A candid chat with ESPN’s chief
A sk John Skipper to list his proudest accomplishment in the year that he’s been ESPN’s president, and he won’t mention the company’s billion-dollar rights deals or its industry-changing cable carriage agreements. Instead, he’ll talk about the smooth transition he oversaw while taking over for George Bodenheimer.
Skipper tops our Most Influential list this year, in part, for that transition. It’s never easy to replace a legend. Even then, we can’t ignore those rights deals, which saw ESPN remain the most aggressive sports network in the country, or the cable agreements that help it maintain its place atop the sports business industry.
Skipper sat down for a 90-minute interview with Executive Editor Abraham Madkour and media reporter John Ourand to talk about his experiences in 2012 and what he expects for 2013.
In a year when ESPN spent billions of dollars renewing its NFL, MLB and BCS deals and continued to established itself as the country’s most powerful sports media brand, Skipper said he’s most proud of the fact that the company’s transition from George Bodenheimer went smoothly.
“Transitions can be hard and tricky. I believe that generally, there’s been a maintenance of the culture and people’s feeling about the company. George, remember, was beloved. There was no better symbol of ESPN. He started in the mailroom. He never worked anywhere else. As he walks around the campus, people feel great. They feel like George stands for the company. You have the perfect personification of ESPN and a leader. I’m proud to be able to have that transition, have people continue to feel good about our company, which I think they do.”
Skipper said he’s been surprised by the level of responsibility that is attached to the president’s title at ESPN, a responsibility he did not feel as the executive vice president of content.
“Sometimes in the old days with George, I’d wonder why he’s being cautious. Now, I get it. It’s a little different when you are the final stop, even if you are one of the guys who advises on the final stop.
“There’s a little more genuflecting than I need. I have to rely upon long-term relationships that I’ve had to say to people, ‘Really, tell me.’ We just had a management meeting where we set our priorities. I say to people, ‘How do you think the meeting went?’ They say, ‘Great. Great!’ The good news is that I have a few people who actually tell me the truth because you do realize the filter gets harder and harder as you get more responsibility. It’s just harder to get people to really tell you what they really think.
“On the other hand, I find that I tell people more than I ever have what I really think. It’s time management. I find more and more that I have no choice but to say to people, ‘No, I’m not going to hire you to be a consultant for me.’ I don’t have 10 minutes to meet to hear something that I already know that I’m going to say no to.”
Though ESPN launched Longhorn Network in August 2011, it still hasn’t convinced any of the biggest cable or satellite distributors in Texas to carry it. But Skipper predicted that situation should change within the next two years.
Skipper blames the impasse on cable and satellite operators that are worried that a successful Longhorn Network would open the door for other universities to try to launch expensive individual college channels. Distributors want to stop that trend before it starts.
|ESPN’s Longhorn Network has had a shaky start since it launched in August 2011.
In the 16 months since Longhorn Network launched, ESPN has signed deals with distributors AT&T, Verizon, Cablevision and Grande Communications, putting it in more than 5 million homes. But the biggest distributors in the state — Comcast, Time Warner Cable, DirecTV and Dish Network — have not cut deals. Interestingly, ESPN cut a programming deal with Comcast earlier this year that did not involve Longhorn Network, even though Comcast owns systems in Texas.
“We’re very happy with our relationship with Texas,” Skipper said. “We’re happy with the quality of the network. We are not where we thought we’d be on distribution.”
Every time a sports network pays a rights fee, small cable operators and consumer advocates clamor for a la carte. That’s the idea that consumers will pay only for the channels they watch, rather than for an entire package of channels.
“I don’t think it’s on the ascendancy in Washington,” he said. “I don’t think there’s impending legislation or likely to be in the short term. It’s mostly discussion within the sports business.”
At a rate of more than $5 per subscriber per month, cable operators pay more for ESPN than any other cable channel. TNT, which carries the NBA, NASCAR and NCAA tournament, is the next most expensive national channel at $1.21, according to SNL Kagan.
But Skipper disputed the idea that cable operators want to put expensive channels like ESPN on a sports tier.
“I haven’t heard anybody recently say ‘like ESPN.’ They say sports channels, not ESPN,” he pointed out. “ESPN is the greatest value they have. I don’t have any issue with the correlation between what we charge the distributors and what the value of ESPN is. Nor, really, do they. We have not had a significant conflict with any of our distributors for a number of years. There’s been no hint of any disruption in service. Nor will there be. You’ll see us do other deals. They will happen very quietly. You won’t hear anything about us having contentious discussions with Time Warner Cable, Comcast or Cablevision. The same thing will be true of Charter, AT&T and Cox.”
