ESPN will become a standalone streaming service
While there are no plans to scuttle the existing linear cable channel, Disney has accelerated its plans to build out flagship sports network ESPN into its own streaming service. With cable losing more subscribers every day and SVOD growing in its place, this development feels inevitable. But CEO Bob Iger never made clear when this would begin, and it seemed to be further off than closer. Recently, though, discussions heated up in earnest after ESPN lost revenue for the first time on the carriage fees paid to them by cable and satellite companies, which was offset by the losses incurred from cord-cutting consumers who no longer subscribe to cable. Potential partnership talks have been ongoing with the likes of Hulu partner Comcast as well as potential equity deals with major sports leagues like the NBA and NFL. There is a lot left to figure out, but the recent economic headwinds have done their part to make this a much higher priority for Disney.
The Circana Take:
- Sports is an incredibly lucrative business, and ESPN is the gold standard. Any deal Disney makes to decrease its financial outlay ensures higher long-term profits.
- Finding the right partner(s) to maximize profit responsibly will be a delicate balance. SVOD can be fickle, though, so this will come down to capitalizing on quality content, while also navigating existing deals with cable and satellite companies.
Peacock gains 2M subs; loses $651M
During Comcast’s recent quarterly earnings update, it was reported that Peacock had gained about 2 million paid subscribers, raising their total to 24 million, up from 13 million a year ago. However, while subscriber growth is always positive, Peacock has yet to turn a profit, reporting a quarterly loss of $651 million. Peacock has made efforts to improve the bottom line, including removing its free tier earlier this year and recently announcing its first-ever price increase. Prices will rise on August 17 for existing customers and immediately for new customers, with the Peacock Premium plan rising $1 to $5.99 and the Peacock Plus plan up $2 to $11.99.
The Circana Take:
- Now that the service is a pure play SVOD, success will come from product packaging and its programming mix. As with other mid-size SVOD services, growth may need to come from bundling with complementary competitors or major content acquisitions.
Netflix reports first earnings since password-sharing crackdown
Netflix recently reported its earnings for Q2 2023, the first such report since the streamer started cracking down on password sharing. The subscriber numbers were very solid, bringing over a million new subscribers per region (UCAN, EMEA, LATAM, and APAC), for a combined add of 5.9 million new customers. However, while revenue was up 2.7%, it was off the company’s forecast of 3.4%, causing the market to respond unfavorably. More, the details on the new ad tier were hard to pin down. Numbers seem positive, but few specifics were given. However, Netflix announced on the call that it has removed its lowest-cost Basic Plan (also its lowest ARM plan, or average revenue per member), which now means new customers can choose from free with ads for $6.99 or the higher-priced ad-free plans, starting at $15.49. To further stabilize its new ad business, Netflix renegotiated terms with Microsoft, who manage the ad technology Netflix is using. They also have reworked the ad pricing, lowering their CPM from $45-55 to about $39-45.
The Circana Take:
- The response to the crackdown on password-sharing seems positive and will add significant revenue in the short and long term.
- Netflix’s foray into the advertising market is less certain. While it is certainly more profitable on a per user basis, the initial subscriber counts are leaner than expected, and Netflix execs have said that it will take time before meaningful impact from the ad business is materially reflected.