Disney’s last quarter result was a fiasco. The media giant announced that the Disney+ just added 2 million subscribers in three months. Less than a third of the expectation of analysts, who expected something close to 7 million.
The day after the announcement, the action collapsed on the stock market, losing more than 9.1%. It was Disney’s most disappointing report in a decade as even the company’s most optimistic analysts slashed the target share price.
Disney claimed production problems caused by the pandemic, which reduced the number of releases and alienated audiences. Even after the announcement of the disappointing figures, the company carried out a great event to announce several novelties in their productions.
But there are those who see bigger problems in the company’s strategy. Michael Nathanson of research firm Moffett Nathanson questioned the assumption that subscriber growth will follow increased content spending, particularly if new content comes from the same brands.
“[Nós] We wonder if Disney+ is a very narrow product and requires a much greater investment in non-Disney content to broaden the appeal of the product,” Nathanson wrote.
ESPN’s success turned into a problem
Despite the negative result, the overall market view is still positive towards Disney in the long term. But as the stock market tumble and analysts’ comments indicate, investors increasingly seem to be turning to Diffusion as the future of the company. In this In this context, ESPN, which is part of the Disney group, has less and less meaning within the conglomerate.
According to the columnist Puck’s Dylan Byers, Disney CEO Bob Chapek asked some of his closest executives to explore strategic thinking to potentially break up the sports network. A person familiar with the talks reportedly said that “there are now regular conversations at Disney about whether or not we should keep ESPN.”
Fundamentally, Disney’s strategic shift to streaming is at odds with ESPN’s business, which largely benefits from linear television, especially cable. According to CNBCESPN is unlikely to consider a direct-to-consumer service until the pay-TV package drops to less than 50 million US households, according to people familiar with the company’s plans.
ESPN’s short-term strategy is to gradually increase the price of ESPN+, its limited streaming service, and add more content. Another question is whether it makes more sense to bring sports into Disney+ to appeal to a more adult audience, as the brand is heavily reliant on franchises for kids and heroes.
Disney’s innovation dilemma
ESPN was for many years the jewel in Disney’s crown. An incomparable money-making machine. It’s still making a lot of money, but getting less and less attention as audiences and advertising dollars go digital faster and faster.
At an event hosted by Goldman Sachs in September, Chapek was asked about the importance of ESPN and sports broadcasting to Disney’s strategy. The answer was evasive.
“The most watched thing every year tends to be sports, something like nine out of ten of the highest rated events on TV are sporting events. Who knows what the future holds, but it’s definitely a important part of our consumer offerings in the business. .Walt Disney”.
Just one question. No additional questions were asked at the event, according to rare media. Another example of how ESPN seems to be getting less and less attention. Unsurprisingly, in ESPN’s current state, it’s evident that its best days are over, as increasing investment is being made in Disney+ and ESPN is declining with traditional TV.
Hulu and ESPN are not prioritized
The streaming service Hulu, a competitor to Disney+, is another Disney brand. Like ESPN, Hulu also suffers from not being a priority in the conglomerate.
This week, Disney announced that starting December 21, it will give Hulu + Live TV customers in the US access to its other two premium streaming packages – Disney Plus and ESPN Plus. The customer will not be able to choose, the change will be mandatory.
The problem is that the price of sHulu + Live TV will increase the monthly price of the service by $5. The change applies to new subscribers as well as current subscribers. Obviously, a lot of people won’t be happy to have to pay an extra $5 to have a stream they didn’t choose, but it’s easy to see Disney’s motivation.
As Disney+ is in desperate need of new subscribers after the failure of the last semester, forcing Hulu subscribers to have Disney+ will automatically increase the number of Disney+ subscribers.
Using less prestigious brands within a large conglomerate to prioritize larger bets is routine, but the strategy is increasingly being questioned as it can hurt investors.
The Death of Conglomerates
CEO Bob Iger, Chapek’s predecessor at the helm of Disney, methodically and skillfully transformed a single-brand organization into a conglomerate of brands. Pixar, Marvel, Lucasfilm and 21st century fox are among the many mergers and acquisitions.
But the conglomerate model has weakened in recent years. Businesses need to be more and more agile and efficient, and gigantism hampers them. In the space of four days this month, three conglomerates announced they would drastically change their structures and split into smaller companies.
General Electric, Johnson & Johnson and Toshiba, all founded more than 125 years ago, and which for decades invested in acquiring companies and brands to become large conglomerates, decided to separate their businesses and be smaller. They say focusing more will maximize shareholder value.
Breaking up a business can, in theory, unlock value. Corporate spin-offs have historically performed well overall. Startup managers are more focused and ratings often rise to reflect those of their peers.
The dilemma of innovation
For Disney, whether or not to sell ESPN means whether or not to fully embrace the digital streaming model. It’s not a simple decision and like Disney, dozens of media groups face a similar dilemma. In Brazil, Globo has gone digital and is increasingly betting its tokens on Globoplay with positive results in terms of revenue and subscriber growthalthough the earnings outlook is only in 2024 or 2025.
Open and cable TV networks are still making billions a year with the traditional model. ESPN is a big beneficiary because media companies collect monthly subscription fees from pay-TV providers, regardless of how many people watch their programming. Niche channels only earn pennies per month per subscriber, while sports networks charge hefty sums.
Disney earns more cable subscribers than any other company, and it’s thanks to ESPN. ESPN and sister network ESPN2, together charge nearly $10 per month in the United States, according to research firm Kagan. That’s at least four times more than almost any other national broadcast or cable network, according to Kagan.
ESPN’s issues have been discussed within Disney for nearly a decade. Bob Iger was a fan of conglomerate models, Chapek seems to be more pragmatic and concerned with financial results. Regardless of what Disney decides, what the world’s largest media conglomerate does with its most traditional and profitable brand will influence all global media.