Disney Looking To Join Rivals By Doubling Down In Growing Sector

Summary:

• Disney has been steadily building up its plans for expanding its sports business in recent months but mostly behind the scenes.
• Over the last few weeks, we’ve gotten more of a sense of those plans and they’re expansive and ambitious – but still carry questions around logistics and execution.
• Disney announced this week it would be creating a new service with rivals WBD/FOX that super-serves sports fans, which comes following rumors of a separate seismic deal with the NFL.
• Both aspects – along with the upcoming direct-to-consumer ESPN option – showcase how a more traditional company like Disney has to pivot to compete with streamers like Amazon/Apple.
• Disney’s board has been under attack from a number of activist investors looking to challenge their leadership, but these reports along with recent strong earnings may help push them back.

In 2023, more than 90% of the 100 most watched programs on TV were tied to the NFL.

Yes, the Super Bowl tops it, but as for those other spots in the top 10, it was a mix of playoff and Thanksgiving Day football with Christmas Day games coming up right after and then regular season game after regular season game.

The lone outlier in the Top 25 – the State of the Union.

Others breaking the list – the Macy’s Thanksgiving Day Parade (No. 45), the Oscars (No. 60) and content leading out of the Super Bowl.

In others words if there’s something on TV that audiences are watching – it’s football.

So when reports surfaced that Disney (NYSE:DIS) was in talks with the NFL on a partnership, you can see why it caused a stir.

A deal of this level would not only move the needle in the sports world, but it also would move the needle in entertainment industry in a variety of ways. With Super Bowl being this weekend and an even newer blockbuster announcement coming earlier this week in the lead-up, it seemed like a perfect time to dive into potential impact…. especially given Disney’s strong earnings the other day.

First as always, some background.

Yes, I will touch on the Disney/WBD/Fox mega-sports package and their earnings (busy week) but let me set the stage a bit first.

To back all the way up, remember the initial report that started this hype was that the NFL would take a stake in ESPN, while shifting its media unit into the Disney/ESPN orbit. In other words, not only would this ensure ABC/ESPN continue to have amazing games and NFL draft broadcast priority but also have NFL Network and Red Zone under its umbrella.

There are a lot of areas that must be worked out for this to happen – including the NFL team owners to buy in during their Spring meetings – but if it did come to fruition, it would be a game-changer.

Forget for a second the linear/cable component but look at streaming because that’s part of what’s driving this type of partnership. The NFL has been pushing its own NFL+ streaming service for the past few years but has had little traction… but all of a sudden that going under the Disney bundle would likely boost its prospects substantially.

And yet that’s just one micro-element in a macro-level playing field.

With Amazon (AMZN) owning Thursday Night Football for the next eight seasons, NBC (CMCSA) leaning heavier on Peacock and Apple (AAPL) content (for now) with the Super Bowl half-time show sponsorship deal you are seeing streaming (or streaming adjacent) become a hot space for football.

The pie is being carved up and here there’s a finite number of ways to cut it given how long the current deals run. The NFL has been clever in how they’ve created sub-sections and the streamers have been all ears, but the bigger pieces are still becoming few and far between.

For Disney this would be both about keeping pace with rivals and at the same time securing its own competitive advantage. Controlling the NFL Network and Red Zone on top NFL+ would be a major coup for one single NFL partner to have – and this is on top of their deals for the NFL Draft and NFL Pro Bowl – and their “flex game” arrangement for Monday Night Football.

Oh and don’t forget in the last licensing deal they negotiated two Super Bowls.

Remember when people were suggesting Disney excise ESPN?

This is part of why that didn’t happen.

ESPN is the only network (for the moment) with games from every league and those games can then air on ESPN, ABC or ESPN+ or all of the above. That’s also the Super Bowl part of the equation… as a franchise holder for the big Sunday and Monday packages ESPN, NBC, CBS and FOX have a “wheel” agreement where the big game changes network every year.

