ESPN has a huge opportunity to dominate the future of sports, but it has to fundamentally change its business model

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In discussions about Disney's streaming future, its over-the-top service ESPN+ has been largely overlooked.
But Barclays analysts say ESPN+ represents a huge opportunity for Disney in dominating the new landscape of sports digital media.
To take advantage of this, ESPN+ will have to fundamentally change its business and become not only a curator, but also an aggregator of sports events that other companies have the rights to.

The media behemoths are making bets that direct-to-consumer streaming services (like Netflix) will rule the future, and none has made a more drastic swing in this direction than Disney.

In the not-so-distant future, Disney will control at least three major streaming services: An upcoming Disney-branded service (with content from franchises like Star Wars, Marvel, and Pixar), Hulu, and ESPN+.

Because Disney’s battle against Netflix has been the subject of much of the streaming discussion, ESPN+ has fallen by the wayside a bit.

But in a research note distributed Friday, analysts at Barclays led by Kannan Venkateshwar outlined a huge opportunity the service presents for Disney.

“As we had highlighted many times in the past, we believe in an OTT world, achieving subscriber scale depends on the ability to serve as an aggregation platform to ease access and discovery,” Barclays wrote. “In this respect, we believe ESPN is in a unique position given that it is one of the only scaled media properties where the brand is synonymous with sports. This in effect makes ESPN+ one of the only services that can act as an aggregator for sports.”

Barclays thinks "aggregators" — or platforms that tie together tons of content, and pair it with navigation tools — will rule the over-the-top media landscape, and ESPN is one of the only brands that could step into that role for sports. But to become an aggregator of sports, ESPN has to drastically shift the business.

Right now, ESPN+ is essentially an add-on product that gives people access to sporting events that ESPN has the rights to broadcast, but isn’t running on its main channels. That means it has mostly sports like hockey, soccer, swimming, and so on. Even so, it has performed beyond Wall Street expectations so far, snagging over one million subscribers as of September (at $4.99 per month each), five months after launch.

But Barclays sees the potential for ESPN+ to be much more than an add-on service that brings in a little money. Barclays thinks it could make a play to become a main aggregator for sports in the digital TV world.

“However, in order to get to this end state, ESPN+ will have to morph its business model away from curation more towards aggregation and develop a technology stack and skill sets that are directed at this goal,” Barclays wrote.

It added:

“What this means is that in theory, consumers should be able to get sports through ESPN+ even if Disney does not have the rights to the games through plug-ins such as CBS All Access, MLB.TV, MLS Live, eSports events or any other venue with sports. This can be tiered from a pricing perspective with a base $4.99/month price for seasonal or small scale or regional events with up sells based on experience or access to various sports (for instance, a tier for football or basketball or Martial Arts).”

And if ESPN+ can get scale early, by binding together sports content and serving it up to the consumer, the analysts think that “could be a self-sustaining force, contingent of course on execution, as has been the case with Netflix thus far.” Once it gets going, who is going to stop that train?

There are many would-be aggregators trying to dominate the future of digital media, but the good news for ESPN is that not many sports media companies have the name recognition, the backing of a giant like Disney, and the encouraging first signs in streaming adoption that it has.

If aggregators do indeed win the day, as Barclays suggests, ESPN is well-positioned for victory. But it needs to make the first moves now.

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