The Walt Disney Co. filed its annual report on Tuesday with the Securities and Exchange Commission, and among the disclosures sprinkled through the 112-page document include updates on how ESPN is faring on the subscriber-retention front, as well as the near- and long-term costs of maintaining its live sports portfolio.
The 10-K filing revealed that ESPN has lost approximately 10 million subscribers over the last two years, bringing its overall reach to 74 million cable/satellite/telco-TV households. While that marks a loss of 12% of ESPN’s linear TV base, the network’s declines aren’t nearly as severe as the losses on the distribution side, as operators have seen 12.6 million pay-TV subs churn off over the same 24-month period.
Per Leichtman Research Group estimates, the number of bundled TV homes has dropped from 76 million to 63.4 million since the third quarter of 2020, which makes for a loss of 17% of all traditional pay-TV subs.
ESPN has, in some respects, made up for the losses on the cable front with a stark uptick in direct-to-consumer subs, as the ESPN+ streaming service boasted 24.3 million subs as of last month. That’s good for a 42% improvement versus the year-ago tally (17.1 million subs) and a 136% jump compared to the October 2020 figure (10.3 million).
Assuming there are very few sports fans who are doubling down on ESPN content by maintaining a traditional cable subscription alongside an ESPN+ account, the network’s total base is now around 98.3 million TV and DTC customers. As it happens, that figure is only a bit shy of the 99 million homes ESPN reached 10 years ago; discounting the gains made on the DTC front, the network’s TV base has shrunk 25% in the last decade.
As much as analysts tend to obsess about the DTC business, the traditional pay-TV model remains in the driver’s seat, as Disney’s linear networks generated $8.52 billion in operating income during the fiscal year that just ended. By comparison, the DTC segment lost $4.02 billion over the same 12-month period—of which $1.56 billion was assigned to “ESPN+ and other.” (That latter figure is up from a loss of $1.12 billion in fiscal year 2021.)
Per the 10-K filing, ESPN+ now generates an average of $4.80 per sub per month, up 5% from $4.57 a year ago. That’s about half of what the flagship generates by way of the affiliate fees it charges cable operators.
Disney’s reported sub counts are based on Nielsen data. The company uses third-party estimates from SNL Kagan to derive sub counts for its handful of channels that are not measured by Nielsen; among these are SEC Network (55 million subs, down 11% versus 2020) and ACC Network (50 million, up 19% from 42 million in 2021). The ACC channel was launched in August 2019; as such, it has yet to reach—but is rapidly approaching—its likely distribution ceiling.
While Mouse spotters speculate on the impact the newly reinstalled Bob Iger will have on Disney’s sports division, it’s clear that the returning CEO only has so much latitude to take cost-cutting measures on the content side of the ledger. Disney is locked into tens of billions of dollars in non-cancelable sports-programming commitments, with $10.8 billion in rights fees set to be doled out in 2023, and another $9.91 billion to be paid the following year.
Over the course of the next five years, Disney will shell out $44.9 billion in rights fees, a slate of obligations that includes its new Monday Night Football contract, as well as a wealth of top-shelf properties ranging from the NBA package to a blockbuster SEC upgrade that will get underway in 2024. Carriage fees will go a long way toward defraying those expenses, with the ESPN mothership alone on pace to generate more than $8.1 billion in affiliate revenue next year.
While other rights holders don’t pay anywhere near as much for sports as Disney does, not all investments are created equally. For example, Sinclair Broadcasting’s Diamond Sports division this week reported that next year will find it paying $1.92 billion (of which an estimated 62% gets funneled to its MLB partners) in rights fees to keep the content flowing at the Bally Sports RSNs. The RSNs remain in a life or death struggle; during the third quarter, Diamond Sports reported an operating loss of $1.11 billion.
Speaking of baseball, Disney reported that it has acquired MLB’s 15% stake in BAMTech for $900 million. The 22-year-old tech company, which since this month’s buyout has been rebranded “Streaming Disney,” functions as the backbone of Disney’s streaming operations, and carries an implied value of some $6 billion.
Disney snapped up the NHL’s 10% share in BAMTech last summer, paying $350 million for the league’s minority stake. News of the company’s final buyout was buried in the small print on page 84 of the 10-K, in a subsection titled “Redeemable Noncontrolling Interests.”