney's theme parks, you need to take a look at ESPN.
Disney's all-sports cable television network not long ago served as the company's cash cow, the largest channel in a division that contributed nearly half of Disney's operating profit and a third of its income last year. But ESPN is losing subscribers at what appears to be an accelerating rate, as more and more cable TV customers "cut the cord" in favor of online streaming.
What does this mean for the theme parks? If Disney starts losing gobs of money at ESPN, that means less cash in the corporate bank account for things such as new attractions at the parks. An ailing ESPN is already holding back Disney's stock price, according to many analysts' reports. If the channel tanks, so will Disney's stock price — further crippling Disney's ability to expand the parks or even maintain them at their current operational levels.
In short, an ailing ESPN is a disease that threatens the health of the entire Walt Disney Company.
According to Nielsen, ESPN lost 621,000 subscribers this month — the worst one-month loss in company history. Outkick the Coverage did the math, and based on a conservative estimate of ESPN's customer loss, determined that "within five years ESPN will be bringing in less subscriber revenue than they've committed for sports rights."
That's bad. And it gets worse, according to the writer's analysis: "The simple fact is this -- I don't see how ESPN's business model makes sense at all by 2021. The 'Worldwide Leader in Sports' is a dead channel walking."
The TL;DR is this: ESPN is losing customers but faces high fixed costs due to the billions of dollars it is paying in long-term deals for the rights to major sports leagues, including to the NFL for Monday Night Football. No amount of layoffs and cost-cutting can help ESPN maintain profitability given the cost of these contracts. And without rights to show pro sports, ESPN likely will lose even more customers.
Is there a way out for Disney?
The ideal solution would be for Disney to reverse the slide and start adding customers for ESPN. But that would mean finding a way to get more people to start subscribing to cable and satellite television packages again. As the Outkick the Coverage writer details, Disney's can't simply pad its subscriber base by selling access directly to consumers via online streaming, as that would jeopardize its ability to keep earning lucrative subscription fees from cable and satellite providers — ESPN's big source of income. Disney's hands are pretty well tied.
What's left? Sell ESPN, while Disney still can. But everyone in the business knows what's up with the channel. Who would want to buy a channel that's on course for financial disaster?
The businesses whose future is tied together with ESPN's, that who.
A cable or satellite provider could save itself a ton of money by owning ESPN, while also extracting subscription fees from its competitors, giving itself a major financial advantage over its rivals. Because Disney does not own a cable or satellite television provider, ESPN suffers as the market for cable television shrinks. But for the companies providing cable TV, it's all about their share of that market. A company can survive in a shrinking market if it is increasing its share of that market by enough. Owning ESPN might help a cable or satellite provide to do that.
Who are the potential buyers, then? Let's start with Disney's great rival Comcast, which owns NBCUniversal. Also, the newly merging AT&/Time Warner conglomerate. Those companies already have substantial sports programming networks, however. Does that make ESPN a better or worse fit? Your guess is as good as mine. Two other options would be Verizon and the newly combined Spectrum, formed by the merger of Charter, Bright House, and Time Warner's old cable business.
One way or another, Disney's theme parks needs to be freed from an ailing ESPN if they are to have a chance to thrive in the 2020s and beyond. Whether Disney accomplishes that by reversing the slide at ESPN or selling the channel is perhaps the most important challenge facing Disney's management at this moment. But if Disney fails to meet this challenge, fans of the company's theme parks can forget about seeing any big new additions for a long time after the Avatar, Toy Story, and Star Wars lands debut in the next few years.
The opening of the new lands will inevitably mean big crowds and continuing huge profits for the theme park division. ESPN, or anything else, would be no excuse for skimping on the parks when that division is doing gang-busters. We're already had penny-pinching cost-cutting because of Shanghai, ESPN, and God knows what other lame excuse. Enough is enough.
It's sad that entertainment companies have ballooned into these huge conglomerates. Sure, it's nice while the money comes in, but when it doesn't? Now the ability of the company to create what was meant to create, i.e. entertainment, is crippled.
i guess they never should have stuck their noses into ESPN to begin with. But I agree with still a fan. Disney still has PLENTY of money.
When ESPN didn't get the pick up expected in the UK, Disney were able to make the decision to shut it down.
It could mean Disney would want to make all it's WDW parks as successful as MK to expand hotel stays and sales of food and souvenirs. Non of the other 3 parks would make it on their own if they wen't part of the resort. A steady stream of investments in new rides, shows and a workforce that cares could be a lifesaver.
If ESPN's locked-in deals with the sports leagues expire in roughly 2020, that coincides pretty well with the opening of Star Wars Land(s). I guess for me, it doesn't seem too bad, considering Disney could be out of those deals just as the last of their current attraction lineup opens. They should have more cash freed up by then, and will have seen the impact of Avatar Land.
No contract is not negotiable. Ask the NFL, NBA, NCAA for a renegotiation of their existing contract or they can take their programming elsewhere. The truth is they have no where to go either. The major leagues and teams have their own channels, but they require the cable and satellite companies to pick them up. Less subscribers are willing to pay for special channels. In the end, one good package is better, but the public prefers a la carte. A la carte is ultimately more expensive per each channel, but customers can save on their overall bill. ESPN needs to lower prices to keep customers, but they aren't willing to do this. Offer a cheap inclusive package or a slightly more expensive a la carte price.
The article I linked used the term "sports bubble," which I think is an excellent description of what's happening in that industry right now.
I would hate for it to affect the parks, but as for ESPN having problems.
