Bob Iger wouldn’t go there.
In his last earnings call before Walt Disney Co. is scheduled to choose his successor as CEO at the Mouse empire, Iger did not want to talk about how the company’s relationship with America’s hottest entertainment property, the NFL, will change now that the two are corporately intertwined.
Disney’s acquisition of the NFL Network in exchange for 10 percent of ESPN closed last week, an earthquake in the sports industrial complex that raises so many questions. What does it mean now that for every dollar ESPN pays the NFL, 10 percent of that will be like the NFL paying itself? Will ESPN pull punches on NFL coverage? Will ESPN now be seen as akin to NFL Network coverage: state media?
And perhaps most importantly, has ESPN guaranteed itself of renewal with the NFL, whether the league ends the media contracts early as expected or lets them run to fruition?
“How do you see the relationship and the business evolving with the NFL, including the likely early renewal?” asked Jessica Reif Ehrlich, a media analyst with BoA Securities.
Iger responded of the new ownership of NFLN, “We’re really happy that we were able to close it when we did. That enables us to get started sooner than we actually had anticipated. And so the upcoming NFL season, which will end in ESPN’s first Super Bowl, is a huge opportunity for ESPN, not only in terms of its ability to manage the NFL Network and RedZone, but also with more NFL inventory, and we know how valuable that is and how valuable it will be, particularly for ESPN’s streaming business. I’m not going to comment at all about the future of the ESPN relationship with the NFL, except to say that the NFL has an opt-out in the current agreement in 2030, and I think it’s just premature to speculate what might happen at that point.”
Never before has the NFL held a stake in one of its broadcasters, leading to speculation that other networks and streamers might pursue a similar partnership.
That seems unlikely.
First, the ESPN equity came in exchange for NFL media assets; the league doesn’t have similar properties sitting around waiting to be exchanged for equity. But more importantly, having multiple bidders for games is crucial to the ever-rising gusher of media money the NFL demands. If the NFL became an equity holder in, say, Fox, well, that Sunday afternoon package would presumably be spoken for.
A few other observations from today’s earnings report.
* Every year, distribution battles between pay TV providers and content companies like ESPN come and go, some leading to blackouts. But there is real economic pain inflicted on these companies. Disney reported a $110 million loss from its YouTube TV blackout last year, resulting in a steep decline in profit margins for its sports segment. Operating income came in at $191 million on revenue of $4.9 billion, which works out to a profit margin of less than 4 percent, down from over 5 percent in the same quarter a year earlier.
* By now, you would have had to live under a rock not to know Disney launched its direct-to-consumer ESPN app last summer, giving cord-cutting fans their first opportunity to subscribe to ESPN. Iger highlighted rising digital subscription fees, but don’t expect any figures on how many sign-ups there were for the new product offering. Disney is not releasing these figures.
“We also took a major step forward with the launch of ESPN Unlimited. And while still early days, we’re pleased with the adoption and engagement we’ve seen with the new app,” Iger said.
* The favorite to win the CEO spot is reportedly Josh D’Amaro, who runs the Parks division of Disney. Conglomerates always have disparate parts (remember when GE owned NBC), so if it is D’Amaro, one of the first questions he receives is sure to be how much he is up to speed on and comfortable with Disney’s entertainment and sports assets. The other publicly identified major candidate is Dana Walden, co-chairman of entertainment at the Mouse, which encompasses the media properties.
* It is startling to compare the financials of Disney’s streaming unit to Peacock, whose results were reported last week by parent Comcast. Two to three years ago, a large story was how streaming units at legacy companies were bleeding cash, billions of dollars annually. Disney has that under control now–through content cuts and price raises.
“We’ve made huge progress turning the streaming business into a profitable business, developing the technology tools to improve both the user experience and to improve results, and also developing programming across the globe, and I think it sets the business up to lean into accelerated growth that you’ll probably be hearing about more in the future,” Iger said.
Peacock, meanwhile, reported rising losses, reaching $552 million for its reported quarter. Disney, of course, has in its streaming portfolio ESPN, Hulu, Fubo, and Disney+, while Comcast just reports for Peacock. Still, the contrast is shaping up as an interesting business story.
