The Walt Disney Company (NYSE: DIS) board’s decision to reinstate Bob Iger as CEO came on the heels of an underwhelming fiscal Q4 earnings report and the subsequent analyst call that took place earlier this month. Outgoing CEO Bob Chapek’s upbeat message upset top execs, who presumably wanted to hear about cost-cutting and changes in strategy. The company’s D2C business lost $1.5 billion in fiscal Q4.
Iger is expected to try to stabilize the business’ current economics and put the company on a strategic path back to growth and profitability. What that means for ESPN, beyond a revamped corporate structure that gives the company more autonomy under the DIS umbrella, remains to be seen. Disney declined to comment.
But former ESPN president John Skipper does not believe his former boss’ efforts will radically change the sports media giant. He expects ESPN to continue pursuing premium of live rights, to punt on participating in a legalized sports betting operation and to remain a part of the Disney family.
JWS’ Take: It is hard to suggest the leadership change will have a significant impact on ESPN. The Worldwide Leader in Sports already has a solid tri-cast strategy in place to navigate the changing media landscape, and seemingly executed against it well during Chapek’s tenure. ESPN also did a good job of managing rights negotiations during Chapek’s two-plus years at the helm.
“Getting the NHL was a feat. Getting the [MNF] NFL deal done was good work. And they renewed most of the college conference rights they wanted, with the exception of the Big Ten,” Skipper said.
Chapek was less successful in explaining to the street that those agreements contributed to the billion-and-a-half-dollar streaming loss last quarter.
Iger’s reputation as a risk-taker has industry insiders believing Disney will be even more aggressive in its pursuit of live sports rights in the years ahead, at least for tier-one assets such as the NBA. ESPN relies on premium live rights to serve a trio of purposes. “As a moat, to get the pay-TV fees and to get people to pay more money to subscribe,” Skipper said. The NBA’s national package is the most attractive domestic sports media asset remaining on the market until 2028.
The returning CEO’s long-standing industry relationships, including with NBA commissioner Adam Silver, can only be helpful in those negotiations. But Iger will undoubtedly look to make the media side of the DIS house more efficient by being more selective with the rights it buys. That could negatively impact tier two and tier three properties hoping to gain positive economics during their next round of negotiations.
It also likely means a reduction in the resources allocated to non-live game content. The company does not need to invest in round-the-clock studio programming to maintain its subscription base or carriage fee. “We did that type of programming because the economics were different at the time,” Skipper said.
While SportsCenter is expected to remain a mainstay, it is possible there will be fewer live episodes of the show or a trimmed-down anchor roster. News is costly to produce, and the company may decide it is better served investing in programming with more efficiencies.
DIS’ commitment to growing ESPN+ should continue under Iger. Back in September at Vox Media’s Code conference, he predicted traditional pay-TV “is marching to a distinct precipice, and it’s going to be pushed off.” The cable network lost 10 million subs last year and another 2 million in fiscal Q4.
However, the plan for growing ESPN+ will likely look different. That has less to do with leadership and more to do with market conditions. When the street was rewarding growth at all costs, it made sense for DIS to price its streaming products to sell and aggregate subs at a deficit. Now that the public markets are focused on profitability, the company seems likely to continue optimizing pricing. DIS raised the cost of ESPN+ 43% to $9.99 per month in August.
Of course, raising prices means the subscriber base will likely grow slower than initially projected.
Iger has been tasked with returning DIS to growth mode. Historically, that has meant investment in a multitude of opportunities.
But that does not mean the company is now likely to partner with a license holder on a legalized sports betting business. Investing billions of dollars in a low margin sports betting venture when the company is looking to cut costs makes little sense.
A more likely scenario is Iger striking a smaller marketing position deal that provides a big minimum guarantee against a bunch of advertising inventory.
Back in September DIS ignored pressure from activist investors to spin off ESPN. There is no reason to believe the company’s position will change under Iger. The CEO has never wanted to sell the media business, he understands the value of sports within the existing media environment and there doesn’t seem to be a logical reason for the company to do so at this point. ESPN remains profitable and continues to produce economics that DIS relies on.
DIS also needs ESPN for strategic purposes. “If you’re going to win the streaming wars, you’re going to have to have sports,” Skipper said.
If ESPN is going to be sold, Skipper believes it is more likely to occur as part of a broader DIS transaction. “You could see [Iger] swooping in to do a deal with Apple,” he said. Iger was on the APPL board and is known to be close with CEO Tim Cook and SVP Eddy Cue.
(This story has been updated to clarify that Iger is no longer on the Apple board.)