Wall Street has been skeptical about how much Disney (DIS) can charge for a new ESPN streaming service it's planning to launch. But the company's former streaming chief says sports fans will be willing to pay — even if the price tag is higher than what most platforms currently cost.
"People have always paid a lot for sports," Kevin Mayer, who now runs Blackstone-backed entertainment startup Candle Media, said at the Yahoo Finance Invest Conference on Tuesday. "They didn't always know it because back in the day when 95% of this country had paid TV bundles, probably 40% to 50% of the cost of that bundle was sports programming. ... [But] now they can do so explicitly."
His comments come as Disney's stock has hit multiyear lows and activist investor Nelson Peltz is pushing for multiple board seats at the company. The company's parks business is slowing, its linear TV division is declining, and its streaming business is not yet profitable.
Mayer, who is currently serving as a strategic adviser to CEO Bob Iger, said his former boss is "definitely most focused on making sure that ESPN, a company that he really believes in strongly, is well positioned for the future."
Disney hasn’t disclosed any details regarding pricing for the ESPN service, although analysts have estimated it would need to cost a minimum of around $30 a month in order to break even — let alone turn a profit.
Mayer, however, insisted that $30 a month is an "entirely reasonable price to get the full suite of sports that ESPN would offer."
Mayer went on to reference a time in his career when he served as chairman at global over-the-top sports streaming platform Dazn. At that time, the company was expanding into new markets and looking to capture subscribers.
"My idea having launched Disney+ was let's go into the low price. Maybe we can get some of these people that are pirating signals to buy it legitimately, and maybe we can expand the marketplace at a lower price," he explained. "People were used to paying from Sky, which was the previous broadcaster, about 30 to 35 euros a month. We went in at 19 euros a month."
But despite the lower price point, Dazn didn't gain any more subscribers than it would have at the 30 to 35 euro range. "It was imperceptible," he said.
"I'm not saying there's infinite price elasticity in sports, but by that one experiment that I actually undertook recently, just a couple years ago, I can tell you that sports fans who really want their sports will pay a lot for theirs."
Disney looking for ESPN partners who can 'really strengthen our hand'
Disney is currently seeking strategic partners, either through a joint venture or part ownership, for ESPN's new direct-to-consumer (DTC) service.
In an interview with CNBC earlier this summer, Iger said he's looking for partners that "come with value" — whether that be content value, distribution value, or capital value to de-risk the business. If that's found, "we're going to be very open-minded about that." He said there have been "some" conversations with possible partners but did not elaborate on potential names or timelines.
Disney has held exploratory talks with major sports leagues including the NFL, NBA, and MLB regarding strategic partnerships, according to a source with knowledge of Disney's plans.
Mayer wouldn't comment on ongoing strategic partnership conversations, although he did say the company is focused on content partners "who can really strengthen our hand and allow us to create multiple tiers of offerings. And we want to have distribution partners. So you think digital, you think telcos, those types of players."
Disney will report its fiscal fourth quarter and full-year 2023 earnings after the bell on Wednesday following the official reveal of its next CFO this week and commitment to purchase Comcast's 33% stake in Hulu.
It will be the first time the media giant will be delivering earnings under its new reporting structure, which will include the full breakdown of ESPN's financials.
Investors had a first look at ESPN's financials earlier this month. The new breakout structure showed sports revenue has trended down in the nine months ended July 1, 2023 — dropping 1.3% compared to the year-ago period.
The decline is still better than that of standalone linear network revenue, which was down 8.7% over that same time period. ESPN is less than 60% of total linear networks revenue, or roughly 30% of operating income.
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Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at [email protected].
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