ESPN and the NFL are teaming up, and it’s changing the sports media game.
This week, Disney and the NFL announced that ESPN will acquire the NFL Network and other NFL media assets, including the NFL’s linear RedZone channel and NFL Fantasy, in exchange for a 10% equity stake in the network—a stake which could be worth $2 billion or more. In addition, the NFL will license certain NFL content and other intellectual property to ESPN, and Disney CEO Bob Iger noted on a recent earnings call that the network will have 28 NFL games annually.
The deal comes ahead of ESPN’s direct-to-consumer streamer launch later this month, and according to Paul Verna, vp of content, eMarketer, “It’s a win-win for Disney and the NFL.”
Verna noted that the NFL can utilize Disney to boost visibility and distribution for its NFL Network assets. Meanwhile, the Mouse House can benefit from the added draw of the NFL for its new streamer.
The partnership “cements ESPN’s alliance with the NFL,” Verna added.
“When you look at how Disney’s direct competitors are managing this whole transition from linear to digital, I think Disney is doing a much more effective job of it,” Verna said. “Warner Bros. Discovery, Paramount, NBCUniversal, they’re all having more growing pains, more issues getting from that point of traditional TV to the streaming economy.”
With the move, Disney may be setting itself up for the next evolution of the streaming landscape.
The drive for advertising
“The next battle in the streaming war is the battle for sports rights, and that’s all because sports engenders captive audiences that are advertiser-friendly, so all of this comes down to jockeying for ad revenue at the end of the day,” said Mike Proulx, vp, research director, Forrester.
And when it comes to ad revenue, it doesn’t get bigger than the NFL.
“NFL is the top of the pyramid of value in TV advertising, period, bar none, not even close,” Kevin Krim, president and CEO of measurement and analytics company EDO, said.
According to Krim, other marquee properties, including the NBA Playoffs, college football playoffs, or even the Oscars, all pale in comparison when it comes to attracting huge audiences and delivering engagement in ad breaks.
However, Krim noted that ESPN will “have to innovate” when it comes to ad options, especially with assets like RedZone not being endemic to ads, with the program known for constant action and showing every score.
When looking at format options, things like co-branded ticker ads, which Disney is already bringing to its Disney+ news programming, could be a possibility. In addition, Krim points to NASCAR as an example of programming that successfully deploys squeezeback ads, which temporarily minimize the main video content to make space for other elements, including video or display ads and text.
“NASCAR on Fox and on Amazon has been over 20% more effective at driving engagement with the ads than the average broadcast and cable daytime ads,” Krim said, adding, “Those kinds of ad innovations are effective at getting people to engage with the advertising while not missing any of the action.”
But to engage with the advertising, viewers also have to know how to find it.
The big question: Where’s my content?
Despite Disney’s CEO saying on an earnings call that the company will give fans more games to watch than ever, Proulx said the deal adds further complexity to the TV landscape. After all, NFL games and content are now spread across various streaming services, including ESPN’s streamer, Amazon Prime, Peacock, Paramount+, Netflix, Fox One, and more.
However, that confusion may not last forever.
Iger said in the earnings call that Disney is talking about potential bundles with other sports streamers. And according to Proulx, the industry is still at the beginning of streaming market consolidation, with Disney’s news that it’s folding its Hulu app into Disney+ being a recent example.
“This is a signal that consolidation is starting to happen, and I think we’re going to start to see it happen with sports and distribution rights as well,” Proulx said.
Moving forward, Proulx’s biggest question is about how the deal affects consumer behavior, and when things will settle down to make it easier for fans to find the programming they want to watch.
“It is hard for the sports fan to be able to figure out where to watch their favorite leagues,” Proulx said. “Streaming has yet to solve for that problem.”
The ESPN direct-to-consumer service and enhanced app will launch on Aug. 21.
A more complicated media playbook
Additionally, a sweet deal for Disney and the NFL also comes with complications for everyone else. With the NFL having a monetary stake in ESPN, the deal raises questions of partner favoritism or coverage bias.
“We’re in a very dynamic, fragmented, and rapidly evolving world here. The kinds of alliances that in the past would have raised a lot of red flags, now, it almost seems like it’s the Wild West,” Verna said.
However, the analyst noted that the NFL’s 10% stake—though it may “rub some people the wrong way”—is still relatively low, and there is plenty of NFL to go around: “If this had been the NFL taking a 30% or 40% stake in ESPN, the conversation might be different,” Verna said.
But could the deal affect how other leagues approach streamers like Peacock or Netflix? Or would Warner Bros. Discovery, which recently lost its NBA rights, want to team up with a league to help bolster viewership?
“I don’t know that it would make sense for the NBA or MLB to go all in with any broadcaster or digital streaming company, but it’s possible that they may carve out deals for small equity shares, the way NFL and ESPN have done,” Verna said. “Again, I think all options would be on the table.”
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