The Walt Disney Co. has put studio executive Ricky Strauss in charge of content and marketing for the much-anticipated Disney-branded direct-to-consumer subscription video-on-demand service set to launch late next year.

Strauss, who had been president of marketing for The Walt Disney Studios, will be president, content, for the SVOD service and will report to Kevin Mayer, chair, Walt Disney Direct-to-Consumer and International.

Related: Disney Reorganizes to Create Direct-to-Consumer Segment

The new DTC is a key initiative for Disney, which is looking to compete with Netflix in the streaming space. Acquiring content for DTC products is a driver behind Disney’s effort to acquire assets from 21st Century Fox, including its TV and movie studios.

Strauss will be in charge of developing the strategic content vision for the service, overseeing development of the service's original programming slate, production partnerships and content acquisitions, Disney said.

Original content for the service will come from The Walt Disney Studios, Disney-ABC Television Group, Disney Digital Media, Pixar Animation, Marvel Entertainment and Lucasfilm.

Related: Iger Says Disney DTC App Will Include Star Wars, Marvel Franchises

"Ricky’s vast knowledge of content production and marketing combined with an astute awareness of how audiences connect with the Disney brand is unmatched,” said Mayer. “His creativity, passion and the deep industry relationships he has cultivated over many years will surely strengthen our ability to successfully launch and grow our upcoming SVOD product into an unparalleled content experience and the must-have streaming service for families and fans of The Walt Disney Company’s high-quality entertainment.”

Agnes Chu will continue in a key leadership position as senior VP of content for the service, reporting to Strauss.

Strauss will also be responsible for all facets of content marketing for the service, while Michael Paull, president, Disney Streaming Services, will be responsible for product, technology, distribution, customer acquisition, and lifecycle marketing.

“It has been such a privilege to be a part of The Walt Disney Studios team these past six years in a role that provided me the opportunity to work with incredibly talented individuals on amazing projects that go beyond anything I could have ever imagined,” said Strauss. “It is with great anticipation that I begin this next chapter with Disney’s new Direct-to-Consumer and International segment, under Kevin’s leadership. I look forward to collaborating with the many talented content creators around the Company to expand the exceptional collection of assets that will make up the future Disney-branded direct-to-consumer streaming service.”

With the finish line in sight, British long distance runner and Olympic gold medalist Mo Farah made one final sprint at the IAAF Diamond League finals in Zurich, Switzerland, last month. It was the last race of his long and distinguished track and field career and, coming up from behind, he won the last title in his storied career to wild applause.

NBC Sports Group televised Farah’s triumph to track and field fans live via its Track and Field Pass service, a $69.99-per-year, direct-to-consumer service that’s part of an emerging category of digital streaming sports subscription offerings that could threaten to sprint past traditional linear cable sports services to super-serve sports fans across the country.

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Traditionally, live sports programming lived in cable bundles that featured national sports networks like ESPN and FS1, as well as regional sports networks and a handful of general entertainment services.

But now, subscription digital sports services can showcase a huge roster — whether it’s NBC Sports Group offering packages with sports ranging from track and field to cycling to rugby; or Turner Sports kicking up a proposed OTT service geared to UEFA Champions League European football; or ESPN planning a direct-to-consumer service featuring 10,000 live Major League Baseball, National Hockey League and Major League Soccer games.

Getting Cord-Cutters in the Game
The new services seek to provide additional revenue to help sports programmers offset the high cost of rights while giving younger cord-cutting fans an opportunity to access content that’s not typically offered on linear sports channels.

“Before, if you were a cord-cutter or cord-never, you effectively said sports aren’t important to you because the only way to access U.S. pro sports content was through the pay TV network ecosystem,” fuboTV chief financial officer Joel Armijo said. “Now, in the [internet protocol] world, we’re moving toward completely personalizing that experience for a sports fans looking for that lean-forward kind of immersive experience.”

The sports industry has already taken several swings at the multiplatform, direct-to-consumer digital subscription model — all of the major pro sports leagues offer out-of-market packages of live games — while national and regional networks have offered marquee sports via TV everywhere platforms to authenticated viewers subscribing to the traditional cable bundle. As a result, audiences are increasingly viewing live sports content on phones, laptops and computers.

