An ailing ESPN is bad, bad news for Disney theme park fans

If you want to learn more about the long-term future of Disney's theme parks, you need to take a look at ESPN.

Disney's all-sports cable television network not long ago served as the company's cash cow, the largest channel in a division that contributed nearly half of Disney's operating profit and a third of its income last year. But ESPN is losing subscribers at what appears to be an accelerating rate, as more and more cable TV customers "cut the cord" in favor of online streaming.

What does this mean for the theme parks? If Disney starts losing gobs of money at ESPN, that means less cash in the corporate bank account for things such as new attractions at the parks. An ailing ESPN is already holding back Disney's stock price, according to many analysts' reports. If the channel tanks, so will Disney's stock price — further crippling Disney's ability to expand the parks or even maintain them at their current operational levels.

In short, an ailing ESPN is a disease that threatens the health of the entire Walt Disney Company.

According to Nielsen, ESPN lost 621,000 subscribers this month — the worst one-month loss in company history. Outkick the Coverage did the math, and based on a conservative estimate of ESPN's customer loss, determined that "within five years ESPN will be bringing in less subscriber revenue than they've committed for sports rights."

That's bad. And it gets worse, according to the writer's analysis: "The simple fact is this -- I don't see how ESPN's business model makes sense at all by 2021. The 'Worldwide Leader in Sports' is a dead channel walking."

The TL;DR is this: ESPN is losing customers but faces high fixed costs due to the billions of dollars it is paying in long-term deals for the rights to major sports leagues, including to the NFL for Monday Night Football. No amount of layoffs and cost-cutting can help ESPN maintain profitability given the cost of these contracts. And without rights to show pro sports, ESPN likely will lose even more customers.

Is there a way out for Disney?

The ideal solution would be for Disney to reverse the slide and start adding customers for ESPN. But that would mean finding a way to get more people to start subscribing to cable and satellite television packages again. As the Outkick the Coverage writer details, Disney's can't simply pad its subscriber base by selling access directly to consumers via online streaming, as that would jeopardize its ability to keep earning lucrative subscription fees from cable and satellite providers — ESPN's big source of income. Disney's hands are pretty well tied.

What's left? Sell ESPN, while Disney still can. But everyone in the business knows what's up with the channel. Who would want to buy a channel that's on course for financial disaster?

The businesses whose future is tied together with ESPN's, that who.

A cable or satellite provider could save itself a ton of money by owning ESPN, while also extracting subscription fees from its competitors, giving itself a major financial advantage over its rivals. Because Disney does not own a cable or satellite television provider, ESPN suffers as the market for cable television shrinks. But for the companies providing cable TV, it's all about their share of that market. A company can survive in a shrinking market if it is increasing its share of that market by enough. Owning ESPN might help a cable or satellite provide to do that.

Who are the potential buyers, then? Let's start with Disney's great rival Comcast, which owns NBCUniversal. Also, the newly merging AT&/Time Warner conglomerate. Those companies already have substantial sports programming networks, however. Does that make ESPN a better or worse fit? Your guess is as good as mine. Two other options would be Verizon and the newly combined Spectrum, formed by the merger of Charter, Bright House, and Time Warner's old cable business.

One way or another, Disney's theme parks needs to be freed from an ailing ESPN if they are to have a chance to thrive in the 2020s and beyond. Whether Disney accomplishes that by reversing the slide at ESPN or selling the channel is perhaps the most important challenge facing Disney's management at this moment. But if Disney fails to meet this challenge, fans of the company's theme parks can forget about seeing any big new additions for a long time after the Avatar, Toy Story, and Star Wars lands debut in the next few years.

Replies (36)

This article has been archived and is no longer accepting comments.