Disney Says Skinny Bundles Are Hurting ESPN and Will Save ESPN

Disney says skinny bundles have hurt ESPN.

Disney says skinny bundles will help ESPN.

No, that’s not a typo. That’s a summation of Disney’s earnings call yesterday, when company officials repeatedly argued that the move to smaller pay TV packages had hurt ESPN — and that ESPN would grow by embracing smaller pay TV packages.

Okay. So here’s the logic. Then we can get into the reality:

Disney says that the subscriber losses it has seen at ESPN, which it first started noting out loud last summer*, come from people signing up for smaller pay TV packages, which don’t include ESPN**.

Disney also says that it is pleased with the traction it is seeing from Sling TV, a Web-based skinny bundle — it offers a couple dozen channels for $20 a month — that includes ESPN***. Sling isn’t a giant hit — it likely has no more than 500,000 subscribers — but Disney CEO Bob Iger and his lieutenants repeatedly called it out on Tuesday, suggesting that ESPN would be working with other skinny bundles in the future.

Or, to sum up: Disney is fine with skinny bundles — as long as they include ESPN.

But just because Disney wants ESPN in skinny bundles doesn’t mean Disney will get ESPN in skinny bundles.

Disney is already suing Verizon over a pay TV offering the telco is selling that allows people to go without ESPN. And it’s very possible that Apple imagines that the $30-a-month Web TV package it would like to sell wouldn’t include ESPN, either.

This is all a brave new world for Disney, which until very recently couldn’t comprehend a scenario where people paid for TV but not ESPN****. And, as Iger pointed out yesterday, ESPN isn’t “cratering.” Even though it lost subscribers last quarter, its subscription and advertising revenue went up, because rates for both are going up.

Iger also argues, correctly, that lots of people like sports, and that isn’t changing. In fact, Disney says ESPN has recently seen an “uptick” in subscribers.

But as everyone now understands, ESPN is locked into expensive, long-term sports programming deals that will only get more expensive. That’s a problem if its sub base keeps eroding.

So in order for Disney’s “this is going to be fine” theory to work , ESPN is going to have to work much harder to convince pay TV operators and pay TV customers that ESPN is something they have to have. No matter what size the bundle is.

Plug time! As it turns out, I’ll be talking to ESPN boss John Skipper about all of this in one week, onstage at our Code/Media conference in Dana Point, Calif. You can read about it at the site you’re on now, or you can join us in person. See you very soon, either way.

* When it freaked out Wall Street, which remains freaked out.

** It’s worth noting that Comcast, the country’s biggest pay TV provider, says it doesn’t see many people subscribing to those packages. But let’s set that disconnect aside for now. (Comcast owns NBCUniversal, a minority investor in Vox Media, which owns this website.)

*** I called Sling’s take on ESPN a “crippled” version of ESPN last night, which prompted a few questions. Here’s the answer: The Sling version of ESPN isn’t the same version that I get via Time Warner Cable, because on Sling, I can’t pause ESPN, or rewind it, or record it. I also can’t watch it on more than one screen at a time. All of those restrictions were originally meant to prevent Sling from becoming a product that was so good people would drop their existing pay TV subscriptions. But I don’t think ESPN would put those restraints into a skinny bundle that it launched this year. Now it needs subscribers wherever it can find them.

**** It was striking how much of Tuesday’s call was devoted to questions not just about ESPN’s performance, but ESPN’s existence. One analyst even floated the notion that Disney might want to break ESPN into a separate entity, so it wouldn’t drag the rest of Disney down. Iger batted away that trial balloon. But it was an astonishing U-turn from just a few years ago, when the conventional wisdom was that Disney was really ESPN, and that its theme parks, movies and other assets were nice complements.

This article originally appeared on Recode.net.

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