January 3, 2006
Disney Applies ESPN Model to Broadband Strategy
By Gina Keating
LOS ANGELES -- For years ESPN has thrived as one of the most lucrative franchises on U.S. cable TV, commanding high license fees for the loyal viewers who expect to see the sports network in their basic subscription packages.
Now, ESPN parent the Walt Disney Co, is out to replicate that success in the broadband Internet market as it pursues on-demand delivery of content ranging from sports and news to hit TV shows like "Lost" and "Desperate Housewives."
In addition to its splashy deal to provide existing TV shows for Apple Computer Inc.'s online iTunes store, Disney has been quietly striking deals with Internet service providers to deliver new programing as part of a basic broadband package.
ESPN rolled out the first such broadband content last year with its ESPN360 Web site, offering live game coverage, sports clips and commentary and TV shows.
A recently completed distribution pact with Verizon brought the total number of broadband households with access to ESPN360 to 7.5 million, and ESPN is seeking deals with more providers.
To satisfy the sports appetites of its tech-savvy fans, ESPN began looking for ways to duplicate the success of its cable-based business model online and decided that broadband was the new frontier, said Sean Bratches, executive vice president of marketing and sales.
"Everybody else is ... putting content out over free Internet and creating an ad-supported model for their product," Bratches said. "What we elected to do is take broadband products and license them to distributors."
Under Disney's new chief executive, Robert Iger, who has made technology one of the tenets of his leadership, the company has become more aggressive in seizing opportunities in digital delivery, JupiterResearch analyst Todd Chanko said.
"The big deal is the fact that the heads of the media companies ... are beginning to think creatively about how can we sell our content directly to consumers but without antagonizing our current distribution arrangement," Chanko said.
In addition to ESPN360, Disney now offers broadband distributors children's fare from its Disney Connection, as well as 24-hour live news from ABC News Now.
Disney Connection reaches 11 million U.S. households through broadband services offered by Comcast, Adelphia, Mediacom and Verizon, and is carried on 14 million households on NTT East and NTT West in Japan and on Terra Lycos in Spain, Brazil, Mexico and Chile.
This spring, the company plans to start up Soapnetic, a broadband "channel" for soap opera.
For now, Disney makes its money from licensing fees but will eventually layer in advertising as soon as "we get to a critical mass" of subscribers, said Albert Cheng, executive vice president of digital media for ABC Television.
Disney content created for broadband, such as videos, games and archival footage, is not offered elsewhere. Users must access the sites through their provider's log-in page.
"It's the equivalent of a Disney Channel of broadband interactive content," Ken Goldstein, executive vice president and managing director of Disney Online said. "It's become a good business for Disney. Our goal is to be as ubiquitous as the Disney Channel."