Good morning,
I wish you all a great summer Tuesday!
On to the update:
ESPN+ Rights Deals
From Variety:
ESPN struck a new 12-year deal with All-England Lawn Tennis Club that expands the company’s ability to show the iconic Wimbledon tennis championships to sports fans who may be gravitating to forms of video other than traditional TV.
The new pact, which begins with the 2024 Championships and extends through 2035, calls for more matches to be shown on both ESPN’s Disney sibling ABC, as well as on ESPN Plus, its subscription broadband service. Under terms of the deal, ESPN Plus will live-stream all courts at Wimbledon during the event and will be the only outlet to feature full replays for all matches. AELTC will also make available live coverage of qualifying rounds as well as archival material such as films, classic matches, highlight shows and press conferences. ESPN, ESPN2 and ABC will continue to show 140 hours of coverage, with a new coterie of live coverage on ABC in the middle of the tournament — which will start next year, two years in advance of the next contract.
This deal was announced late last week, and I had it teed up to write about as representative of a whole host of recent deals the sports giant has made, including:
- In May Disney signed a deal with La Liga, the Spanish soccer league, to stream every league game on ESPN+
- In March Disney signed a deal with the NHL that included the Stanley Cup on ABC, playoff games on ESPN, 25 live regular season games, plus 75 games exclusively on ESPN+ and Hulu and the NHL’s out-of-market package on ESPN+
- Also in March the PGA renewed its broadcast deals with CBS and NBC while the rights to PGA Tour Live, which lets you exclusively follow featured groups, went from NBC’s Sports Gold streaming service to ESPN+
These are the exact kind of sports rights deals I have been expecting from ESPN+. Back in 2015, when NBC acquired the Premier League, I explained why ESPN didn’t:
It’s not surprising that ESPN didn’t win: Premier League games go up against college football and NFL pre-game shows on Saturdays and Sundays, and the ~479,000 viewers NBC averaged almost certainly weren’t worth the opportunity cost.
Remember, though, that those opportunity costs only exist for a network. Were ESPN already an over-the-top service I think it is very likely they would have won the bidding because Premier League fans are a great niche: dedicated, rich, and young. Moreover, 479,000 sounds a lot more meaningful when you realize that that is ~2.5% of the number of subscribers an ESPN over-the-top service would need to be a comparable money-maker to what the bundled channel is today. In other words, the longer ESPN delays its move, the harder it very well may be.
I wrote that two weeks after that famous Disney earnings call where Bob Iger admitted that ESPN was losing subscribers at a faster rate than expected, and which marked the beginning of the company’s pivot towards streaming. Fast forward six years and the new tactics that befit the company’s new strategy are coming into much sharper focus: what distinguishes all of these rights deals are that they are not about the major U.S. sports — football, baseball, and basketball — but rather about more niche sports that are distinguished by depth of fanhood, not breadth.
When it comes to linear television, the fundamental constraint is time: there are only 24 hours in the day, and, given the live nature of sports, there are only about 60 hours that actually matter (6 hours in the evening on weekdays, and 30 hours on the weekend). That gives outsized importance to sports that command the largest audiences, which in the U.S. means the NFL and college football by a large margin (primarily on weekends), followed by NBA and college basketball (primarily on weekday evenings). Larger audiences not only mean more advertising, but also a larger set of customers who will continue to subscribe to the cable bundle because that is the only way to get the sports they want to watch.
Streaming, though, doesn’t have any time constraints. ESPN+ has unlimited capacity, which means it can accommodate sports that are televised at the same time as the big ticket events. These deals also help the broadcast network: ESPN+ can show matches that happen during football games, even as ESPN gets more inventory it can show when U.S.-based sports aren’t happening. The end goal is to make both ESPN+ and ESPN essential for an ever wider swathe of sports fans, preserving both ESPN’s carriage fees even as ESPN+ drives an increasing amount of revenue from an ever-expanding collection of niches.
ESPN+ Increases Prices
The reason I am glad I didn’t write about these deals yet, though, is that yesterday the other shoe dropped. Again from Variety:
Disney will raise the monthly and annual fees for ESPN Plus, one of three different subscription-based streaming services it operates in the U.S., in a maneuver that signals how much the media industry is starting to depend on those direct-to-consumer outlets for new revenue.
Starting on Aug. 13, the price of an ESPN Plus subscription will rise to $6.99 a month and $69.99 a year, up from $5.99 a month and $59.99 per year. Disney is informing subscribers of the news on Monday. Prices for the UFC pay-per-view matches featured on the service remain unchanged, as does the price for getting a bundle of all of Disney’s U.S. services, which includes Hulu and Disney Plus. The group subscription costs $13.99 per month, 30% less than the cost of individual subscriptions to all three services.
