Can streaming save ESPN?

When Walt Disney Co. reports earnings and talks with financial analysts, box office results for the latest princess movie or the growth of Shanghai Disneyland is secondary.

For two years now, the question has been whether the fabulously profitable ESPN franchise may have crested as a business.

The company addressed the challenge directly today — spending $1.8 billion to buy a controlling 75 percent share in the BAMtech streaming service system.

Disney will build out its first direct-to-consumer ESPN live event app and make it available in early 2018, in effect embracing digital disruption of its flagship cable network business.

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Not all games and tournaments to which ESPN has rights will be available, and CEO Robert Iger declined to be specific about which.

Nor has a price point for the enhanced app been set.

He did tell financial analysts in an quarterly earnings conference call that the move signaled "an offensive move" after some years of tilting to defend the traditional ESPN cable franchise.

The streaming service will be used for separately for selected Disney entertainment shows as well, starting in 2019.

For the spring quarter, Disney posted generally strong earnings. However, net income from ESPN and its sister cable networks was down 3 percent year to year.

ESPN advertising was down 8 percent compared to the same quarter in 2016.

As has been written about frequently, ESPN has developed a pair of business model problems. Expensive rights contracts with college and professional leagues steadily drive programming costs up quarter by quarter.

At the same time, the network has suffered some erosion of its subscriber base — from about 100 million in 2012 to under 90 million now. Younger sports fans often pass on a cable subscription and instead watch events on their cellphones or at sports bars.

ESPN made headlines earlier this year by trimming 100 employees including on-air talent (though its total employment remains 8,000). It remains a highly profitable business, even as growth slows or heads downward.

Iger described the BAMtech deal as creating a "robust tech platform" — uniquely able to support huge numbers of viewers concurrently. It also, he said, "comes with a great customer management system" that will gradually enable the company to learn much more about viewers.

"There will be some tradeoffs," he told analysts and at least some potential to cannibalize the cable base. But over time, he concluded, results should be "greater than under the business model we currently are being served by."


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