The Long Read: Will Disney’s push over the top see ESPN reclaim the summit?

An aggressive new digital strategy and a major takeover deal with 21st Century Fox are set to transform The Walt Disney Company's entertainment empire. But will those moves arrest the slide of the 'Worldwide Leader in Sports'?

The Long Read: Will Disney’s push over the top see ESPN reclaim the summit?

ESPN is a sinking ship, so the industry narrative goes, yet the venerable sports broadcaster is by no means on the rocks. Helmed by the steady hands of a familiar leadership team and armed with a bullish digital strategy, this supposedly stricken vessel is instead being steered in a new direction. 

At least that was the message reiterated this week by John Skipper, the under-pressure ESPN president who is overseeing the launch of the network’s new direct-to-consumer streaming service, ESPN+, next spring.

“It’s about going to where the technology is, and it’s pretty clear that the technology of distributing video is going over the top,” said Skipper, speaking at Sports Video Group’s two-day summit in New York City. “What we’re really doing is preparing to be able to thrive in the future however the business models, the way people consume content, evolves.”

ESPN’s pivot towards over-the-top (OTT) content delivery is all part of an aggressive new digital strategy at its parent, The Walt Disney Company. In August, the media conglomerate accelerated its investment in BAMTech, Major League Baseball’s pioneering streaming technology unit, forking out US$1.58 billion for an additional 42 per cent stake in a company that will provide the robust back-end technology required to power ESPN+ at scale, as well as a Disney-branded film and TV offering set to launch in 2019.

That deal took Disney’s share in BAMTech to 75 per cent, valuing the business at US$3.76 billion. More importantly, though, it was a clear statement of intent: not only is OTT the future of Disney, delivering content direct to consumers is now a necessity if the company’s flagship yet flagging cable sports network is to withstand and adapt to the broader trends affecting media worldwide.

Originally slated to launch this year, the new ESPN+ service will take the form a revamped ESPN app. It will deliver what Skipper calls a “Netflix-like aggregation” of live sports events, shows and documentaries across all platforms and devices, and will include thousands of hours of content each year that isn’t offered on ESPN’s linear channels, including coverage of the network’s existing partners such as MLB, the National Hockey League (NHL) and Major League Soccer (MLS).

Though pricing has yet to be finalised, Skipper confirmed this week that some content will be offered via the app for free while other premium content will be shown behind a paywall. He also revealed the service will offer monthly and annual subscription options, with dedicated single-sport offerings such as MLB.TV, NHL.TV and MLS Live also available through the app.

“The new version of the ESPN app is going to be the best way to consume the totality of ESPN in the future,” he said. “It’s a way to take all that you love about ESPN and add more to it.”

All this amounts to an understandable shift in strategy given the extent to which consumption patterns have changed and will only continue to evolve. Besides launching ESPN+, the network is seeking to ensure it is best-positioned to offset the growing threat of cord-cutting to its core cable business by striking distribution deals with emerging players like SlingTV and DirecTV Now, as well as other digital multichannel video programming distributors (MVPDs) whose rise has coincided with - and likely fuelled - the simultaneous drops in TV viewership seen at traditional networks like ESPN.

Clearly, then, the network's bosses in Bristol, Connecticut know they must adapt or founder. “What we’re really preparing is to be able to survive,” Skipper admitted. “What we have begun to see, and we believe we’ll continue to see this trend, is that the digital MVPDs are having a significant effect when it comes to offsetting subscriber losses.”

So what of that public narrative of negativity surrounding ESPN?

It has been well documented this year that sizeable subscriber losses and shrinking affiliate fees have conspired to erode the network’s revenues, while new mega-money TV deals with the likes of the National Basketball Association (NBA) have seen its already sky-high programming costs spiral. It has been widely publicised, too, that ESPN has been forced into a retreat of sorts; scores of staff layoffs in April were followed with a second round of more than 100 furloughs towards the end of the year. About 300 employees had already been laid off in 2015 - the first sign that ESPN would be taking drastic measures internally to cut costs.

