As George Bodenheimer, ESPN and ABC Sports President, noted in a Wall Street Journal article reporting on Disney's (DIS) plans to release a live viewing mobile application, "When we launched in 1979, nobody envisioned a day when people would carry ESPN in their pockets." Bodenheimer's corporate bosses surely had to sign off on the deal, showing that Disney intends to move full-speed ahead through what will prove to be a transformational decade for media companies.
Here's the deal: If you subscribe to pay-TV service from Time Warner Cable (TWC), Verizon (VZ), or Bright House Networks, you can download a mobile app from Apple's (AAPL) app store that will allow you to view ESPN, ESPN2, ESPNU, and ESPN3.com programming -- live and sans commercials -- on your connected iPhone, iPad, or iPod. This is nothing short of ground-breaking, given the popular reach of ESPN.
This deal, the recent moves by Time Warner Cable and Cablevision (CVC) to stream via Apple, and what lurks around the bend, produces some obvious winners and losers.
Disney (DIS). Like Time Warner and Cablevision, Disney simply gets it. While I would not call Disney brass loose just yet, they've certainly undone their ties, unbuttoned the top button of their collective shirt, and ordered shots or beers instead of a fine Cognac. From a content side, Disney still plays it close to the vest for the most part (you won't see them signing Howard Stern on anytime soon). But when it comes to innovation, Disney, somewhat quietly, keeps up and even betters the competition.
From a cultural and social cache standpoint, it does not get any better than this for ESPN. In just about any public place -- from the street corner to the coffee shop -- you can see people huddling around iPads to catch Sportscenter, which has certainly come a long way. Unlike the recent Time Warner and Cablevision initiatives, you don't have to be inside your home to access ESPN programming via the network's new app. Absolutely brilliant, given the ever increasing ability to poach -- ethically or not -- a wireless connection from just about anywhere these days.
Apple (AAPL). It seems that no matter what happens, except for maybe Amazon.com's (AMZN) mad dash to the cloud, Apple wins. That's clearly because the superiority and market penetration America's Company has achieved with its products stands second to none. If somebody wants to encroach on Apple's territory as a purveyor of entertainment, it likely has to do it, at least partially, through Apple. Apple has found a way to almost always get a piece of the pie.
Netflix (NFLX). Part of me really hates to pile on Netflix, but given the company's status, it's difficult not to. I have made clear the problems I have with Netflix in other Seeking Alpha articles. The company amounts to a house of cards that relies on tricky bookkeeping, in the form of deferring expenses, and faux earnings calls, with hand-picked questions and selective responses, to feign a healthy bottom line to investors.
Because of recent press, its inane and costly content deals, and Google's (GOOG) announcement to use its well-stocked pockets and YouTube to provide even more formidable competition, investors appear to be waking up to Netflix's unsustainable course. We may look back on this Disney deal as one of the key "beginnings of the end."
If streaming live television to mobile devices becomes the norm, what's next? Do movie theaters become obsolete or at least further diminish in importance? In addition to watching news, sports, and television programming on your iPad, would it not make sense for movie studios to get together and premiere films there as well? While I am certainly thinking out loud here (although it's a perfectly plausible scenario), the point is if streaming live television becomes the norm, Time Warner's Melinda Witmer is right, what in the world is a television?
Where does this trend leave Netflix? Streaming reruns of the Cosby Show and Jane Fonda movies? Sure, there will always be a market for that, but there will also be a market for 24 hours of a Christmas Story and the Yule long burning constantly during the month of December. As consumers' entertainment delivery options mature, Netflix might have to rethink its method of basically buying old content. Any way you slice it, the business model has turned into one big Money Pit, which Tom Hanks and Shelley Long hope you will go stream for a couple of hours right now.
Viacom (VIA), Comcast (CMCSA), and Charter Communications (CHTR). It's probably too soon to pronounce these companies and others like them dead, but a commenter to one of my other articles astutely pointed something out: Where are these guys? Silence from any content company, distributor, or provider these days scares me. I get even more concerned when companies like Viacom lash out against streaming deals, as opposed to finding ways to make them work. It's even more worrisome to come across stories like this -- note the section a bit down the page that says, "Leading the talks is Alex Carloss, who joined YouTube in March from Viacom's Paramount Pictures, where he led digital distribution..." Viacom and other media players on the traditionally stodgier side need to hire people away from new media firms like Google, not the other way around.
When I lived through deregulation and consolidation in the radio industry, I thought, while scary, I was living in exciting times. Compared to what's happening now vis-a-vis the way we share and consume information and entertainment, that experience pales in comparison.
Disclosure: I am short NFLX.
Additional disclosure: Author is short NFLX via a long position in puts.