Media Analyst Rich Greenfield Believes The Disney and ESPN Streaming Services Will Face An Uphill Fight Against Netflix and Amazon

When Walt Disney Co. chairman/CEO Bob Iger announced last week that company’s two flagship brands would launch major streaming services — ESPN in 2018 and Disney in 2019 — he left a lot unsaid about what would actually be on those streaming services.

Iger called the announcement “a major strategic shift in the way we distribute our content,” but it’s less a shift than an additional way for Disney to distribute its content and one that threatens to undermine the cable networks that generated 41 percent of Disney’s revenue and 46 percent of its profits this past quarter. And with Disney earning an estimated $12.97 per bundled-TV subscriber and nearly a million such subscribers leaving the market in the second quarter alone, the revenue from those networks was already in free fall.

When you add to that the consumer confusion of figuring out whether a new Disney animated series or a college football game will be on cable or streaming and the consumer irritation of needing to subscribe to two new services — or more if Disney launches separate services for Marvel and Lucasfilm — to keep up with Disney’s programming, the situation could go from bad to worse.

Decider sat down late last week with BTIG media analyst Rich Greenfield to talk about the trouble in Mouseland.

DECIDER: I wanna start with the basics of the Disney announcement because I think there’s a lot of confusion about what the universe of the possible is for the Disney and ESPN streaming services.

RICH GREENFIELD: The problem for both the ESPN and the Disney services is that it’s going to be anything but simple. Netflix had the beauty of starting from scratch without licensing baggage — deals with cable, deals with streaming, deals with international — that comes with the legacy media business. You’re not going to see the NBA or the NFL games on ESPN’s new service. You’re not going to see the full lineups of Disney Channel shows on a Disney-branded streaming service. You may or may not see Marvel and Lucasfilm content. ABC content — even if it’s family oriented — will be on Hulu. Consumers are going to be genuinely confused.

Why can’t Monday Night Football be on ESPN’s cable channel AND on the new ESPN streaming service?

It technically could. ESPN could launch ESPN as we know it today as a direct-to-consumer service. If they do that, though, distributors would start to give subscribers the option to save $8 a month and not take ESPN. Right now, your cable provider guarantees Disney that 80 percent of its subscribers will have ESPN in their package. If Disney offered ESPN directly to consumers, they would be at the will of whether consumers actually want ESPN or not. The scary thing for Disney is that many consumers would not want to spent $8 or $10 a month for ESPN.

Disney wants to protect its legacy agreements, so ESPN is trying to have its cake and eat it, too. They want you continue to subscribe for the big stuff like Monday Night Football and NBA games and MLB games, and they want the superfan to pay even more money to get access to what will be a multi-sport conglomeration of tertiary games.

If you look at college football, for example, ESPN will have games airing on ABC, ESPN and ESPN2 and then other games available on the WatchESPN app. Do you see ESPN now making you subscribe to a new service to get those games?

It’s possible. It’s the model that NBC just followed. NBC used to make Premiere League games available in the mornings that cable subscribers could get on the NBC Sports app that are now an add-on package. It’s possible that games would disappear from WatchESPN and move to the new service.

What sports and leagues are available to ESPN for a new service?

They’ve bought a lot of rights with the purchase of BAMTech, which owns MLB and NHL’s over-the-top rights.

The MLB and NHL packages are already available on their own services. Will those now become add-ons to the new ESPN service? Will they be included in the ESPN service?

That’s unclear.

Are there particular sports from BeIN Sports or other networks that you’d expect to see ESPN try to get for the new service?

Anything is possible.

You don’t sound like you think ESPN even knows what this service will be.

This seemed a bit half-baked on the ESPN and Disney fronts. “Hey, we’re gonna launch this. We don’t know pricing. We don’t know the timing. We don’t know the content. We’ll tell you more later.”

Will ESPN approach the next round of negotiations with two different outlets for programming?

That’s an even bigger issues for the Disney service. If they make the next High School Musical, will it go on the Disney Channel or on Disney OTT? Who decides? If all the good stuff goes to the OTT, the bundled channel is destroyed.

Do you think Bob Iger omitted any discussion about ABC because there would likely be an ABC version of CBS All Access at some point?

He omitted ABC because that’s stuck in the Hulu joint venture.

The Hulu deal includes ABC and Freeform but not Disney Channel, Disney Junior or Disney XD?

I believe that’s right.

A streaming service built around the Disney cable channels and Disney movies is a different approach than Netflix’s big-tent approach of programming for children, teens, adults, scripted, reality, international, etc.

Netflix is a little bit of everything for $10. Can Disney really charge you $10 for Disney, $10 for Marvel, $10 for Lucasfilm, $10 for ESPN and $10 for Hulu? That’s not gonna work. Consumers are not that dumb.

Disney would not be able to put the Netflix-Marvel shows on a Marvel streaming service because Netflix is a co-producer on those shows, right?

You got it.

This is a mess.

That’s why we have a sell rating on the stock. It will be very hard for Disney to achieve what it’s talking about.

That pre-supposes that all programming has a long tail, and maybe it doesn’t. Does a five-year-old Marvel movie have that much value?

Catalog has a lot of value overall, but I don’t think any one title is all that important. Netflix has lost Disney before. Netflix has lost Sony before. Netflix has lost Paramount and Lionsgate and MGM movies before. Netflix has so much content that consumers don’t notice that content comes in and out.

Can ESPN do anything in the near term to streamline the cable and streaming products?

The problem is that ESPN is too embedded in the legacy bundle that there’s no easy way out.

Where does it all end? ESPN loses 2 million cord-cutters a year and eventually picks them up on the new streaming services?

The bigger problem is that Amazon Prime will have more subscribers than ESPN when the next round of negotiations start for NFL football. How in the world will ESPN retain Monday Night Football?

The cheaper approach for Amazon would be to buy overlapping rights to NFL games like they’re doing this season with Thursday Night Football.

I don’t know. Amazon just bought exclusive rights to tennis in the UK. If they really want to disrupt the TV ecosystem in the United States, they’ll buy the exclusive rights to Monday Night Football. That would destroy ESPN and its ecosystem.

Because Monday Night Football is an overwhelmingly big chunk of ESPN’s value in the cable bundle?

Correct. That’s why ESPN gets carried at $7 a month or $8 a month per subscriber.

Do you see Disney getting devalued to a point where it would get bought by a tech company that has avoided trying to buy it thus far?

I don’t know. Netflix has proven that if you spend a lot of money and hire the right people, you can make a lot of money with making a $100 billion acquisition.

NBCUniversal announced last week that it will shut down its Seeso streaming service. RLJ Entertainment, which owns the Acorn TV streaming service, announced disappointing subscriber growth during its earnings call last week. Is niche streaming in trouble?

Direct to consumer is really hard. It’s really hard. That’s why we think the losses that Disney will incur will be significant to get these streaming services off the ground. They’ll need a robust amount of content and a massive marketing budget. Direct to consumer is not easy.

Do you see the Disney service being aimed at families with kids? That it will be closer to the Disney Channel than something like ABC or Netflix?

At this point, I don’t know.

Scott Porch writes about the streaming-media industry for Decider and is also a contributing writer for Playboy. You can follow him on Twitter @ScottPorch.