Disney CEO Bob Iger reminded everyone where ESPN and Disney make a lot of its money: cable subscriber fees. ESPN generates $8 billion in revenue from subscriber fees each year. For that reason ESPN probably won’t be unbundled from its cable package anytime soon. ESPN is offering more digital options, but that is a value-add play by the company, at least according to Iger.
It will be interesting to see if this is true. HBO leadership originally came out and said they were not interested in offering a digital a la carte option. HBO began to test digital options almost a year ago, but kept saying a la carte probably didn’t make sense. Recently they changed their mind. CBS also announced a stand-alone streaming option for the broadcast network.
The issue is that those networks have shows that can be recorded on a DVR and viewed at any time. ESPN has live sporting events, for which they have already paid a hefty rights fee. ESPN can afford those rights because of its business model. Right now, the business model allows ESPN to bring in revenue from advertising, but also from cable subscriber fees (the $8 billion yearly revenue) it receives from Comcast and Time Warner. By offering an a la carte option, ESPN would be relying only on its advertising in its digital offering, while also losing money in subscriber fees if people cut the cord.
Still, this experimenting could lead to a sustainable business model in the future. The NBA rights agreement called for more digital offerings. That part of the agreement could show ESPN that OTT (over the top) options can be profitable. Right now, Disney and ESPN have no plans to unbundle, but then again, neither did HBO.
Michael Colangelo is Assistant Director at the USC Sports Business Institute and Senior Editor of The Fields of Green.