Other controversies have only added to the perception of a network in decline. Just this year, there was the furore surrounding SportsCenter anchor Jemele Hill’s incendiary tweets about president Donald Trump, an all-too-public saga that led to the presenter’s suspension in October and a revision of ESPN’s social media guidelines. Then there was the embarrassing case of Barstool Van Talk, the irreverent chat show abruptly cancelled by Skipper after just one episode.

And yet, in spite of all of that, ESPN continues to make counterattacking moves. A significant carriage deal with cable provider Altice in October followed major rights agreements with Formula One - ESPN will replace NBC as the US home of the series from next year - and Top Rank Boxing. And there have been other positives, too: the network also won its first Academy Award this year for its OJ: Made in America documentary series, while its strategic decision to embrace new media platforms like Snapchat, which now carries SportsCenter twice a day plus other ESPN content, has positioned the brand in front of a coveted younger audience.

Perhaps the high point of ESPN's rollercoaster year came in March, however, when Bob Iger agreed to continue as Disney’s chairman and chief executive for another 12 months. Iger made his decision to stay on in the knowledge that steadying the ship at ESPN would be one of his - and Disney shareholders' - top priorities, and in November his efforts to do just that were boosted when Skipper signed a three-year contract extension that will keep him at the company until at least 2021.

That continuity could prove invaluable in these turbulent times for the self-styled ‘Worldwide Leader in Sports’, providing much-needed leadership stability and, most importantly, ensuring a smooth transition into digital. But that is not all. Iger and Skipper will now have central roles to play in integrating a set of major entertainment and broadcasting assets from Rupert Murdoch’s 21st Century Fox into the Disney fold, after the two companies confirmed a long-rumoured, blockbuster transaction earlier on Thursday.

Valued at US$66 billion in stock and debt, this game-changer of a deal will see Disney acquire, among other assets, Fox’s family of 22 regional sports networks in the US - including New York’s YES Network and Prime Ticket and Fox Sports West in Los Angeles - as well as the company’s 30 per cent stake in Hulu, another burgeoning MVPD already part-owned by Disney. It is expected to take up to a year to complete, pending close scrutiny from federal anti-trust authorities.

Without doubt, the deal is a defiant play by Disney, one that underlines its status as the world’s most powerful entertainment brand and turbocharges its global growth aspirations at a time when its business is being challenged like never before from online streaming rivals like Amazon and Netflix. For ESPN, too, the implications of the Fox takeover are profound.

As well as YES Network and the LA stations, Fox’s family of RSNs includes channels that air in-market coverage of 44 of the 81 teams across MLB, the NBA and the NHL. Acquiring those channels dramatically scales ESPN’s local footprint - an attractive proposition for advertisers who might otherwise look to spend their marketing budgets elsewhere - whilst bringing the rights to more premium, essential sports content under its control.

Some commentators have questioned the logic behind ESPN's plan to plow yet more money into yet more costly rights contracts. Expensive licensing rights deals are widely accepted to be one of the chief causes of the network’s financial troubles, of course, and many have noted how Murdoch was seemingly so eager to offload his network of RSNs.

Yet even if the same trends affecting national media are also being seen at the local level - and no matter if ESPN cannot use its newly acquired content to bolster its forthcoming OTT service due to the terms of existing rights deals - any move that shuts out competitors like Comcast-owned NBC is argubly one worth taking. What's more, ESPN is now ideally positioned to bid for local streaming rights once current contracts expire.

Which all ties back to Skipper's objective of switching up the narrative. With ESPN looking to the future in its bid to assert its position at the summit of sports media once again, Disney’s Fox takeover sends a clear message to the rest of the industry that this supposedly sinking ship is up for the fight.

As Skipper chimed this week: “It’s like The Who said: 'Meet the new boss, same as the old boss’.”