At the same time, younger viewers in particular are increasingly cutting the cable cord or choosing not to subscribe to cable at all, decreasing the pool of potential viewers who watch linear sports content. Pay TV providers lost about 976,000 net video subscribers in the second quarter of 2017, continuing a disturbing trend for cable networks, according to Kagan.

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The realities of the changing marketplace have pushed several linear sports channels, which are heavily reliant on distributor license fees and advertising dollars to offset high sports-content fees, to look for opportunities to generate revenue on alternative platforms. Last month alone, three major sports-media players committed to stepping onto the direct-to-consumer field within the next year:

● ESPN, which has recently suffered subscriber losses — its subscriber total was down 3.5% in its recent third-quarter earnings report — will launch a new service in 2018 that will mostly offer content not currently available on the linear channel. Offerings would include MLB and NHL content from BAMTech, which provides the technological backbone for the two leagues’ out-of-market streaming packages, and which is now majority-owned by ESPN parent The Walt Disney Co. While details of the service are vague, Disney chairman and CEO Bob Iger said during the earnings report that the launch of the direct-to-consumer service marks “an entirely new growth strategy for the company.”
● CBS Sports will launch a new OTT service later this year. It also launched a Showtime PPV app on Apple TV devices for the Aug. 26 Floyd Mayweather-Conor McGregor pay-per-view boxing match.
● Turner Sports — which distributes National Basketball Association games on TNT and Major League Baseball games on TBS — will launch a new streaming service based on its recent acquisition of UEFA Champions League and UEFA Europa League rights in 2018.

Sports media consultant Lee Berke said the recent OTT sports service announcements mark a shift in the traditional cable bundle’s virtual stranglehold on the category as viewers migrate to more multiplatform viewing.

“I don’t think the bundle or traditional cable is going away, but it’s shrinking, and the days of 80% to 90% penetration of cable services in homes are gone,” said Berke. “The key is that [sports networks] need to be in [the digital] space in an aggressive way and take a new look at their programming rights to see how best to divvy them up in an innovative range of approaches that meet the needs of new generations of viewers that may think their televisions are their phone, laptop or tablet.”

NBC’s Niche Play
Still, cable sports networks have to walk a fine line in trying to generate new digital revenue streams with direct-to-consumer services while not syphoning away cable subscribers from its linear cable channel offerings. NBC Sports Group has tried to have the best of both worlds by launching several direct-to-consumer services under its NBC Sports Gold service featuring niche content and international sports.

The company’s Cycling Pass, Pro Motocross Pass, Track and Field Pass, Rugby Pass and Premier League Pass all offer content that isn’t available on broadcaster NBC or cable sports network NBCSN, said Rick Cordella, executive vice president and general manager for Digital Media for NBC Sports Group.

While NBC Sports Group remains a big supporter of the existing cable ecosystem, the advent of new digital technology, combined with viewers’ willingness to watch content on multiple platforms (NBC’s Sunday Night Football drew an average of 600,000 unique digital viewers to NBCSports.com last year), represents a chance to deliver content to underserved groups of fans, Cordella said.

“What I think has happened is, the technology is now available to deliver these products, and the acceptance of that technology allows you create offerings like NBC Gold that weren’t possible years ago,” Cordella said. ”People are willing and open to watch content this way.”

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A huge question looming over this shift is whether enough underserved sports fans would be willing to pay anywhere from $10 to $70 to watch live sports fare on their phones and laptops. Cordella wouldn’t provide specific subscriber numbers for any of the five OTT sports services, but he said the numbers have “exceeded expectations.”

OTT provider fuboTV is one player that’s skeptical that sports alone will draw enough subscribers to change the game in a video-streaming marketplace dominated by entertainment services such as Netflix, Hulu and Amazon Prime Video. A mix of quality sports content and entertainment-based fare will attract a broader audience and score more revenue dollars, CFO Armijo argued.

FuboTV’s 70-plus channel Fubo Premier bundle sells for $34.95 and includes 35 channels that feature sports content, including soccer-heavy beIN Sports, fuboTV Network, Eleven Sports and most recently, Pac-12 Network, to go along with FS1, Golf Channel, Olympic Channel, NBCSN, CBS Sports Network and NBA TV. Also part of the bundle are a number of news and entertainment-based channels including Lifetime, Fox News Channel, USA Network, Univision, El Rey Network, HGTV, Hallmark Channel and History.

