SBD/August 27, 2013/Media

ESPN Faces Challenges From Cord Cutting, Anti-Bundling Efforts As It Looks To Future

Bodenheimer met with U.S. senators and other government officials on ESPN issues
ESPN has "arrived at one of the most precarious moments in its nearly 34-year life," as the company's more than $6B in annual cable fees from almost 100 million homes "is threatened as growing numbers of consumers cut ties with cable providers to avoid rising bills for pay TV, turning instead to video streaming services," according to the final piece in a three-part, front-page special by Sandomir, Miller & Eder of the N.Y. TIMES. But ESPN has "shown over the past decade that it will fight tenaciously and opportunistically to protect [its] empire." With cable bundling "under repeated attack," ESPN and parent company Disney have "gone on the offensive, making it one of their priorities" in DC. Beyond lobbying and campaign donations, ESPN and Disney have "hosted lawmakers in Bristol and in Burbank, Calif." ESPN Exec Chair George Bodenheimer said, "I was proud to call on senators, congressmen, FCC commissioners, staff and talk about ESPN." So "powerful is the ESPN-fueled bundle that one veteran cable operator described negotiations with Disney as 'total surrender.'" Disney has argued that without revenue from bundles, "it would have to increase the monthly fee for viewers who want ESPN to about $15 a month." U.S. Sen. John McCain (R-Ariz.) said of ESPN’s lobbying effort in '06 to defeat his proposed legislation to break up bundles, "They beat me like a drum."

KEEPING COLLEGE EDGE: College conferences in '04 "focused their frustrations on the exclusive contracts they signed with ESPN that prohibited them from taking games that ESPN held the rights to, but did not televise, and reselling them to other national networks." Former Western Kentucky Univ. AD Wood Selig said, "We felt that ESPN wanted our rights just to embargo them from other networks. Like, 'If we don’t show them, nobody else could.'" ESPNU was subsequently launched, and nearly a decade later is "a prominent part of the Disney bundle, with more than 75 million subscribers paying an average of 20 cents a month," leading to $180M in annual revenue. ESPN President John Skipper said that the ESPNU story was "not about the Justice Department or warehousing, but about a company that was relentlessly competitive." Skipper: "It was much more a response to CSTV and the fact that we wanted to establish a leading position."

PUSH-BUTTON FUTURE: Central to ESPN's success has been "a mastery of technology," including two research labs. The company now is "working on an interactive screen project, code-named 2016, that would let viewers simultaneously watch multiple ESPN channels or videos, send social media messages, buy products, watch commercials and summon statistics at the touch of a button." Companies like Google, Sony and Intel are "planning virtual cable services that would be delivered on the Internet." They "could lure consumers from traditional pay television as low-cost alternatives to traditional pay TV while also competing for major sports properties when ESPN’s contracts eventually expire." Skipper said that he "would make deals with these upstarts, but only on ESPN’s terms: they must take all of ESPN’s offerings, not just the ones they want." Skipper described the WatchESPN app as "a significant measure to preserve the current system." He added, "And if you can’t preserve it, it’s our best opportunity convert to something new" (N.Y. TIMES, 8/27).

HALF-FULL OR HALF-EMPTY?
In Hartford, Dan Haar wrote there are "two ways of looking" at ESPN. The first is that ESPN is "unstoppable, with 4,000 employees in a hometown" that Skipper "spoke about in romantic terms." The other view has the "sprawling ESPN in a powerful but vulnerable position." Layoffs this summer "reminded ESPN that it's a brutal world out there." As a "new generation of fans comes of age with less TV and more digital devices, ESPN's business model could face disruption by losing some of that coerced cable money." Skipper said that ESPN will "remain a growth company, easily meeting the targets it set to add 200 local jobs" between '11-16. Haar noted the "highest-profile ESPN staffers, the anchors, are surprisingly numerous -- 42 of them appear" on the net's programming. With the "technology enabled by the new Digital Center 2, ESPN intends to let those anchors punch up their on-air personalities." Meanwhile, Haar noted Keith Olbermann's new show airs opposite Comedy Central's "The Daily Show" with host Jon Stewart, "not to mention one of ESPN's most popular 'SportsCenter' slots." Skipper said that Olbermann "does for sports what Stewart does for news, but that he didn't think the two shows would take many viewers from each other." (HARTFORD COURANT, 8/25).

CAREFUL WHAT YOU WISH FOR: In Orlando, Paul Tenorio noted there were "certain snippets" of the N.Y. Times' series on ESPN that UCF and its fans "should pay attention to specifically." The "talk around UCF is about growing the brand and growing the program, and now the school is facing many of the same dilemmas that programs like Boise State, TCU and Louisville once embraced." Tenorio asked, "Is exposure worth upsetting the fanbase in the short term, with the possibility of expanding it to new levels in the longterm?" A key part to the success of midweek football games is TV, "but so is a full stadium." Tenorio: "Is there confidence that UCF could fill up Bright House on a Thursday night?" (ORLANDOSENTINEL.com, 8/26).

SPORTS AT A PREMIUM: MEDIA POST's Wayne Friedman cited SNL Kagan data as showing that sports cable networks on average "get 75 cents per subscriber per month -- almost three times that of non-basic cable networks, which average 28 cents a month." This is "largely because of two pricey networks" -- ESPN and NFL Network. ESPN continues to "get the most money of any cable network: $5.54 per sub per month." NFL Net "now gets $1.34 per month, growing threefold from its level of 39 cents" in '12. Sports nets without ESPN and its ESPN 3D network "average 32 cents per sub per month." Pro league networks, including MLB Net, NBA TV, NHL Net, NFL Net, Golf Channel and Tennis Channel, "averaged 47 cents per sub fee." College sports nets "performed at about the same as basic cable overall -- 29 cents per subscriber per month" (MEDIAPOST.com, 8/23).

FUEL TO THE FIRE: THE MMQB's Peter King wrote of ESPN's decision to end a collaboration with PBS' "Frontline" on a documentary covering head injuries in the NFL, "It's unrealistic to think that once the NFL was so strident about its objections to the reporting, that ESPN at a corporate level wasn’t going to do something to smooth things over." It also is "unrealistic to think in a news-gathering organization, this wasn’t going to get out." The NFL was "going to see red over the 'Frontline' documentary anyway." King: "Now the burn will be worse, because thousands more people will watch it. Tens of thousands, probably" (MMQB.SI.com, 8/26).
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