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ESPN is wary of cord-cutters, says protecting pay-TV is first priority

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ESPN(s dis) is the leader of TV sports in the U.S., and plays a direct role in the ongoing rising pay TV packages. That’s why it’s interesting to hear the perspective of its senior executives on the future of cord-cutting and sports viewing.

In a lengthy feature on Monday, the Wall Street Journal explores how ESPN is in a delicate balancing act: trying to accommodate growing demand from sports fans who want to see games online, while also assuring the cable and satellite companies, which are its bread-and-butter, that it won’t let new forms of online viewing eat into their market share.

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According to ESPN President, John Skipper, the TV companies, which pay ESPN around $5.50 a month for the channel are its first priority:

As for what ESPN’s endgame is, Mr. Skipper said the company plans a lot of online experimentation, but its priority is to protect pay-TV profits: “Our calculation right now is we’re going to ride this. We’re going to ride it as long as it makes sense.”

This strategy explains why the sports channel’s flagship app, WatchESPN, only shows big games to those with pay-TV subscriptions, while offering everyone else a separate stream of lower-profile fare like rugby or polo for free.

ESPN, however, may be hard-pressed to maintain this strategy in the long term as pay-TV viewers decline. As the Journal notes, the “company is careful not to market it as a product for cord cutters,” — though, it is perhaps telling that both ESPN and the mainstream press are finally starting to refer to “cord cutters” and “cord-nevers” in the first place, which are terms they have avoided in the past.

For now, ESPN claims it still has over 98 million pay-TV subscribers so it’s unlikely it will change course anytime soon. But as sports costs continue to climb as a result of deals like the recent $5.6 billion agreement between ESPN and Major League Baseball, it’s hard to envision the existing pay TV model lasting forever — especially as the cost of all those deals is passed on to consumers. Meanwhile, as last week’s NFL Championship games revealed, sports fans access to games is being determined by a bewildering array of choices based on everything from where they live to which phone carrier they use.

nfl network on surface

If ESPN ever does get around to selling its channel as a stand-alone internet offering, it will be interesting to see how the offering will compare to other popular online brands like HBO GO and Netflix(s nflx) — and how ESPN will respond to the growing popularity of shared passwords.

Finally, the Journal story notes that the ESPN’s online evolution may speed up once the company improves its ability to sell and package ads for its apps:

ESPN is working on perfecting sales of ads for the app. It says it sold app ads to some 200 brands in 2013. But these haven’t been enough to fill every available ad break.

Partly that is because the technology to serve up ads into the app isn’t yet very advanced and can’t always find spots of the proper length to insert. When TV viewers see commercials, app users are sometimes shown filler material.

11 Responses to “ESPN is wary of cord-cutters, says protecting pay-TV is first priority”

  1. Cut the cord almost 5 years ago. Was paying $45 a month for basic service at the snip. That’s $2700. Paid for my 60 and 70 inch TVs, antenna and booster with $500 leftover. I’m a targeted sports fan. Love college football, can take or leave the rest. When my favorite college team plays on ESPN or BTN, I head down the local theater and watch the game on the big screen. The local high school owns it, offers free admission (as required) and makes money off the concessions. It’s a win-win situation.

  2. ESPN is really a product of the bundle racket. There is a disconnect between their product and it’s “popularity”, which is skewed by the fact that tens of millions of people are forced to get ESPN as part of a bundle, whether they want it or not. If you think about it, of the big professional sports, NFL, NBA, NHL, MLB, EPL soccer, etc, they only have a smattering of it and yet they demand a very inflated price for their service. In a free market with consumer choice, they never would have been able to reap such profits with mainly 2nd and 3rd rate sports. As for the future, whenever you are earning more than you deserve, reality will eventually catch up. It always does.

  3. I get it. Pay-tv is a cash cow. They are just gambling that it will keep going because of those of us who are addicted to watching sports. The question is – if they ever do target cord-cutters, will it be too late for those who’ve broken the addiction or found another fix?

