ESPN+ subscribers plateau as live sports stay on hold

ESPN+ subscribers have largely leveled off after a period of marked acceleration, providing a window into how the ongoing Covid-19 pandemic has battered many parts of the business of corporate parent The Walt Disney Co.

Disney said paid subscribers of ESPN’s direct-to-consumer offering rose to 7.9m during its second fiscal quarter ended March 30, a minimal gain from the 7.6m reported three months ago following the company’s prior quarter.

ESPN+ had previously been on a much more aggressive growth curve, steadily growing from 2.2m subscribers a year ago to 3.5m in November 2019, and then quickly more than doubling that figure by February as a new bundle offering hit the market combining the over-the-top sports service with Disney+ and Hulu for $12.99 per month.

But as live sports that is the core of ESPN+’s value proposition has temporarily dried up amid the public health crisis, consumer adoption has slowed.

ESPN’s challenges also extended to linear television, where the sports media giant’s ad sales revenue fell by 8 per cent, and are continuing to pace downward in the current quarter.

“It’s quite possible that what we create is appreciated now more than ever because people find comfort and inspiration in our messages of hope and optimism,” said Bob Iger, Disney chairman. “This is the same reason we believe people will resume familiar activities once this crisis ends. They missed doing the things they enjoy, things that make them feel happy and connected with family and friends, whether it’s going to movie theaters to see our films or visiting our theme parks around the world or watching live sports on ESPN.”

The earnings report also the first for newly installed Disney chief executive Bob Chapek. 

There was much more encouraging news with the entertainment-focused Disney+. After quickly blowing past 50m subscribers after just five months of existence, that service now stands at 54.5m subscribers.

That represented essentially the shining light of Disney’s entire earnings report. Profit for the quarter fell to $475 million, down 91 per recent compared to the same period a year ago. Earnings per share on an adjusted basis fell 63 per cent to $.60, and even that was down by a third from recently downgraded analyst expectations.

Beyond the dearth of sports to fuel ESPN and Disney overall, other company operations such as theme parks, cruise lines, Broadway productions, and film production have been on hiatus due to the pandemic. With future business prospects for vacation travel and movie theatre attendance remain highly tentative at best, many financial analysts continue to downgrade Disney stock, which has fallen 30 per cent over the last quarter.

In total, Disney estimated that Covid-19-related economic impacts on its overall business were as high as $1.4bn during the quarter.

“Our businesses have experienced considerable disruption as a result of the Covid-19 pandemic,” Chapek said. “This forced us to implement a variety of measures to manage the short and long-term financial impact on our company.”

Among them were a series of pay reductions for senior company executives and top on-air talent, staff furloughs, and a decision to forgo paying a semi-annual dividend to preserve $1.6bn in cash.

Company officials, however, spotlighted recent sports-related successes on ESPN from the Michael Jordan-focused documentary series The Last Dance and the virtual National Football League Draft, each of which have garnered record-setting ratings.

“ESPN has truly stepped up in the absence of live sports, finding new and innovative ways to deliver compelling content that fans,” Chapek said. “Sports will come back strong. And when they do, we believe ESPN is best positioned to benefit with more offerings than anyone.”

With the success of The Last Dance and most leagues remaining on hold, ESPN is now accelerating the production and release of other documentaries.

ESPN is also in the midst of discussions with various leagues and conferences about still paying for sports rights in the absence of ongoing games. The process is not dissimilar to what Comcast and its NBC Sports holding are going through. But Christine McCarthy, Disney senior executive vice president and chief financial officer, did not elaborate on where that process stands or the likelihood of getting any sort of fee relief.