ESPN (Finally) Goes Solo

Setting the table: ESPN will finally be available without cable later this year.

It is a big move for Disney and the whole entertainment world.

This week: We’re diving deep into ESPN — how it works, how it makes money, and what comes next.

Seven big questions re: ESPN:
1) Why is ESPN launching a direct-to-consumer streaming service?
2) What does this mean for advertisers?
3) How much will the new service cost?
4) How does ESPN make money?
5) How many households subscribe to ESPN?
6) How has ESPN grown revenue while losing subscribers?
7) What share of pay-TV households watch ESPN?

Why is ESPN launching a direct-to-consumer (DTC) streaming service?

The big picture: Since 2011, ESPN has lost 37M subscribers due to cord-cutting. At the end of 2024, 51% of U.S. households still had pay-TV, but 49% did not. Cord-cutting and cord-never households will never return to the current pay-TV bundle. If ESPN wants to grow its subscriber base, it has to sell the flagship service outside of a pay-TV bundle.  

Pay-TV status  (% of total) according to Kagan:
1) Pay-TV - 66M (51%)
2) No pay-TV - 65M (49%)

But wait, there’s more: By 2035, I project 80M households will be outside the pay-TV bundle. ESPN wants to generate revenue from these households. The trick is to do this without disrupting the current cash cow (pay-TV).

What does this mean for advertisers?

Quick answer: ESPN accounts for roughly 4% of all TV ad impressions. Traditional pay-TV providers (Comcast, etc.) deliver the bulk of these. ESPN can improve targeting and measurement by controlling the DTC inventory. Combining better ad tech with live sports is a winning combination.

How much will the new service cost?

Quick answer: $30 per month. Disney will also offer a $36 bundle with Disney+ and Hulu.

How does ESPN make money?

2024 revenue for ESPN (% of total) according to Kagan:
1) Subscriber fees - $7.9B (75%)
2) Advertising - $2.4B (23%)
3) Other - $268M (2%)
4) Total - $10.5B

How many households subscribe to ESPN?

Quick answer: 60M, down 40% from the 2011 peak (100M).

ESPN subscribers (% growth) according to Kagan:
1) 1995 - 68M
2) 2005 - 90M (↑ 33%)
3) 2015 - 91M (↑ 1%)
4) 2025 - 60M (↓ 35%)

How has ESPN grown revenue while losing subscribers?

Quick answer: Fewer subs, but higher fees.

Why this matters: Between 2000 and 2020, ESPN lost 20% of subscribers while increasing subscription fees by 42%.

What share of pay-TV households watch ESPN?

Quick answer: Less than 20% of pay-TV households watch ESPN for 3+ hours each month, and just 1% watch 12+ hours monthly.

Why this matters: Only a small slice of fans might pay $30/month.

Quick math for the likely target audience for ESPN DTC:
1) 1% of pay-TV households watch 12+ hours of ESPN per week
2) I assume the above ratio would hold for the non-pay households
3) 660K (1% * 65M) households in the non-pay-TV group would be interested in signing up for ESPN DTC
4) ESPN would generate $20M (3% of pay-TV revenue) per month if it converted 660K HH at the full $30 per month.

Bottom line: ESPN’s streaming future is bold but risky. It must keep old money flowing and find new fans willing to pay top dollar for streaming.