Disney’s Rock (ESPN) & Hard Place (Hulu)
‘Iger is Stuck’ — good overall framing by Anna Nicolaou and Christopher Grimes of the Financial Times regarding the situation Bob Iger now finds himself in, stuck between the proverbial rock (ESPN) and the hard place (Hulu). In some ways, of course, it should be a good problem to have — controlling two massively popular entertainment entities — but it’s decidedly not a good problem to have in an era of austerity. And so now it falls to Iger as something that needs a solution and resolution going forward. So let’s think through some ideas…
Hulu is most pressing since, as noted in the piece, there’s a January 2024 date where Disney can acquire the whole thing from Comcast — or Comcast can force them to. And there’s a previously agreed upon minimum valuation of $27.5B. But the world is much different than when that agreement was negotiated. In many ways, Hulu is actually doing better, but the entire space (and world) is now in chaos. And, of course, that includes Disney itself, where Bob Iger thought he was out before the board pulled him back in to deal with things like this situation.
And then there’s ESPN. As the reporting (and years of reporting) makes clear, Iger is a huge fan of the entity. He’s clearly a sports guy as he tried (though failed) to be the key player in bringing the NFL back to LA. If ESPN is still a crown jewel of the Disney empire, it’s one that has lost some of its dazzle in recent years, with cable TV collapsing on top of it. (Which should have surprise absolutely no one.) Fees continue to go up as the audience continues to go down, which makes for an awkward situation — one that the sports leagues themselves are likely to feel the pain of first (thanks largely to the implosion of the regional sports network infrastructure — which, yes, Disney accelerated because of the Fox asset spin-off).
The way to square this circle might be to revisit an idea I wrote about back in 2015 — well before Hulu was offering live sports, let alone touting it as the main selling point in their advertising campaign (you’re welcome, Disney). Eight years ago, this was actually far less straightforward as Disney was just one (equal) partner in Hulu. But the aforementioned Fox acquisition made them the main partner. The RSNs were going to be a headache for this. That problem has now just about inverted (though dealing a few major RSNs like the one owned by the Yankees will remain an issue). And now Hulu has a full over-the-top streaming cable service in the form of Hulu + Live TV. There may be a way to thread this needle.
All of the streaming cable replacement services are now more or less the same — and looking a lot more like traditional cable in price on down these days — so a focus on sports for Hulu’s service could remain a smart selling point and they should double-down on it. They should create a new UI that aggregates all the games you want to watch in a smart way. (Something which we’re all increasingly longing for in an era of increasing content fragmentation.) This is a natural place for ads, ads, ads, ads, ads, which Disney must appreciate. And they can upsell the other services that offers some sports, such as Amazon for some of their NFL games and Apple TV+ for their MLB and MLS games. Again, in the past this would have seemed impossible, but now it’s a standard business practice.
In fact, the one wrinkle in this may be YouTube TV, which not only competes with Hulu + Live TV, but just nabbed the NFL Sunday Ticket. It’s hard to see how YouTube lets Hulu port that content through Hulu as it’s less an upsell and actually directly competitive with Hulu’s offering. So that’s a problem and one that suggests that if Disney was going to actually do this sports aggregator offering, they should have acquired such rights.
So instead, if I had to actually bet, I would guess that Disney keeps ESPN and offloads Hulu to Comcast. Peacock is clearly not going to cut it on its own, but if Comcast can bolster it with Hulu in some way, that probably makes some sense. And then Hulu becomes Comcast’s over-the-top cable solution. What this means for non-NBC/Peacock content is unclear, but it somehow has still worked with Disney (ABC + ESPN) owning the majority of the entity. So we’ll see…
And presuming Comcast doesn’t position Hulu as the sports hub (maybe?), they’ll likely have to push down the international path, something which, as the FT notes, original head Jason Kilar — someone seemingly always just one step ahead of his time — tried to do back in the day but was rebuffed by the networks. Might Comcast be able to push this through and go global?
Meanwhile, Disney will continue to milk the profits from cable but will significantly slow down on the sports rights side of the equation. They have the SEC deal starting next year but any new deal from now on will likely have to be reset price-wise going forward and will undoubtedly come with some sort of ESPN+ rights to hedge against the cable situation.
A lot of this depends on the macro though too. If the picture doesn’t improve in relatively short order, Wall Street may want a pound of flesh from Iger. And ESPN is right there to cleave off (spin out). Again, he clearly doesn’t want to do that, but it may be the cost of doing business.