This is the second ESPN+ price raise in the last two years; the service launched at $4.99, went up to $5.99 last year, and now is increasing another dollar, and I don’t expect the price increases to stop. That, after all, is the power of exclusive sports right: if you want to watch every Wimbledon match, or see every hockey game, or want to watch Lionel Messi and Barcelona, then it is easy to cough up an extra $1/month. Again, the audiences for any one of these sports may be small, at least when it comes to broadcast expectations, but given there are no constraints on how many sports ESPN+ can carry, the bundle can also grow to an infinite number of niches, and every member of every niche is paying that extra $1/month.
At the same time, note that Disney isn’t changing the price of its streaming bundle; Disney pioneered the concept of a bundle within the bundle on cable, which is another way of saying that ESPN’s gargantuan affiliate fees actually understated its impact on Disney’s profitability: if cable providers wanted to include ESPN — and they absolutely did — then they had to pay for a bunch of other Disney channels too.
What is interesting about the streaming bundle, though, is that those dynamics are flipped on their head: the clear driver of Disney’s streaming bundle is Disney+, which costs $7.99 a month, but for only $6/month more you can get the $5.99 ad-supported Hulu service and the (now) $6.99 ESPN+ service — what a bargain (at least that is what Disney wants you think). This is the flipside of streaming’s infinite capacity: customers also have far more choice, both in terms of how they spend their time and in terms of what they subscribe to, and for how long. That doesn’t reduce the power of a bundle, but it changes how it is best leveraged: instead of bullying distributors to extract more money, Disney is focused on luring customers by maximizing the extent to which their bundle seems like a great deal.
Black Widow’s Streaming Numbers
From the Hollywood Reporter:
Proving the might of the Marvel brand, Black Widow set a new benchmark for the pandemic era in opening to $80 million at the domestic box office. The female-led superhero pic snared the biggest North American start since the COVID-19 crisis commenced, and the largest since Disney/Lucasfilm’s Star Wars: The Rise of Skywalker in Dec. 2019. Overseas, the film earned $78.8 million from 46 territories for a worldwide theatrical debut of $158.8 million.
Additionally, Black Widow made at least $60 million from Disney+ Premier Access — a household has to pay $30 to watch the film — for a global start of $218.8 million, according to Disney. It’s unprecedented for a studio to announce a premium VOD or streaming viewership number on a film’s opening weekend, and Disney’s decision to do so prompted a flurry of conversations across Hollywood on Sunday as to whether this will lead to more transparency. (Disney, for instance, has yet to say what the Disney+ Premier Access numbers were for Cruella or Raya and the Last Dragon.)
The visibility into Black Widow’s streaming revenue is indeed unprecedented, and I’m not sure if it’s going to continue; the most obvious explanation for Disney’s announcement is that it wanted to buttress the mystique of the Marvel brand by advertising a >$100 million opening weekend, even if this raises questions about just how successful its other streaming launches have been, both retroactively and going forward.
What is worth highlighting is how few subscribers that big number requires: $60 million at $30 a pop is only 2 million homes, a fraction of Disney+ 103 million subscriber base. Moreover, Disney gets to keep all of the revenue, instead of sharing it with theater owners, which means those 2 million homes are particularly profitable. The downside, though, is a reduced ability to make money in other release windows; again from Variety:
David A. Gross, who runs the movie consulting firm Franchise Entertainment Research, asserts that however impressive its digital performance is, the sales are ultimately cutting into “Black Widow’s” downstream revenues.
When a movie generates $1 billion at the global box office, as MCU movies most recently have, Gross says they tend to gross even more money on premium video-on-demand rental platforms than a movie that didn’t have as robust of a box office run. With theaters still recovering from pandemic-era limitations — 19% of theaters in the U.S. and Canada remained closed, according to Comscore — and without a current release date in China, “Black Widow” wasn’t expected to cross $1 billion worldwide. But its hybrid release may have reduced its overall digital earning potential even further.
“I am still certain that the theatrical money would be bigger without the simultaneous streaming, and it would bring even bigger streaming value down the line,” Gross says.
This has always been the standard response to putting movies on streaming platforms the day of release: studios get more money up-front, but less money down the line, both from viewers who no longer need to pay for the movie twice, and also because the movie is worth less to bidders for non-theater release windows. Here’s the thing, though: Disney has already devalued those rights by committing to putting all of its movies on Disney+ exclusively. It’s not like the company was planning on a bidding war between Netflix and HBO for Black Widow; the company has already made the decision to pay that opportunity cost in favor of building up Disney+. Given that, it’s hard not to see this result as a big win for the company.
This doesn’t mean that Disney is going to abandon theaters; movie makers prefer it, the buzz of a theatrical release increases the value of franchises, and double-dipping on an expensive production remains attractive financially. What seems much more in doubt is the future of triple or quadruple-dipping, where a movie is first shown in theaters, then pay-per-view, then premium cable, on down the line; Disney is consolidating release windows into theaters (where it will take an ever greater cut of ticket revenue — this only helps their already strong bargaining position) and streaming, and cutting out the rest of the folks in the middle.
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