Will ESPN’s Streaming Service Be a Game Changer?

The Walt Disney Co. finally unveiled its plan to offer an over-the-top video streaming edition of ESPN for the growing number of fans who want live sports -- but not the big cable bill that a previous generation paid.

Now the question is whether the revenue generated by the new service to be launched in 2018 will be enough to offset the subscriber dollars that go away every time a household decides it can do without cable. It may take a few years for that to happen, but the consensus in the sports TV industry is that Disney could not afford to wait any longer to find out.

"It was almost a mandatory that ESPN had to do something like this," said Lee Berke, president of LHB Sports, Media & Entertainment, and a former sports TV network executive. "It's not going to all be made up for in the next six months or a year or two years, but streaming is where the growth is and it's where the next generation of viewers are increasingly heading."

While ESPN continues to be a significant profit center for Disney, the migration of viewers to streaming continues to cut into the revenue it receives from pay-TV providers.

Disney this week reported a 22% third-quarter drop in operating income in its media networks unit, which houses ESPN and ABC. Within the cable networks group, which includes ESPN, segment operating income was down 23% to $1.46 billion. Disney attributed the drop-off, in part, to higher programming costs -- including $400 million toward a new NBA TV contract -- and lower advertising revenue at ESPN, which fell 8% in the quarter due to smaller audiences.

Every household that decides to cancel its pay-TV subscription means less revenue for ESPN, which commands the highest carriage fees of any network -- commanding around...

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