Monday AM Briefing: In India and the U.S., Disney Rethinks The Economics of Sports Streaming
Longtime readers of PARQOR will be familiar with my argument that Disney is likely running an A/B/C/D test of Disney+ bundles across different regions (NOTE: on the Substack archive). Those four tests are:
Test A (U.S. only): Bundle of Disney+, Sports (ESPN+), and vMVPD (Hulu + Live) and/or adult audience content (Hulu)
Test B (Latin America): Bundle of Disney+ and Star+ (ESPN and adult audience content)
Test C (Europe, Canada, ANZ, Singapore): Disney+ app with Star Branded Tile (adult audience content)
Test D (India, Indonesia): Disney + Hotstar (Disney+, adult audience content, and sports)
Two key tests have changed since last February, when I wrote the essay.
Test A has seen a major change. Disney+ is now increasingly adding more adult-oriented fare to Disney+, like the third season of queer teen romantic drama “Love, Victor”, whose first season was originally moved from Disney+ to Hulu after Disney’s near-religious focus on being family-friendly. It also faces questions about Hulu’s future as Disney approaches a January 2024 deadline to buy Comcast’s remaining 33% stake in the business for a minimum of $27.5B (as per the May 2019 agreement).
Test D has also seen a major change after losing the streaming rights to Indian Premier League cricket: though Disney+ Hotstar still offers sports, it does not have one of the hottest cricket broadcasts in India.
The Disney+ bundle in both markets now looks significantly different in two key markets 18 months after I first speculated about these four tests. A key question is, what do these significant differences tell us about the future of the Disney sports streaming?
Test A: The Future of Hulu (& ESPN)
Test A is focused on how Hulu and ESPN+ help Disney+ grow. But it may ultimately be about the future of Hulu, which has “messy positioning” within Disney and faces an uncertain future as 2024 approaches.
An agreement with Comcast allows Comcast to require Disney to purchase its interest in Hulu. Disney also has the option to require Comcast to sell its interest in Hulu to Disney. In either case the value will be (1) Hulu’s underlying, estimated market value (or, “equity fair value”) or (2) a guaranteed floor value of $27.5B. Comcast is obviously positioning itself for the highest value, and Disney is obviously positioning Hulu for the lowest value.
Hulu has 41.4MM subscribers on its SVOD and an additional 4.1MM on its Live TV+ SVOD offering (totalling 45.6MM). It has grown by over 15MM subscribers since the Disney+ bundle launched in November 2019. The Entertainment Strategy Guy recently estimated that as many as 15.3MM subscribers are duplicated across Disney+, Hulu and ESPN, leaving somewhere between 26MM and 30MM Hulu-only subscribers.
Hulu seems especially crucial to the future of ESPN, as I wrote in Hulu Is The Future of Streaming Bundles: “without the bundle there exists little to no demand for ESPN+’s walled garden while its linear sister channels are still in 76MM households (as of November 2021), competing “cheek to jowl” in the EPG against other linear networks.” So ESPN+ needs Hulu to scale.
Test A is revealing that, despite Hulu's uncertain future, it is integral if not crucial to:
Disney’s streaming scale in the U.S., its highest ARPU market;
ESPN’s streaming future, and
Disney’s bet on growing advertising revenues in streaming.
Test D: The Future of Disney + Hotstar
The outcome for the Disney + Hotstar bundle after the recent bidding for the IPL cricket rights is much simpler: it no longer has the digital rights to cricket. Disney lost those rights to Viacom18 - a joint venture between Indian conglomerate Reliance Industries, Paramount Global and Bodhi Tree Systems, the investment company backed by James Murdoch and Uday Shankar - who paid $2.6 billion for the digital rights to IPL on the Indian subcontinent for 2023-2027.
Viacom18 paid an additional $340MM for the non-exclusive digital rights for 98 matches between 2023 and 2027. Disney’s Star India service secured the exclusive TV rights package for the 2023-2027 IPL cricket seasons on the Indian subcontinent for a reported $3 billion. Disney would have been out $6B if it had tried to secure both TV and digital rights.
This outcome highlights the economic constraints of the sports bundle. Rebecca Campbell, Chairman, International Content and Operations for Disney, issued a public statement after the news: “We made disciplined bids with a focus on long-term value. We chose not to proceed with the digital rights, given the price required to secure that package.”
It is worth noting that Disney + Hotstar’s economics have been brutal for Disney’s overall streaming Average Revenue Per User: over 50MM subscribers at an ARPU of $0.76, bringing global ARPU down $2 from $6.35 to $4.35.
But, the other takeaway is that Disney still envisions sports as fundamental to its bundle offerings. Campbell also said in the same statement: “The Walt Disney Company will be exploring other multiplatform cricket rights, including future rights for International Cricket Council (ICC) and Board of Control for Cricket in India (BCCI), which they currently hold through the 2023 and 2024 seasons, respectively. Additionally, we hold Pro Kabaddi League rights, Indian Super League football rights, as well as various international sports rights, including the Wimbledon Championships and the English Premier League.”
Test D is revealing a weird story for streaming and a bullish story for linear in India, and it is one that "has Wall Street stumped" according to The Financial Times.
