ESPN+ Adds Over 2 Million Subscribers

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Hey Friends,

Disney reported weaker than expected earnings yesterday.

Despite seeing year-over-year revenue growth of 26%, the streaming giant saw its stock drop 5% post-market after missing Wall Street estimates across the board.

• Earnings per share: 37 cents vs. 51 cents expected

• Revenue: $18.53 billion vs $18.79 billion expected

Most of the downturn seemed to be attributed to the slowing growth of Disney+, the OTT video streaming platform Disney launched at the end of 2019.

For context, Disney added 12.4 million new Disney+ subscribers last quarter, but just 2 million new subscribers this quarter. That has further fueled investor concerns that growth is slowing for streaming services.

Disney+ Subscribers

• Apr to Aug 2021: +12.4 million subs

• Aug to Nov 2021: +2 million subs

And here’s a more zoomed-out look:

To be fair, this might be a temporary slowdown. The law of diminishing returns holds true, of course. Still, investors and operators like Warren Buffet & Jamie Dimon have notoriously said that quarterly earnings reports are overrated for a reason.

If the CEO’s main objective is to guide the business for the long term, not for a three-month, quarter-to-quarter period, why do we place so much weight on short-term success? It provides helpful context but zooming out is often the best option.

For example, Disney+ is set to release original content throughout the next quarter from Disney, Marvel, Star Wars, Pixar, and Nat Geo for the first time in its short streaming history. They say that this should positively impact subscriber count and (hopefully) reboot their overall growth rate.

Not to mention that a slowdown in subscriber growth should have been expected.

Disney CEO Bob Chapek said at a Goldman Sachs conference in September that the company had “hit some headwinds,” and they were now expecting to add “low single-digit millions” of streaming subscribers in the fourth quarter.

Yet Wall Street still put out an estimate of 9.4 million new subscribers in Q4 — I guess they didn’t believe him.

Again, when you zoom out, it looks much better.

• Disney+ subscribers are up 60% year-over-year at 118.1 million

• ESPN+ subscribers are up 66% year-over-year at 17.1 million

• Hulu subscribers are up 20% year-over-year at 43.8 million

But ESPN+ was the real story yesterday.

I’ve been critical of ESPN’s shift to streaming in the past. I think they ignored the inevitable move from cable to streaming for far too long and could have built a large moat if they aggressively cannibalized their own cable business.

Still, they appear to be executing exceptionally well and proving me wrong.

ESPN+ added 2.2 million new subscribers last quarter, beating Disney+’s quarterly subscriber count for the first time and bringing their total subscriber count to 17.1 million — up 66% year-over-year.

ESPN+ Subscriber Count

• October 2020: 10.3 million

• October 2021: 17.1 million (+66%)

The interesting part? The underlying economics of the business also improved.

While Disney+ saw its average revenue per user (ARPU) drop from $4.52 to $4.12 year-over-year, ESPN+ watched its ARPU increase from $4.54 to $4.74 during the same period.

Sure, part of this growth should be credited to the Disney+, Hulu, and ESPN+ bundle that Disney rolled out last year. It essentially made the 3-service package a no-brainer from a price standpoint and greatly assisted ESPN+ in raising their overall subscriber count.

Still, ESPN has done a nice job increasing its value to consumers by adding premium rights packages. For example, the UFC deal has historically added subscribers at a consistent rate, but their deals with NHL, NFL, MLS, and La Liga continue to attract new subscribers by improving their overall content offering.

The other interesting part of the earnings call was around sports betting. As a company that has fought the inevitable trend of sports betting, people were shocked when ESPN said they were looking to license their name to a sportsbook for $3 billion earlier this year.

Now, Disney CEO Bob Chapek is doubling down.

That’s certainly a story worth following.

I hope everyone has a great day, and we’ll talk tomorrow.

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• John Elway’s $600 million mistake

• How big the sports betting market will get

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