ESPN Proves Sports Fans Are Alive and Well, but They've Changed

To fight back against consumers giving their cable subscriptions the axe, Disney (NYSE: DIS) launched the ESPN Plus streaming service in April 2018. Just over five months later, ESPN Plus reached the 1 million subscriber mark. It's a big milestone for Disney's first foray into the direct-to-consumer streaming industry, proving that ESPN can still be a viable business for the entertainment empire.

An important first hurdle

The $4.99 a month ESPN Plus service has reached 1 million subscribers in record time. It took Netflix (NASDAQ: NFLX) several years to hit that mark back in 2003. It took Hulu over a year to get 1 million paying customers, while AT&T's DirecTV Now streaming service took a year to reach the same number.

Granted, ESPN Plus carries a far lower cost than these other options and isn't a complete replacement for the ESPN coverage that consumers get with a full-blown cable TV package. ESPN Plus carries live games from Major League Baseball, the National Hockey League, global soccer, and other select sporting events, as well as on-demand ESPN original series. For bigger prime-time events, ESPN via a TV provider subscription is still needed.

Let's not take too much away from Disney, though. It's impressive that ESPN Plus has garnered this much attention in such a short a time, even though it's just an ESPN channel supplement.

Plus, competition arose pretty quickly. U.K.-based Perform Group announced the launch of its own sports streaming option, DAZN, which so far features boxing and UFC fights from Matchroom Boxing and Bellator MMA. The company has promised it will go after rights to other sporting events to disrupt the live televised-event industry.

The sports fan is alive and well

Though there's little overlap between DAZN and ESPN Plus programming, the fact that Disney has grown its new offering so fast is proof Americans still love sports. ESPN is big business for Disney, and its struggles in recent years have weighed on the company's overall results.

So far in fiscal 2018, revenue rose 3% year over year for Disney's cable networks. Growth is growth, but that 3% increase is dragging down double-digit gains from studio entertainment (the movie business that includes Marvel and Star Wars) and Disney theme parks and resorts.

The trend was worse in the last two years, though. Revenue in the big media-networks segment grew by just 2% in fiscal 2016 and shrank by 1% in fiscal 2017. Cord-cutting was to blame, as ESPN has suffered collateral damage as consumers ditch high-priced TV packages.

ESPN Plus looks like it could be a great way to fight back. At just $4.99 a month, the subscription fee in and of itself won't be a huge revenue generator, but advertising still takes place during breaks in live events. Advertising fetches higher fees the more viewers there are, so it behooves Disney to keep funneling more users to the service.

It's also worth mentioning that the success of ESPN Plus bodes well for Disney's other streaming projects. ESPN Plus will be a modest endeavor compared to the general entertainment platform slated to launch in late 2019: a direct competitor to Netflix. Although Disney and Netflix are playing nice and saying the two platforms can coexist, Disney's early success in sports streaming and the massive amount of content it can leverage for its next project makes me think it could catch up with Netflix in the direct-to-consumer internet streaming world in short order.

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Nicholas Rossolillo and his clients own shares of Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.