The future of sports at Disney?
If we are trying to imagine the future of streaming at Disney, Test A and Test D both are telling a positive story for linear and not a particularly bullish story for sports streaming at Disney.
Questions had loomed about the future of sports after Disney was reported to be considering spinning off ESPN (I dove into this in January’s “Chapek's "Three Pillars" for Disney's Future Faces Tough Trade-Offs In Sports Betting”). Last week Puck’s Dylan Byers reported CEO Bob Chapek has decided against it, in part because “live sports is “the linchpin of the entire linear ecosystem”. Live sports” will be even more significant to Disney’s bottom line in a world where the streaming landscape is uncertain”.
The signal from Disney seems to be that the sports streaming marketplace is not evolving in a way to justify the economics of sports streaming in either its largest market opportunity (India) or its highest ARPU opportunity (U.S.). That seems significant.
Must-Read Monday AM Articles
* On Friday I wrote about legacy media’s “top-down, cultural and organizational constraints to better understand consumers who increasingly want to be understood better by streamers and by advertisers”, and this PricewaterhouseCoopers research adds valuable details to how badly consumers want to be better understood.
* The LA Times asked “how long can the legacy companies stay in sports TV distribution?"
The Vibe Shift
* Lionsgate will spin off Starz as soon as August, and rumors are it could turn into an acquisition vehicle for other media companies.
* Apple TV+ is heading down to San Diego Comic-Con for the first time, with a huge spotlight on its genre series including See, Severance, For All Mankind, Mythic Quest, Invasion and Foundation.
* U.S. consumer spending on video game hardware, content and accessories is now projected to reach $55.5 billion in 2022, a decline of 8.7% when compared to 2021.
* Vulture’s Joe Adalian argued that HBO Max is “the hottest streamer right now” (and wrote an explainer for how he reached that conclusion), and also did a series of anonymous interviews with showrunners alongside Vulture’s Kathryn VanArendonk about navigating the “data void” with streamers
* Paramount’s Tom Ryan discussed the Paramount+ global rollout strategy and the objective of “60 markets with more than 60 partners” with Variety. The Financial Times evaluated that strategy ($ - paywalled). The Entertainment Strategy offered an analysis on the best and worst case scenarios for Paramount’s future ($ - paywalled)
The 200 vs. The 10 Million
* Fox expects an uptick in advertising commitments in 2022’s softening market. Advertisers were interested in Tubi (Fox’s ad-supported streaming hub); the company’s sports events; and its Fox News programming.
Aggregator 2.0 & Bundles
* N/A
Sports & Streaming
* Social media influencer Logan Paul has signed a multi-event deal with WWE that will push into 2023.
* The Hollywood Reporter’s Alex Weprin wrote about Regional Sports Networks at the crossroads of cord-cutting and a streaming future.
Creator Economy, Platforms & Transparency
* According to eMarketer’s latest quarterly Digital Video Trends report, 36.4% of YouTube’s watch time this year came through connected TV devices, up from 34.4% in 2021 and 30.5% in 2020.
* Variety’s Cynthia Littleton interviewed SuperFans of VidCon, the annual gathering for devotees of YouTubers, TikTokers, Twitch and other creator economy personalities.
* How a fake job offer took down Axie Infinity, the world’s most popular crypto game
Original Content & “Genre Wars”
* Warner Bros. Discovery announced it will no longer produce originals for HBO Max in the Nordics (Denmark, Sweden, Norway, Finland), Central Europe, the Netherlands and Turkey, and will also remove some content from its platform in order to free up licensing deals elsewhere. Too Much TV’s Rick Ellis had a good post on why the reaction to this news missed the nuance of the business rationale.
* Peter Chernin, the veteran media executive turned investor, announced a new global content studio called The North Road Company with $800 million in outside funding. It’s making a similar bet to Blackstone’s Candle Media that streamers will need more original content. ($ - paywalled)
* Chernin doesn’t believe there is a new age of “fiscal austerity” upon us, but Bloomberg’s Lucas Shaw believes the signs are there
* Reese Witherspoon’s Hello Sunshine is producing a wedding comedy with Amazon Studios and starring Will Ferrell
AVOD & Connected TV Marketplace
* About half of marketers are not spending enough in a channel to get maximum ROI, according to Nielsen’s first-ever ROI Report.
* Bullish arguments from ad-supported streaming executives that FASTs could overtake linear
* NBCUniversal and Google have emerged as top contenders to work with Netflix to create an advertising-supported tier of its service. ($ - paywalled)
* New research predicts the number of global online video subscriptions will exceed 2 billion, and the number of pay TV subscriptions will ‘still’ be 1 billion in 2027
Other
* An interview with DotDash Meredith CEO Neil Vogel by the Des Moines Register after its merger with Des Moines, Iowa-based Meredith Corporation
* Goldman Sachs has upped its predictions for the entire music industry (recorded music, publishing and live music) from $81.6bn to $87.6bn; for 2023 from $90.7bn to $94.9bn; and for 2030 from $139.7bn to $153bn.
* New battles over windowing have flared up in Italy and France just as the industry elsewhere has put them to rest