This Is How Much Disney Actually Makes (or Doesn’t Make) From ESPN+

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The decision was cheered by investors, even if it was overshadowed by encouraging numbers for its newly released feature film Black Widow. Walt Disney (NYSE:DIS) is upping the monthly cost of sports streaming service ESPN+ by a buck, suggesting demand is firm enough to support such a price hike. Some onlookers even believe part of Monday’s bullishness was actually in response to the price increase.

If you’re thinking it’s a move that’s going to actually matter anytime soon, however, think again. While ESPN may be the king of cable television fees, the ESPN+ streaming app doesn’t even move the company’s revenue needle.

Person using a calculator at a desk.

Image source: Getty Images.

Low impact, and nearly no impact

To be fair, even at a dollar more than its current monthly price of $5.99, the service is still a solid value. Fans of less-than-mainstream sports can get their fix of ultimate fighting, golf, and tennis content that may not be available anywhere else, and the recent addition of Spain’s La Liga will add more soccer to the platform’s U.S. lineup beginning next month. Given the dynamic, it’s difficult not to say streaming isn’t the inevitable future for sports programming as consumers’ tastes evolve and the cable TV industry’s worries shift from cord-cutters to cord-nevers.

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This shift is a major, long-term project though, even for a powerhouse media name like Walt Disney.

The graphic below puts things in perspective. As of early April, 13.8 million ESPN+ subscribers were paying an average of $4.55 per month for the service. That translates into quarterly revenue of roughly $190 million. Not bad, until you compare it to Disney’s total top line of $15.6 billion for the same quarter. ESPN+ only accounts for around 1% of the company’s business.

Pie chart of the Walt Disney revenue breakdown for the quarter ending April 3, 2021.

Data source: Walt Disney. Chart by author.

We don’t know if ESPN+ is profitable, as Walt Disney doesn’t disclose such details. We do know that the company’s overall direct-to-consumer division remains in the red though; it lost $290 million last quarter in operating income. It stands to reason production and marketing costs linked to Disney+ are the key culprits of those continued losses, which by the way are abating. No sports programming comes cheap though, regardless of how it’s distributed.

The near-term potential of ESPN+ weakens even further compared to ESPN’s ongoing success despite the persistent cord-cutting headwind. Market research outfit eMarketer estimates there are still about 74 million pay-TV customers in the U.S. While this figure could slide to just above 60 million by 2025, that’s still well above the plausible headcount ESPN+ might be able to boast by that point in time.

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Also bear in mind that while the number of traditional cable subscribers is still falling, the remaining ones produce big revenue for Disney. S&P Global Market Intelligence estimates ESPN generated industry-leading affiliate fees of $7.64 per subscriber per month last year, and that figure doesn’t include any advertising revenue the brand generates beyond affiliate fees.

The point being, cable television remains ESPN’s bread and butter. As long as Walt Disney must remain on good terms with cable TV providers, it can’t risk alienating those partners by airing ESPN’s premier programming via ESPN+.

The bottom line for Walt Disney’s ESPN+

Again, a la carte streaming is the future of television. There’s apt to be a time in the future when the current cable version of ESPN is available as a stand-alone service outside of the typical cable bundle. It’s also encouraging to see Disney impose this price increase less than three years from the launch of ESPN+. It suggests the company is at least thinking about finding the right balance between price and value. After all, it’s first and foremost a business ultimately meant to turn a profit.

The fact of the matter is, however, ESPN+ is not only not a game-changer for Disney, it’s not even in a position to become a game-changer in the foreseeable future. Prospective and current shareholders should weigh everything else ahead of this particular project.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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