Disney CEO Bob Iger on Wednesday announced a new operating structure for the company, one that finds ESPN—which is decidedly not for sale—functioning as a standalone unit under chairman Jimmy Pitaro.
Speaking to analysts during Disney’s year-end earnings call, Iger said he had dissolved the corporate architecture devised by the successor/predecessor Bob Chapek. Under the new scheme, Pitaro will lead the ESPN family of linear TV channels and the ESPN+ streaming service. The sports juggernaut will operate independently of the newly formed entertainment and parks units.
Iger said that the decision to set up ESPN on a virtual Revis Island does not foreshadow a selloff of the sports assets. “We were fairly certain that when we created this structure, and broke out ESPN on its own, it would lead to questions [about a potential sale],” Iger said. “Actually, ESPN is a differentiator for this company. It is the best sports brand in television … and it continues to create real value for us.”
The Disney boss went on to say that he and his team are quite pleased with ESPN’s brand and its high-end sports programming, before noting that the trick in the rapidly evolving media space is to “learn how to monetize” these assets in an environment of accelerated disruption.
Which is to say, ESPN is not for sale. “We not engaged in any discussions right now, or considering a spinoff of ESPN,” Iger said. “That had been done, by the way, in my absence, and I’m told … after exploring it very thoroughly, that it wasn’t something the company wanted to do.”
Iger also fielded a question about the inevitability of ESPN evolving from a linear TV mainstay to a direct-to-consumer service. While he agreed that such a paradigm shift would happen eventually, he declined to prognosticate further, saying only: “I’m not going to give you any sense of when that could be. We’ll have to do it at a time that makes sense for the bottom line, and we’re just not there yet.”
ESPN+ has signed up 24.9 million subscribers since its April 2018 launch, adding 600,000 in the most recent quarter.
ESPN is one of the most widely distributed cable networks, reaching some 74 million TV homes as of the filing of Disney’s annual report on Nov. 29, 2022. At its peak, the channel was in north of 100 million households; like all other outlets beholden to the economics of the cable bundle, ESPN has weathered a contraction as overall pay-TV subscriptions have plummeted.
At last count, the number of subscribers to the traditional cable/satellite/telco-TV bundle had dropped to 62.2 million U.S. homes, which marked a year-over-year decline of 10%. In the last eight years, nearly 40% of pay-TV customers have cut the cord, bringing overall penetration of the bundle to just 50% of all U.S. TV homes. At its peak, nearly nine out of every 10 homes subscribed to the bundle.
While analysts were all but giddy in their interactions with Iger, the CEO’s first earnings call since returning to Disney in November was freighted with more than a little grim news. Iger kicked off the call by announcing that the Mouse House would slash 7,000 jobs in a bid to reduce expenses by $5.5 billion. That works out to around 3% of Disney’s current global workforce.
Disney looks to achieve an annualized reduction of $3 billion in non-sports content costs, per chief financial officer Christine McCarthy. A radical revision of the company’s marketing practices is expected to account for half of the $2.5 billion earmarked for non-content reductions, while labor costs and technology will make up the remaining half.
Iger indicated that ESPN was looking forward to hashing out a renewal for its NBA rights package, which includes alternating possession (with Warner Bros. Discovery/Turner Sports) of the Eastern and Western Conference Championship Series, as well as the NBA Finals. ESPN’s current deal is priced at $1.4 billion per year and is set to expire at the end of the 2024-25 season.
While Iger seems willing to agree to a much higher rights fee in order to maintain ESPN’s relationship with the NBA, leagues of lesser magnitude in the future may need to look elsewhere for a distribution deal. Iger suggested that Pitaro would likely have to be more discerning about inking new rights pacts, at least in the near future.
Revenue in the year-end quarter grew 8% to $23.5 billion. The broadcast and cable networks in the same period generated $7.29 billion, down 5% versus the year-ago period. The domestic channels contributed $6.07 billion to Disney’s overall TV haul.
