The next seismic shift in video distribution is about to begin. Disney announced Tuesday that they will stop selling content to Netflix and will launch its own streaming service – starting with ESPN.
After spending years seeing services like Netflix as a profitable buyer for their stuff, Disney (and other content providers) now see distributors like Netflix and Hulu as major competitors. Disney has decided that the time right for cutting out the middle man and start distributing their own content.
Direct to consumer services, also known as over-the-top (OTT) have been on the horizon for a while. Disney is on the fast track since they just purchased the majority interest in BAMTech, the streaming service built by Major League Baseball.
Disney will cut off Netflix in 2019, but the ESPN streaming service will be on-line in 2018. Disney chief Bob Iger said the app would include live sports from MLB, the NHL, the MLS, and Grand Slam tennis and college athletics. Individual sports packages will also be available for purchase.
Right now the majority of events and core programs seen on the cables channels (Sportscenter, College Football Today, etc.) will not be available on this streaming service.
Fans who pay for ESPN through their cable subscription will still have access to the new service through the existing ESPN app – WatchESPN.
ESPN collects $7.86 for every cable subscriber that receives the channel. Combined with the money they get for the other channels, the network brings in over $8 Billion before selling a single commercial.
However, there is trouble in TV Paradise. The number of subscribers has dropped from a high of over 100 million to just over 87 million today. ESPN, spending like a drunken sailor on a three-day pass in New Orleans, is paying out yearly over $5 Billion in rights fees to sports leagues such as the NFL, MLB, NBA and college football.
ESPN expects the OTT service – which will be ad supported – to be the next generation of revenue growth for the company.
No word on how much the streaming service will cost, for good reason. This first edition will be a trial version of the final product. Think of it as the Longhorn Network of OTT services. ESPN had two priorities with the development of the LHN: to keep Texas in the Big 12 and to have a “practice run” with a regional network before creating the SEC Network, and the soon-to-be ACC Network.
The shift to “OTT” services and possible “skinny bundles” of like-minded channels is now officially underway.
How this will end is anybody’s guess, but it should be ironed out just about the time all those college football media contracts come up for negotiation in 2024-25.