“We will continue to work to really super-serve sports fans and that’s very core to what we do,” Ben Grad, fuboTV’s North American head of content strategy and acquisition, said. “At the same time, there’s no one-size-fits-all model out here. We’re confident with our approach of being able to very well serve a number of customers in the marketplace with both sports and entertainment programming.”

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Still, NBC’s Cordella said a sports-only OTT service is an easy sell to fans hungry to watch their favorite sport. “One of the good things about sports is the fact that this is a known entity — you’re tapping into a built-in fan base that already exists,” he said. “When you take a particular soccer game and say, ‘It’s this team versus that team,’ you know exactly what you are getting, as opposed to entertainment services where you have to explain what the content is and why it’s different and better than what your cable subscription already has.”

It could be a while before standalone OTT services replace pay TV providers, Berke said, but companies that don’t explore the direct-to-consumer marketplace do so at their own risk.

“I don’t know if it’s the end game, but it is a necessary step,” Berke said. “It doesn’t mean that that’s the only way consumers will be watching sports in the future, but it means that you need to have a substantial presence there if you’re going to keep yourself relevant for new viewing options. You have to be able to reinvent yourself for each new generation.”

Discovery Communications has formed a joint venture with automotive magazine publisher and content provider TEN: The Enthusiast Network, pairing its Velocity pay TV network with iconic industry brands like Motor Trend to create an offering that will encompass all screens and platforms.

The deal comes just days after Discovery agreed to purchase Scrpps Networks Interactive in a deal valued at $14.6 billion.

The deal appears to be the first step in Discovery’s previously announced plan to offer direct-to-consumer programming. The new venture – to be called TEN: A Discovery Communications Company – will be headed by Discovery Communications’ chief commercial officer Paul Guyardo, who will become chairman and CEO of the venture in addition to his current responsibilities. Also leading the new venture will be Scott Dickey, president of TEN, and Bob Scanlon, who will be appointed president of Velocity and TEN Video Content. Both Dickey and Scanlon will report to Guyardo.

TEN has more than 20 brands across the automotive space in addition to Motor Trend, including Hot Rod, Roadkill and Automobile. The venture will create a top automotive media company in the U.S. and an unrivaled destination for automotive enthusiasts, auto buyers and advertisers looking to reach this high-quality audience on all screens and platforms. Discovery will take a majority controlling interest in the venture.

“Continuing with Discovery’s strategy to reach superfans on all platforms in popular and durable content categories, this joint venture brings together the most trusted media brands in the automotive industry to create a multiplatform business with the reach, talent, and consumer insights to nourish car enthusiasts on all devices,” Discovery CEO David Zaslav said in a statement. “By combining popular brands like Motor Trend, Hot Rod and Velocity, this venture will create a content engine that fuels not only our linear platform but also new direct-to-consumer, social and mobile opportunities with the goal of owning the car vertical across all platforms.”

The new venture also is expected to give advertisers a unified offering with a combined reach of more than 150 million automotive superfans and car buyers, proven expertise in the branded content space, as well as sophisticated audience targeting capabilities.

While TEN’s print businesses will not be contributed to the new venture, a commercial agreement will allow for continued cross-promotion between the print portfolio and the new venture for a true multiplatform, 360-degree advertising offering.

“This venture is about giving advertisers the quintessential way to reach auto enthusiasts, prospective car buyers and an affluent male audience that buys a lot more than cars,” uyardo said in a statement. “It’s also about giving consumers OTT access to world-class automotive content on every screen.”

As part of the venture, Discovery will add Velocity content to TEN’s Motor Trend OnDemand subscription video on demand (SVOD) service. Motor Trend OnDemand will feature thousands of hours of automotive video, including exclusive original series, such as Roadkill, Head2Head, Dirt Everyday and Ignition alongside motorsports and live auto event content. Motor Trend OnDemand also will offer new, original content featuring some of the best-known talent from series across TEN and Velocity, including Wheeler Dealers, Bitchin’ Rides, Barrett-Jackson Live, Fantomworks, Speed is the New Black, Iron Resurrection, The Auto Firm with Alex Vega, and Garage Squad, and will be available across connected devices via IOS/Apple TV, Google Play, Roku, Xbox, Chromecast and Amazon platforms.