  4. Kevin Horne

    “The ranks of cord-cutters are growing”…I assume you guys will be tracking net adds in video as companies report over the next couple weeks? (don’t forget the satellites). Comcast just reported an increase in video subs for Q4….

  5. First off, while many people think ESPN has the most to gain from offering a stand-alone subscription, I think it is in fact the opposite. ESPN receives way more money through the current Pay-TV model than it ever could through a stand-alone subscription.

    If you’re looking for who will offering streaming subscriptions first, look at premium channels. Once they’ve created their own distribution system (through apps) it becomes a pretty simply thing to shift advertising and payment handling to the network. People already pay extra for these channels, so the consumer likely won’t mind.

    I think the second group is going to be sports leagues. The more niche a sports league, the more they have to gain by following the WWE Network. You have to remember that ESPN is not a sports league, and the profits that ESPN is raking in come at the expense of the sports leagues they offer. I doubt the NFL will offer a la carte anytime soon though.

    By the end of this year, the Chromecast is going to be cheap, offer support for every major “network” app on Android and iOS, and make viewing content outside a cable box extremely attractive. Once enough people have converted over to viewing their Pay-TV content through the Chromecast, the financial pressure to offer an a la carte option will skyrocket. Everything is going to center around the Chromecast or technology built into TVs that replicates the Chromecast experience.

    One last point: the future of password control is “number of streams.” Netflix has already moved to paying by the stream. Everyone else is going to have to follow. Restricting by number of devices discourages customers from using a network, restricting by location devalues the network to all users, and other criteria so far have failed to work effectively. ESPN will likely offer multiple options, depending on how many streams a person wants.

    • All the major professional sports leagues except the NFL already offer standalone streaming services: NBA Game Time, NHL GameCenter, MLB.TV, and MLS Live. The NFL still broadcasts games over-the-air, with CBS now picking up Thursday Night Football. And, all the other major professional leagues also have games OTA, as does NCAA football and basketball. Then there is ESPN3 available for those whose ISP is a “participating partner”. You really have to be addicted to sports to spend $1000/year just to get another fix.

      As more folks figure out that they can receive 20, 30 or more channels, many in HD which is better than cable or satellite, over-the-air for free and can add a Roku and get access to 1200+ additional channels of content, saving $1000/year for paid TV, cable and satellite will start experiencing huge drops in subscribers. And when that happens, ESPN will not be able to raise its cut from the bundle enough to make up for the losses. I’m sure they already realize this in Bristol and are trying to figure out a new business model to address the inevitable.

  6. “ESPN claims it still has over 98 million pay-TV subscribers”.

    No, they don’t. They have 98 million potential households that are subscribers to channel packages that contain ESPN.

    Disney Corp makes $6,468,000,000 a year from subscriber fees of ESPN. Only about 1 in 5 “subscribers” are actually viewers of their channel. So ESPN essentially gets $5,174,400,000 a year from people that are UNWILLING SUBSCRIBERS. It’s not really a mystery why ESPN supports the pay-tv business model.

    • Or, to drive it home in real world numbers, based on the 1 in 5 actual viewers statistic, nearly $27 a month, or $324 per year, is the amount that would have to be paid per subscriber to maintain the same profit as the current model (assuming everyone that watches ESPN and cuts the cord signs up for their a la carte offering). They won’t give up their cash cow easily; I know I wouldn’t! They have to know deep down they’re on borrowed time. This economic model won’t be sustainable for long if cable/satellite providers wish to compete with online content.

    • Ah the dirty little secret unveiled…yet they still go out and bid spectacularly high prices for sports rights and jam the cost to the consumers and we call that progress! The leagues are complicit in the canard!

  7. Florence Webb

    The main reason I need a cable company’s DVR is for racing and college football and a few HGTV/DIY network shows. Everything else I get from Roku and Chromecast.