Last week’s surprising announcement that ESPN would be part of Dish Network’s low-cost broadband-only video service shook the media industry and sparked questions about whether the move marked the beginning of the end of the cable-TV bundle.
But as industry observers had time to digest Dish’s offering, many see Sling TV as piquing the interest of other distributors looking to launch low-cost streaming packages, but few see the service, which offers a suite of streamed channels like ESPN, ESPN2, TNT and TBS for $20 per month, as a serious threat to the pay-TV bundle.
For example, in the days after the Sling TV announcement, several of the country’s biggest distributors contacted the Bristol-based company about setting up a similar service, according to several sources. Sources said representatives from Comcast, DirecTV and Verizon contacted ESPN about launching their own similar service.
“All of our customers are interested in offers like this because it would give their customers more choice,” said Matt Polka, president and CEO of the American Cable Association, a group made up of small cable operators. “This is certainly a step in the right direction.”
If cable operators were allowed to stream low-cost packages of channels like ESPN, Polka predicted that many of their pay-TV customers would move to such a service.
But ESPN sources insist that Sling TV is not going to draw interest from customers that already subscribe to a pay-TV service. Rather, it is designed to attract the country’s 13 million-plus broadband-only homes.
ESPN executives would not address the deal on the record beyond prepared statements. But sources confirmed that ESPN has an exit clause it can trigger if Sling TV draws too many subscribers that already are hooked up to pay-TV subscriptions.
There’s not a set subscriber number where ESPN will exit the deal, sources said. Rather, ESPN will opt out if a specific percentage of Sling TV’s subscribers are pay-TV subscribers looking for a cheaper alternative.
“We’re trying to figure out a path to grow the multichannel universe,” a source said.
ESPN’s interest in Sling TV comes as cable and satellite distributors have been testing smaller, lower-priced tiers that do not include ESPN. Sources said those tiers have attracted more than 3 million subscribers in aggregate across all cable operators, a figure that has caught the eye of ESPN’s top brass.
Those defections are starting to affect ESPN’s bottom line. Three years ago, Nielsen said ESPN was in more than 100 million homes. Today, it’s in 94.5 million. With a license fee of close to $6.40 per subscriber per month, that difference would cost ESPN more than $35 million in carriage fees each month.
Distributors like the low-cost tiers, and ESPN is looking for ways to be part of them. Dish Network is paying ESPN a full rate card of around $6.40 per subscriber per month to be on its Sling TV service.
ESPN pulls in more than $7 billion per year from carriage fees paid by cable, satellite and telephone companies. It has spent much of the past several years signing huge, long-term rights deals with sports leagues.
These numbers show that the company has a vested interest in making sure that the traditional pay-TV bundle remains strong, said Lou Borrelli, a cable TV pioneer and media investor.
“Look at the huge commitment to rights ESPN has made,” Borrelli said. “The big bet ESPN has made is that the bundle will keep generating the cash they need to pay for those deals.”
Sources pointed to several limitations on Sling TV as evidence that ESPN is not ditching the pay-TV bundle. The service’s offerings are limited. It does not stream broadcast channels, for instance. One MSO executive said that the death of Aereo, which provided low-cost broadcast streams, will help make traditional cable bundles more attractive.
“If Sling TV was available alongside Aereo, we’d probably be a little more worried about its potential to take subscribers,” an executive with a leading cable operator said.
Plus, Sling TV will limit its subscribers to streaming video to one device at a time. That means that if a father, for example, is streaming ESPN via Sling TV, his kids won’t be able to stream Disney Channel at the same time.
“It’s not a true substitute for the pay-TV bundle,” one executive said.