Rather, Skipper pointed to regional sports networks as the sports channels that are causing the most angst among the pro-a la carte crowd. Skipper referenced Los Angeles as an example. That’s where two Fox Sports RSNs, two Time Warner Cable RSNs and two Pac-12 Networks channels cost distributors around $10 per subscriber per month. A year ago, before the two Time Warner Cable RSNs and two Pac-12 Networks launched, distributors paid around $5 for two RSNs that carried much of the same programming.
“The real story right now in terms of increase in cost are the regional sports networks,” he said. “ESPN’s average minute rating is double all of the regional sports networks added together, and it’s four times higher in the men 18-49 demo. That’s why you don’t really hear Time Warner and Comcast saying that they have a big issue with ESPN. We provide significant value.”
Much of the problem comes down to marketing. Skipper said the cable industry has not done a good job promoting the value of the service it provides.
“It’s the greatest entertainment value there is,” he said. “It costs you and your family of four more to go to the movies one Saturday night and see ‘Skyfall’ and buy some popcorn and Coke than it does for a full month of cable. It’s just a fact. We haven’t done a good job of telling people what a good value it is.”
ESPN has committed an average of $1.9 billion per year for the rights to the NFL. It will pay Major League Baseball an average of $700 million per year and the BCS another $500 million per year, a figure that doesn’t even include the money it’s paying the Orange, Rose and Sugar bowls.
“I have no idea what’s going to happen with sports rights and whether in the long term they will continue to appreciate at the rate they’ve been appreciating,” he admitted. “I can tell you that we’re not in a bubble. We have paid a lot of money for rights. But we are very confident that we will be able to grow and absorb those costs.”
Skipper said ESPN is better able to absorb those costs because its multiplatform strategy (TV, Internet, broadband and mobile) is well developed.
“I don’t think we’re in a bubble that’s going to burst because we have a large portfolio of platforms that we’ve used those rights to build,” he said. “We’re highly confident that they’re going to sustain us as we go forward.
“It is a more pertinent question if you have a single revenue stream as to whether you can continue to sell ads at a rate to pay for the accelerated rights increases. At ESPN, we don’t have to match our ad increases to the increase in rights fee. We not only have a different rate with the distributor, but because of multiplatform and the way we go to market, our ad increases tend to outpace the market. Then we also can get money for mobile and for Internet and for Spanish language. We’ve got more places to offset those increases.”
Skipper believes the cost of sports rights will continue to increase for the foreseeable future.
“It only takes two people to make a market,” he said. “I’ve never been in a negotiation where I didn’t have somebody I was bidding against. As long as there are two, they will continue to accelerate. To what rate, I don’t know. At the end of the day, my responsibility is to make sure that when we pay an accelerated rate, it’s something we can do and sustain growth. And I’ve got no concern about that.”
When Fox Sports rebrands Speed into Fox Sports 1 in mid-August, it will be the latest in a growing line of potential competitors to ESPN. Earlier this year, NBC Sports Group dipped its toe in the water, rebranding Versus as NBC Sports Network to better compete with ESPN. CBS Sports has its own cable channel, too.
“We’ve always had competition,” he acknowledged. “But there’s a little more overt strategy from our competitors to look a little more like ESPN than they have in the past. They’re going to launch a 24/7 network. Internet’s really important. They have to worry about mobile. It feels like singing from the same hymnal. That’s OK. It’s a free market. I’m happiest about the fact that we have about a 30-year head start, and we’ve taken a leadership position.
“There’s an acute awareness to the value of sports rights. Everybody gets it. They are really valuable. But they are really expensive. So they have to figure out what the business model is.”
Skipper praised Fox Sports, specifically, saying that the company’s move to buy the World Cup rights “took us a little by surprise.”
“We think the Fox guys are pretty smart. We pay attention to what they’re doing,” he said. “Fox Sports 1 is a pretty smart idea. They have the product to do it. I tip my hat to them … even though they haven’t announced it.”
But he also suggested that the pending launch may be tougher for NBC Sports Network and CBS Sports Network than ESPN.
“People always assume that competition always has to do with us,” he said. “We really care about whether our share of sports’ fans time, energy and share of the ad market — we only care about if ours goes down. If Fox starts a 24/7 network, it doesn’t mean that whatever they do will come from us. Maybe the other guys should be worried. Maybe it would come from them.”