“Velocity is the fastest growing network on cable since launching in 2011 and is the #1 television destination for automotive super fans, with a stable of experts and personalities that represent the most respected names in the car world,” Scanlon said in a statement. “By combining Velocity and TEN’s high-quality content, wide-reaching talented hosts and comprehensive production expertise, we are creating a powerhouse of short-, mid- and long-form content for the passionate and growing base of automotive super fans in the U.S. and around the world.” 

In the future, TEN has an option to put its stake in the venture to Discovery at fair market value. Discovery will have an option to acquire 100% of the new venture.

TEN is a portfolio company of GoldenTree Asset Management LP.

HBO, Showtime and Starz are merely using Amazon Channels as an intermediary to reach viewers, substituting for the role played by conventional multichannel video programming distributors rather than providing true "direct-to-consumer" services, according to a new research note from BTIG Research's media/cable analyst Richard Greenfield.

He calculated that half of HBO Now subscribers and 75% of Starz viewers watch those networks' shows via Amazon Channels, a service for Amazon Prime members, while "the vast majority" of Showtime online viewers come in via Hulu add-ons, he said.

These factors auger early signs that virtual MVPDs "are cannibalizing" traditional cable, satellite and telco TV operators -- an “elephant in the room” topic that "nobody talked about at the 2017 TV Upfronts," Greenfield said.

At the same time, the ease of cancelling vMVPD accounts should make investors cautious about "who is in/out of each bundle" since subscribers don't need to commit to a full year at any time.

Amazon, Netflix, Hulu and over-the-top video factors constitute six of the "baker's dozen" topics in Greenfield's June "media thoughts."

"Direct-to-consumer has failed for cable networks," Greenfield said, refuting network programmers who "talk about their direct-to-consumer strategy and focus on their early success stories. "DTC is really just new, wholesale relationships. ... While it is phenomenal that premium channels such as HBO, Showtime and Starz are adding paying subscribers, they are not building a direct-to-consumer relationship."

He also pointed out that Amazon itself is a program producer. It can use its massive data analysis to monitor the choices of premium network customers and use that intelligence to commission its own, competitive programming.

In other OTT analyses, Greenfield compared the "bandwidth disparity" in usage of Netflix vis-à-vis Amazon and Hulu, noting that, "despite increased competition, Netflix’s ability to identify and either license or produce 'buzzworthy' content appears far better than its peers'."

He said he expects that Hulu's 2018 plan to revamp its next-day-delivery of ABC, Fox and NBC shows (for a higher fee) will convert Hulu into a "direct copy of Netflix and Amazon Prime Video," offering a combination of original programming and archived broadcast network shows.

Live and Cheap
Another new Amazon initiative -- which surfaced after BTIG published its June report -- could further appeal to cord-cutters seeking to reduce their media bills. The Greenfield analysis came within days of Amazon's announcement that it will offer Prime subscriptions for about half price (roughly $6 per month) to low-income customers, such as families who receive public assistance. That plan was greeted by an array of opinions, seen by some as an effort to move beyond mid- and upscale customers into the "Walmart shoppers" category -- many of whom may want to reduce their cable expenses.

Greenfield said cord-cutters are "embracing vMVPDs" with expectations they bring from the "legacy MVPD ecosystem." In particular, viewers expect live, real-time programming and easy-to-access program guides. As vMVPDs grow, "the majority of subscribers are going to be coming from the legacy MVPD ecosystem and they will want live TV surfaced faster, not to mention a traditional program guide such as Sling just added."

Greenfield's latest commentary reiterates a point he made in April, when he emphasized that Amazon's growing subscription relationships give it advantages that "legacy media executives need to pay attention to." At that time, he cited Amazon's chief financial officer Brian Olsavsky, who observed that the "volatility" in Amazon Prime activity was coming from the growth in digital video and music, and other digital services.

Greenfield concluded his current analysis by citing the power of Amazon's brand plus its "deep pockets, willingness to think longer-term than most other companies and incredible consumer data." Acknowledging that Amazon has stumbled in its early attempts to enter some categories, he warned that the company is "capable of iterating until they succeed."

