Tom Rogers: Expect ESPN news to be the center of Disney's earnings announcements

Key Concepts:

• ESPN streaming service launch
• Potential acquisition of NFL Network and RedZone
• Impact of ESPN streaming on the cable bundle
• Disney's Hulu ownership and integration strategy (Disney+, Hulu, ESPN)
• Competition with Netflix and YouTube in total viewing time
• Streaming ad revenue challenges for Disney+ and Hulu
• Sports rights valuation and potential bubble
• NFL ratings and advertising strength
• NFL renegotiation with Paramount

Disney Earnings and ESPN Streaming:

The primary focus is on Disney's upcoming earnings report, particularly regarding the launch of ESPN as a streaming service. The potential acquisition of the NFL Network and RedZone by ESPN is a major point of speculation.

• ESPN Streaming Impact: The launch of ESPN streaming is viewed as a potential threat to the traditional cable bundle, but analysts project relatively low initial subscriber numbers (2-3 million by year-end).
• NFL Network/RedZone Acquisition: Securing the NFL Network and RedZone could significantly boost ESPN's streaming subscriber base, especially among younger demographics. An interim agreement might be in place by the start of the football season.
• Equity Deal for NFL Network: The acquisition is likely structured as an equity deal, with the NFL potentially receiving 10% of ESPN, with the NFL banking on Disney to increase the value of its investment.

Hulu Integration and Competition:

Disney's complete ownership of Hulu and its integration with Disney+ and ESPN streaming is crucial for future growth and competition.

• Family Viewing Package: Integrating Disney+, Hulu, and ESPN streaming into a comprehensive family viewing package is seen as a key strategy.
• Pricing Strategy: Bundling Disney+ and Hulu with ESPN streaming for a relatively small additional cost ($6) could be attractive to families.
• Subscriber Growth Catalyst: The integration strategy is expected to drive subscriber growth for Disney+, which has seen stalled growth.
• Competition: While YouTube leads in total television time, Disney is the second-largest company, with Netflix in third. Disney is considered the primary competitor to Netflix among legacy media companies.

Streaming Ad Revenue Challenges:

Despite having a significant share of streaming ad revenue through Hulu and Disney+, Disney faces challenges in this area.

• Ad Revenue Decline: Ad revenue from streaming decreased last quarter.
• Ad Tier Adoption: Two-thirds of new Disney+ subscribers are opting for the ad tier.
• Ad Revenue Per Sub Decline: Ad revenue per subscriber has been declining for both Hulu and Disney+.
• Catalyst Needed: A catalyst, such as the integration with ESPN and a family package, is needed to boost ad revenue.

Sports Rights and NFL's Continued Dominance:

The conversation then shifts to the broader topic of sports rights valuation and the continued strength of the NFL.

• Sports Rights Bubble: Outside the US, sports rights values are declining, raising questions about a potential bubble.
• NFL Ratings Strength: In the US, the NFL continues to dominate ratings. Disney reported a 20% surge in sports advertising last quarter.
• NFL Renegotiation: An upcoming NFL renegotiation with Paramount, driven by a change of control at Paramount, will provide a snapshot of sports rights values.
• Potential Early Extension: There is speculation that the NFL rights negotiations may be moved forward to allow for an early extension.

Notable Quotes:

• "For the cable industry, that was always the big nightmare. Oh, if ESPN goes streaming, there goes the cable bundle."
• "[Disney] look like they're going to price up Hulu and Disney+ at only $6 more than buying ESPN streaming on its own. And as a family package, that could be pretty attractive."

Technical Terms/Concepts:

• Streaming Service: A platform that delivers video or audio content over the internet.
• Cable Bundle: A package of television channels offered by cable providers.
• Ad Tier: A subscription option for a streaming service that includes advertisements.
• Subscribers (Subs): Individuals or households that pay for a subscription service.
• Change of Control: A situation where the ownership or control of a company changes.
• Equity Deal: A business deal structured as an equity investment rather than a cash payment

Synthesis/Conclusion:

Disney's upcoming earnings report is highly anticipated, with a focus on the launch of ESPN streaming and the potential acquisition of the NFL Network and RedZone. The integration of Disney+, Hulu, and ESPN into a comprehensive family viewing package is crucial for driving subscriber growth and competing with Netflix. While Disney faces challenges in streaming ad revenue, the company's strong position in sports rights, particularly the NFL, and strategic bundling initiatives offer potential catalysts for future growth. The upcoming NFL renegotiation will provide further insights into the valuation of sports rights in the US market.