Maybe Disney should just sell the game broadcasting rights to other channels and shut the network down completely. Maybe put the sports talk show guys on Sirius and the highlight shows on the internet with ESPN branding or something. Disney used ESPN as a major cash cow for a long time, but now that "cow is an utter failure" so they need to drop it before it starts going in the red. I think the problem whether they sell it or not is that that major source of income is gone. However, unlike in the 80s when they let their product quality slide and focused on the VHS cash cow, this time they are actively keeping their quality up and trying to increase profits by tapping into large markets like China. The stock annalists are absolutely besides themselves about ESPN. They go on and on and on about it.
People still have cable? I cut the cord well over 10 years ago and never missed it a bit. Cable is dead, and good riddance. The future is online streaming and a la carte. Disney could convert ESPN to an online streaming service and leave cable forever, but even better is to sell it now while it's still worth something. The demise of the cable/sports juggernaut will be swift and severe. Spectator sports is a dinosaur along with its audience of the elderly. Young people in particular want active lives, not being passive dupes in front of the tube.
I admit it. I haven't cut the cord because of sports. But costs are tempting me.
I get what you're saying about ESPN's struggles and how it affects the bottom line of the parent company. However, Disney's parks will gain larger profits if they invest in the parks correctly. Of course, how they do that isn't an easy question. It will take some bright minds that may not even be with the company today to figure out that equation.
While I will not deny that a failure of ESPN will negatively effect the Disney theme parks, I do not believe it will halt future attraction development. Instead, I'm guessing it would lead to a lot more cloned attractions, reskins, and lower cost options (such as screens over animatronics). Disney definitely doesn't want to lose attendance and I think it's clear they've reached the point where people will stop coming if there isn't a reason to return, so stopping development completely would be a mistake. How many fewer people would come, however, if Epcot simply rethemed Mission: Space to Guardians of the Galaxy rather than building a whole new ride for the IP? Does Walt Disney Studios need a major Toy Story Land expansion, or is a simple clone of Toy Story Midway Mania sufficient? Will the average Southern Californian care whether we include a big new roller coaster in Marvel Land? It is questions like these that Disney will likely be asking, not whether they should continue work on future projects.
First My Magic Plus, then Shanghai, now ESPN? Disney should have never gotten into the media or sports business, they should have concentrated on their core product, animation, films and theme parks. It started because Eisner was a sports fan and bought the Angels and Mighty Ducks.
Even with ESPN tanking a bit, Disney still has a strong profolio with movies and the parks. I think some media companies would kill to have Disney's successes.
Why doesn't Disney buy a streaming company, like Hulu or Crackle, and simply run ESPN as a streaming service with pay per view options. I don't think people's love of sports is gone, just that cable as a medium doesn't compete with streaming. It's one disadvantage of most streaming services that they don't have sports.
Disfan is absolutely right. Iger has been mismanaging the theme parks and hotel divisions for years. It's not surprising, considering Iger is a TV network guy who spent the first 20 years of his career working for ABC. Square pegs, round holes.
It's OK they will just put park admission bit more to stop more people from going.
Would it be too much to suggest that Disney try to buy Verizon? All things considered, this could be a power move that would be good for the combined companies and shareholders.
ESPN profitsmay be tanking, but Disney's film industry is blowing up like never before. Their Marvel movies are hits that regularly get over a billion at the box office, Star Wars as well, and their animated films for the most part are a great success as well. What they may be losing with ESPN they are making up for in other areas
I think ESPN has been way too high on the hog over the past 3-5 years, and their day of reckoning is coming. They've been handing out rights deals like they're candy, no more so than what they pay for the NFL. ESPN pays more for their Monday Night Football package, almost twice as much, than NBC pays for their Sunday Night Package, which includes a spot in the Super Bowl rotation. ESPN says they pay a premium to show more lengthy highlights and the new contract allows them to produce more NFL-centric shows. However, if I were a business analyst, I would look at the rights contracts (along with the College Football Playoff) as the lead balloons.
What if Disney sold ESPN to Comcast/Universal for cash and the theme park rights to the Marvel superheros?
Robert, I'd suggest you read up on Disney's recent acquisition of BAMTech and how they'll utilize the platform to help transition their content delivery model from a subscriber base to a streaming base. I'd happily pay $10/mo to stream all ESPN content to any device at any time. Current revenue per a subscriber, last I saw, was roughly $4.50.
Nielsen is now
>>>they should have concentrated on their core product, animation, films and theme parks.
This is the result of Disney becoming a giant conglomerate. Decades ago Disney was a boutique studio. They were driven by innovation and quality. Today they a hard ship to steer. One that has several icebergs on the horizon.
With regards to the previous anonymous posts calling for Matt Ouimet being Disney CEO.
I like Disney Movies. I like the parks. I like the cruise line. I don't care about ESPN. Unfortunately, they are owned by ABC, which is owned by Disney. The idea that ESPN is hurting the parks bothers me. What if ESPN is sold, even at a loss. Maybe Disney should cut its losses. Maybe they should cut ABC as well.
Chad said: "They should have concentrated on their core product, animation, films and theme parks.
I have another question, when the cost overruns at Shanghai impacted the domestic parks, I wondered why Disney couldn't just draw money from the studio and other divisions that were doing gangbusters. But the argument was because all the parks fell under the same division. So why do the parks have to suffer now because of ESPN? Aren't they separate divisions? Cant they cut budgets in the media division? Or even if they are, why do they have to touch the parks?
Understood, I was just hoping against hope that the board would look beyond type and choose a person who has the best overall qualities.
Different decade; same story. Back when the film division was hemorrhaging money, the theme parks suffered. When ABC was turning into the "fourth network", the theme parks suffered. When Disney buys a new channel, the theme parks suffer. When the Paris parks do poorly, the US parks suffer. When other new parks are delayed, the theme parks suffer.
I've been hearing for years that Disney loves to "rob Peter to pay Paul" by leeching profits from a thriving division in order to prop up a dying one. I can't imagine a worse business philosophy.
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