The latest Disney earnings report reveals the sports war of American streaming.
▂
Text / Liu Jintao
The rights sale of the new NBA cycle is still being negotiated, and the ESPN camp led by Disney will still be an important seller.
On Wednesday, the Walt Disney Company announced its financial results for the second quarter of fiscal 2024 ended March 30, in which revenue increased by 1% year-on-year to $22.08 billion from $21.8 billion in the same period last year. Earnings per share (EPS) for the quarter came in at $1.21, beating expectations and the year-ago quarter.
In this cycle, the significant narrowing of the overall streaming business loss is the biggest bright spot. Disney CEO Robert Iger revealed several important information points:
"We had a strong second quarter, with adjusted earnings per share up 30% year-over-year; In terms of performance, it is largely due to Disney's experience business and streaming media business; Importantly, the entertainment streaming business has already been profitable in the quarter, and we plan to achieve profitability in the fourth quarter as a whole."
From a business perspective, Disney is divided into three major sectors: Entertainment, Experiences, and Sports.
Among them, the largest revenue contributor is the "entertainment sector". Revenue was $9.8 billion, down 5% from last year, but profit was up 72% to $781 million. Revenue from the "Experience segment" increased by 9.8% to US$8.393 billion. Among them, the overall operating profit of Disney's theme parks division increased to approximately $2.3 billion, an increase of approximately 12% year-on-year.
Revenue from the "sports segment" rose 2% to US$4.312 billion, including ESPN, cable channels and streaming services such as "ESPN+". During the reporting period, profit in the segment decreased by 2% to approximately $778 million, due to higher content costs for college football events. In addition, ESPN's revenue increased by 3% to US$4.207 billion, while Star India's revenue decreased by 17.3% due to the loss of cricket rights in India.
Notably, Disney's overall streaming revenue increased significantly by 12% after merging Disney's DTC business covering Disney+ and Hulu's and ESPN+ business lines in its sports division.
Excluding ESPN+, Disney has posted a profit of $47 million, compared to a loss of $587 million in the same period last year, and when ESPN+ is included, the overall streaming business lost just $18 million in the reporting period, compared with a loss of more than $600 million in the same period last year.
In terms of subscribers, Disney+ had 153.6 million subscribers, ESPN+ had 24.8 million, and Hulu also had 50.3 million, for a total of 228.7 million subscribers. In addition, ESPN is also the main anchor of Disney's social media, and its official account generates two-thirds of Disney's social interactions on X, Instagram, and Facebook.
In fact, the overall streaming business has a linear growth that takes enough time to accumulate, and Disney expected to be profitable in 2024 years ago. Among them, ESPN is also competitive enough to win a series of ratings.
Among them, the NCAA Women's National Basketball Tournament between Iowa and South Carolina became the most-watched college basketball game in ESPN's history; The WNBA Draft broke ratings records; The divisional playoff between the Houston Texans and the Baltimore Ravens became ESPN's most-watched NFL game with 32.4 million viewers; ESPN+ subscription revenue grew due to higher rates.
Since its acquisition in 1996, ESPN has been a source of growth for Disney, providing cash flow that helped Disney acquire Marvel, Lucasfilm, Pixar, and 21st Century Fox. With the competition in the streaming business, ESPN launched ESPN+ in April 2018, striving to achieve the digital transformation of traditional media.
But ESPN+ is a bit awkwardly positioned. On the one hand, users can't watch content from a range of key channels, including ESPN, ESPN 2 and ESPN Classic, and there is also a lack of heavyweight NBA, NFL and other games. On the other hand, many copyrights have now been snatched up by Apple TV+ and Amazon Prime, and competing for copyrights at a high premium is not in line with Disney's strategy.
From this background, at a time when cable TV revenue is declining sharply, the performance of Disney's streaming media is extremely valuable.
In the North American market, streaming platforms are highly competitive, and the first goal in the future must be to increase profitability. For Disney, it is an important proposition for ESPN to vigorously develop ESPN+ business to expand more sports content and services, increase subscription prices and advertising bargaining power, and conform to the trend of "traditional TV to streaming".
At this point in time, ESPN chose to "huddle for warmth". In February, Disney announced that it would join forces with Warner Bros. Discovery and Fox to launch a new joint sports streaming platform later this fall.
The platform, which will bring together the streaming portfolio of these companies, is expected to cover about 55% of the rights to sporting events in the United States, delivered directly to consumers through a new app, at a cost of about $50 per month, much less than a traditional cable package. Designed to provide a whole new experience for sports fans – especially those who don't want to bundle services for traditional pay TV.
In addition to this, ESPN+ has also launched betting services (ESPN Bet), fantasy league (esports) and e-commerce features.
Behind this is Disney's changing attitude in the field of gambling. In August last year, Disney struck a 10-year deal with sportsbook Penn Entertainment to bring gaming to its ESPN. In addition, Disney's sports betting is already operating legally in 30 states, as well as Washington, D.C.
However, whether it is sports betting, esports or even the metaverse layout, the key to ESPN's growth is still enough and high-quality sports content.
At this point, Disney's sports rights cannot be compromised. According to the latest news, the NBA is expected to pass an 11-year, $76 billion media rights deal. According to Bloomberg, Amazon and Disney have locked in offers of $2.6 billion per year and $1.8 billion per year. In addition, Comcast (CMCSA) has joined the fray, making an offer of $2.5 billion a year in an attempt to wrest the rights from TNT, which is owned by Warner Bros. Discovery.
While the negotiations are still inconclusive, streaming platforms are more reluctant to miss out on the NBA than traditional broadcasters. After all, today's streaming platforms all have original series and loud enough film and television drama IPs, but there is only one NBA, one NFL, and one Premier League, and the scarcity of sports events lies in this.
In the past few years, the NBA's new copyright contract has been controversial, "James, Curry, Durant are getting old", "Brave Riders" for four consecutive years, "the whistle is getting looser", "the league can't come up with a successor in the United States" and other topics have emerged one after another, but it has been proved that the NBA is still an important game copyright that cannot be ignored in the market.
In fact, only if the ratings decline is large enough, there will be a visible drop in copyright fees, but the possibility of this happening is actually very small, and the NBA's ratings in recent years have frequently set new highs, coupled with the mid-season tournament held at the end of 2023, which has brought the league's popularity to a new high, changing the league's viewing trough in December in one fell swoop.
It is worth mentioning that sports events such as the NFL and NBA can achieve a copyright value of more than 10 billion US dollars a year, not only because the event and media platform are good enough, but also the most important thing is still the market foundation.
The U.S. sports industry accounts for 2.9% of GDP and about one-third of the global sports industry. Only under a large enough economy can sports events give birth to such a sky-high contract, thus driving such a huge industrial scale.
This is also an important weight in the competition in the streaming media market, on the one hand, the giants are not afraid of losses, always looking for copyright and IP content, and looking for more room for growth at other levels, on the other hand, by laying off employees, reducing business lines and other ways to protect costs and cash flow, and further stay at the table. Through Disney's financial report, it can be seen that the sports content market, which belongs to the American streaming media, is still intensifying, and the core of its competition is not only the copyright of the event, but also the attraction and service to users.