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Disney’s Profit Engine Is Driving The Company Off A Cliff

Disney struggling with ESPN's Future
Credit: Disney

In the early 2000s, Disney CEO Bob Iger went on a spending spree. A few billion for Marvel, a few more for LucasFilms, and throw in Pixar while we’re at it. Disney was on a roll; why not buy as much of the entertainment industry as possible? Make the Walt Disney Company too big to fail.

But where was all this money coming from? Sure, at the time, Disney Studios was pumping out some hits, but nothing like the highs of the early 1990s when it saw the likes of Beauty and the Beast (1991), Aladdin (1992), and The Lion King (1994). Disney Parks had always been profitable, but with a downturn after 9/11, Parks struggled to get back on their feet.

Disney ESPN partnership

Credit: ESPN

So, to help fund all of these new toys that Iger wanted, Disney turned to the engine fueling its profits and growth: ESPN. It’s hard to believe now, but ESPN was in more than 100 million homes, each paying up to $12 monthly for the Worldwide Leaders in Sports. ESPN had its hand in each of the big three sports in America: NFL, NBA, and Major League Baseball. And there was very little competition.

But how the world has changed since then. More than 30 million Americans have cut the cord on ESPN and cable, and by the end of the decade, less than 50 million people will be paying for ESPN through their cable company. To add to ESPN’s downturn, the costs of supplying NFL, MLB, NBA, and College Football games have exploded in the last decade. ESPN will pay $2.7 billion a year just for the right to NFL games, which is only one game a week and two playoff games.

Iger meets with employees after comments about selling media

Credit: Disney

According to the New York Times, ESPN will pay $10.8 billion for sports programming this year and has future contracts totaling $57 billion. ESPN has laid off hundreds of employees, including multiple on-air personalities, to cut costs over the past year.

Disney has the option of taking ESPN to a streaming-only platform, but that would require a subscriber to pay nearly $40 a month for ESPN for Disney to break even. ESPN Plus has a subscriber base 25.3, but of that number, only five million pay directly. Most subscribers get it through the Disney Plus bundle or for free from a secondary outlet.

disney espn partners

Credit: Disney, ESPN; Walt Disney Television, Flickr

Bob Iger made news earlier this month when he said that ESPN was looking for a strategic partner. But it is still unclear what that will look like.

What is clear is that the traditional tv model is no longer viable, and ESPN has to adapt to the new streaming world quickly. It has gone from the engine that drove growth to one of the anchors sinking the Walt Disney Co.

We will continue to update this story at Disney Fanatic.

 

About Rick

Rick is an avid Disney fan. He first went to Disney World in 1986 with his parents and has been hooked ever since. Rick is married to another Disney fan and is in the process of turning his two children into fans as well. When he is not creating new Disney adventures, he loves to watch the New York Yankees and hang out with his dog, Buster. In the fall, you will catch him cheering for his beloved NY Giants.

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