Disney (DIS) has long been a player in sports broadcasting, but as ad revenue and ratings continue to fall for some of its most prominent sports channels, the company is adjusting its focus.
ESPN, Disney's flagship sports network, has been the subject of much scrutiny in recent years, with ratings falling and advertisers heading elsewhere.
In the last quarter, ad revenue at ESPN declined 3% and cash ad sales were also down 3% compared to prior year, indicating that advertisers are either headed to other channels or other media.
The channel is not as attractive to advertisers as it once was as ratings have fallen year over year, which also has analysts proceeding with caution.
Per Nielsen ratings, ESPN viewers have fallen by about 7 million viewers since September 2016 as once distant competitors such as Fox Sports and NBC Sports Network close the gap in viewership to just a few million viewers.
However, as TV ratings have declined, Trifecta Stocks holding Disney has adapted and shifted its focus. On Disney's June-quarter earnings call Tuesday, CEO Bob Iger pointed primarily to inroads into new sports coverages and online streaming of sports through ESPN+.
Iger noted the "encouraging performance" of the ESPN+ streaming service since its launch on April 12 of this year.
"It's still early days, but conversion rates from free trials to paid subscriptions are strong and subscription growth is exceeding our expectations. ESPN+ will become even more compelling to fans across the sports spectrum as we continue to expand the content and enhance the user experience," Iger explained during the Aug. 7 conference call.
Analysts took notice of this early success, with "early traction on ESPN Plus" figuring as a focal point of Morgan Stanley's "overweight" rating.
Additionally, BMO Capital Markets analyst Daniel Salmon touted ESPN+ and the uptake of direct-to-consumer (DTC) products by Disney as a key factor in his "market outperform" rating for DIS stock.
Iger also pointed to the company's efforts to engage sports fans outside of the "Big 4" sports, with programming from Top Rank Boxing and the Ultimate Fighting Championship and the possible assumption of English Premier League soccer broadcasting rights resulting from the potential acquisition of assets from Twenty-First Century Fox (FOXA) and Sky Plc.
Tuna Amobi, an analyst for CFRA Research, says the acquisition of Fox by Disney is most promising financially next year when Disney could possibly obtain broadcasting rights to the English Premier League and other premium events through acquisition of Fox asset Sky Plc, pending completion of a deal.
Amobi maintained his 12-month price target on the stock of $130.
"With the launch of direct-to-consumer streaming Fox assets will play a much more strategic role," Amobi says. "If Disney achieves getting control of Sky you could see sports playing a much more important role with the company."
The purchase of programming rights to the Ultimate Fighting Championship should also be a boon to Disney's new streaming service, which will host many events, and wrests the multi-billion-dollar sports organization from the hands of a competitor in Fox.
Per a statement posted to the UFC's website, starting in January 2019, ESPN+ will offer 20 exclusive events and all preliminary fights for "UFC on ESPN Fight Night" programs in addition to the live events that will be broadcast on ESPN television.
With the return of Conor McGregor later this year, a superstar fighter who helped generate 4.3 million pay-per-view buys for his bout last year against Floyd Mayweather, the transfer of this new audience should help give Disney more than a puncher's chance to continue competing in sports.