The Walt Disney Co., battered by fears over flagship cable-sports network ESPN’s declining subscriber base and inability to release an over-the-top product, may not be a lost cause after all, according to a JP Morgan analyst who found the hole the programmer fell into six months ago may not be as deep as some think.

In a 22-page report last week, JP Morgan media analyst Alexia Quadrani called the panic over ESPN’s subscriber losses and fears that the network paid inflated prices for sports rights to keep them out of rival networks’ hands “exaggerated,” adding that even with a 2% annual decline in its subscriber base, Disney’s cable networks can continue to grow.

Despite reports to the contrary, ESPN could introduce an OTT product as soon as 2018 at a price that could be compelling to rabid sports fans.

CRITICS HAVE PILED ON

Disney stock has never quite recovered from its slide in early August, when the company said ESPN had lost 3 million subscribers in 2014 and 7 million since 2012. The idea that the network, long believed to be pay TV’s must-have service, was affected by cord-cutting and so-called skinny programming bundles triggered a sell-off across the sector, with programming stocks losing a combined $60 billion in market capitalization.

The bad news kept coming even as Disney’s movie studio prepared for the much-anticipated December release of Star Wars: The Force Awakens. BTIG media analyst Rich Greenfield, a longtime Disney critic, said in a blog post that ESPN’s fee structure would make it impossible for it to launch its own direct- to-consumer offering.

Later, Greenfield introduced a survey by consumer marketing and intelligence company Civic Science that said more than half of those surveyed would drop ESPN if they could save $8 per month on their pay TV bill.

Other analysts also have lowered their ratings on the stock, including Barclays media analyst Kannan Venkateshwar, who downgraded Disney to “underweight” on Jan. 15, primarily on ESPN fears. ESPN has about $53.4 billion in off-balance sheet programming costs because of sports, Venkateshwar said, which could be exacerbated by a declining subscriber base.

“If the company’s subscriber loss trend lines do not stabilize, the company’s cost recognition may have to accelerate to catch up with revenue trends,” Venkateshwar said in a report.

Quadrani hasn’t ignored the declines; she just doesn’t think they will have as great an impact as others who follow the sector. Even with a 2% annual subscriber decline, ESPN could still grow its affiliate fees by 53% over the next five years, she estimated, from $6.64 per subscriber per month in 2015 to $10.18 per sub per month by 2020.

At that rate, ESPN would grow its affiliate-fee revenue by 39%, from $7.4 billion in 2015 to $10.3 billion in 2020, even with the subscriber decline. Quadrani also estimated that ESPN could go over the top as early as 2018 with a $20-permonth offering, or about the same price that OTT service Sling TV charges for about 20 channels, including ESPN and ESPN2.

OTT OPTIONS OPEN

That’s still considerably less than some earlier estimates that ESPN would have to charge upwards of $36 per month for a standalone offering, a factor of its investment in sports programming. While others have criticized the worldwide sports leader for paying big for football, basketball and baseball rights, Quadrani argued that is exactly what would make an OTT offering most compelling.

Quandrani said the OTT offering could capture about 15% of the 12 million subscribers lost from 2010 to 2018 in its first year and 15% of incremental customers lost in each subsequent year.

Disney has said it has no plans to offer an ESPN OTT product anytime soon, and Quadrani said it doesn’t need to. “If Disney chooses not to move forward with an OTT offering, we still see ESPN remaining a healthy and profitable business,” she wrote.

SIDEBAR: Up With OTT

JP Morgan media analyst Alexia Quadrani believes ESPN can launch with a direct-to-consumer offering for as little as $20 per month, beginning in 2018 — and that it could help recapture some of the subs linear ESPN has lost.

                                                      2018E                     2019E            2020E

Subscribers                                   1.75 million             2.02 million      2.27 million

Penetration of Lost Linear Subs   15%                         15%                    15%

Annual affiliate fees at:

$15/month                                     $315 million             $363 million       $409 million

$20/month                                     $421 million             $484 million       $546 million

$25/month                                     $526 million             $605 million       $682 million

SOURCE: JP Morgan estimates