ESPN had been excluded in past years, but under the new terms they are back in the mix – yet ESPN being a cable network means that to ensure the game reaches the highest number of viewers would essentially live on ABC. That brings the title game back to the Alphabet net for the first time since 2010.

But wait there’s more.

The writers and actors strike re-wrote the rule book for a “traditional” TV season this year but for Disney, it also was a chance to simulcast its ESPN Monday Night Football games on ABC for a double-dip ratings advantage.

These are intangibles that are part of the bigger picture which makes something like a NFL deal more impactful.

Speaking of impact… now let’s bring in the mega-deal I mentioned upfront.

Here’s the thing about this new joint venture that will see Disney, Warner Bros Discovery (WBD) and Fox (FOX) teaming up – it’s way too early to speculate about it impact.

Could it be a massive game-changer? Could it give Amazon/Apple a run for their money? Could it be a colossal mistake?

The answer to all is yes… but we just don’t know yet.

We can speculate all we want, but we don’t know the pricing, we don’t the content, we don’t the strategy and we don’t even know have a name for the service We also don’t know the reaction from the various leagues as this does not bode well for them and their negotiating power – specifically the NBA which is about to start those type of talks.

Until those answers are explained, essentially this is all a giant guessing game.

On paper, it sounds fascinating but it also sounds convoluted. The logistics involved in sorting out who can bring what to the table and how it will be presented can’t be untangled overnight. The leagues are going to obviously have to have a say here as well given its their content in play.

And remember the leagues themselves are already playing their own game of “let’s make a deal” themselves.

Case in point the NFL.

The NFL is a billion-dollar machine that continues to grow and grow making it a valuable partner for network and companies alike. This also is a company that sold off a playoff game this year for a reported $110 million to Peacock so the nickel-and-dime aspect will continue – whether or not Disney is an eventual partner.

And on a note on that $110 million deal.

NBC/Peacock was quick to tout its success which looks great on paper but what’s not in the release is anything on the ire from the fans it drew (as did the Peacock exclusive over the Christmas holiday). Yes, it was a success for Peacock with some 28+ million views but it also was the least watched of the six wild-card games.

I get it – both NBC and the NFL saw an opening and took it, fan reaction notwithstanding. I just see it as a missed opportunity for NBC who could have made the game free and built up a free preview weekend for Peacock. It was a good chance to show off the Peacock exclusive content that includes The Traitors, The Holdovers, The Office and Love Island, among others.

During both Christmas and the cold wild-card weekend people were home and looking for things to watch – this was a big opportunity. Not taking it is also kind of ironic given Peacock launched itself as a “free” service, when really it was anything but one.

Still in this streaming-first age you can see why Comcast just wanted quick sign-ups vs. building brand awareness – even though that helps sustain business better.

In either case, the NFL is going to continue to do what it wants to do if it means making more money – and so will Disney and its rivals.

Between the rumored NFL deal, the very real team-up with FOX/WBD and the upcoming ESPN direct-to-consumer service (not to mention the ESPN Bet license) you can see how all-in Disney is here with sports… both by itself and with like-minded networks looking for a way to even the playing field.

Essentially the Mouse is hedging its bets across the board by having a hand in everything and that paired with its strong quarterly earnings (of which streaming was a high point), it begins to turn the tide for embattled CEO Bob Iger and his board.

Having the quarter they had plus all of this upcoming begins to show investors the strategy Iger always claimed to have but wasn’t able to fully show. Now that he can reveal his hand a bit, it should push back the activist investors who thought they saw blood in the water.

This won’t repel them completely but it’s hard to claim leadership doesn’t have a strategy when they keep unveiling more and more new paths forward. Something that seemed impossible a few months back now seems more realistic… yes it has a long way to go, but some of the pieces are starting to connect

After all, remember how “impossible” it was decades ago to fathom the Super Bowl being in Las Vegas – or having their own team?

Yeah, not so much anymore.

It’s the same thing here, there will be an uproar, people will create smoke and claim fire, and in the end it will all come back to what it always comes back to… come you believe that last play?

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