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ESPN could change entertainment forever – but it won’t (Updated)

In many ways, ESPN is becoming a cautionary tale. The sports network has been one of the few consistent anchors for cable TV, offering something cord cutters can’t easily access: live sports. For many, that alone is reason enough to keep paying for broadcast cable TV. That audience is shrinking though, and ESPN seems completely unwilling to adapt, despite already having the means to do so in place.

Since 2011, ESPN has lost 7-percent of its subscription base, a base that once numbered well over 100 million. That loss may still be manageable for ESPN, but the number is increasing exponentially: since May 2014 alone, the network has lost 3.2 million subscribers.

According to NPR, the majority of people canceling their service are citing money as the top reasons, but part of that is relative. Many aren’t satisfied with the product they are paying for.

The high cost of exclusivity

ESPN’s bread and butter remains live sports, but that model is becoming more and more unsustainable for a number of reasons. To begin with, the leagues themselves are in such high demand that they can charge exorbitant fees.

ESPN currently owns the rights to Monday Night Football. It re-secured those rights in 2011 by agreeing to a deal with the NFL worth $1.9 billion a year, far more per game than any other network. ESPN has been heavily criticized for paying what is essentially four times the rate that CBS, Fox, and NBC are paying for Sunday games, but it has something the others don’t: exclusivity.

The cable network has the smallest average NFL audience per game of the four networks, but it owns Monday nights during football season. ESPN almost without exception has the best ratings of any program on any network for the night.

Part of the reason for ESPN’s willingness to pay more than the others is that cable TV providers are willing to pay more for ESPN than other networks. If you want to watch Monday Football from home, you need to have a cable TV plan, and Cable companies pay an average of $6 per subscriber per month to ESPN.

As long as the NFL is willing to shuffle some of the best games to Monday, ESPN can point to the exclusivity as cause for the exorbitant fee it is paying. The other networks can in most cases be watched without a cable TV subscription (as long as you have a good HD antennae and are in an area with a strong signal). For NBA though, the deal is a little more hit or miss.

Live small, pay big

In 2014, ESPN and TNT agreed to pay a combined $2.66 billion per year. Unlike Monday Night Football though, ESPN picks and chooses what games to air, which frequently means that major market teams will receive more air time than smaller markets.

To put that into perspective, in March 2015, as the playoff race was heating up, ESPN showed the Los Angeles Lakers – the fourth worst team in all of the NBA – twice. In that same time period, Memphis – the sixth best team in all of the NBA – wasn’t featured even once. (TNT did the same thing in that time frame, showing the Lakers twice while ignoring the surging Grizzlies).

Part of that is the result of the contract with the NBA, which set the games before the season began. No one could know for sure that the Lakers would be that bad or the Grizzlies that good, but Memphis was expected to have the better team. It’s a smaller market though, so fans hoping to watch the March 4th game between the Grizzlies and the Rockets – a pair of playoff teams – instead had to suffer through the Lakers versus the Heat, a pointless game that meant nothing to most of the country.

There is an obvious and easy solution to all of ESPN’s problems, but the network refuses to embrace it.

ESPN3

ESPN has an online service known as ESPN3, or WatchESPN. The problem is, it’s absolutely useless unless you already have a cable TV subscription that includes ESPN. And even then, it has to be one of the large, national providers, or much of the content remains locked. If you don’t make the cut you can still access the service, but it only offers assorted highlights and a few other things. It’s not just a “light” version, it’s a pale imitation of the full service.

To limit the app’s usefulness even more, the service is also only available on certain platforms – for instance, you can access it on an Xbox console, but not PlayStation (Sony and Disney have yet to agree to a deal for online content, but it could happen in the future). Even if you do have access, certain events are subject to blackout.

Foxborough, MA - August 20, 2012 - Gillette Stadium: ESPN MNF Hosts Mike Tirico and Jon Gruden during a preseason game (Photo by Allen Kee / ESPN Images)For ESPN there is the money coming from the cable TV providers to consider, but there has to come a point where ESPN will decide that HBO had the right idea with HBONow, its standalone service that’s available online.

With an untethered ESPN, free to offer multiple events at once that the viewer selects, the sports network could charge a monthly fee higher than the $6 the cable providers pay it.

Besides, while the cable companies might grumble and threaten, they need ESPN as much – maybe even more – than ESPN needs them. Very little would likely change for ESPN, and it would potentially create a new source of revenue that will only increase as the cable money decreases.

The cost of doing nothing

We live in a free market society, and the market is very clearly stating that it wants content provided online without any strings. Sports is one of the few forms of entertainment that needs to be watched live, otherwise it starts to lose its appeal for each hour and day it is delayed. The cable TV providers recognize that and have been leveraging it for years now, as the number of cord cutters wanting Internet only grows.

The MLB, NBA, and NHL already offer online services that allow fans to stream whatever games they want. The NFL is moving in this direction too. If ESPN doesn’t change, and change fast, it will find itself with unsustainably expensive contracts, tied to a dying medium.

Already the network is showing the negative effects. In the last few months, ESPN chose not to renew Bill Simmons’ contract, lost Colin Cowherd to Fox, and dropped Keith Olbermann. Part of ESPN’s appeal is that its on-air talent is among the best in the world in their fields. With over 1,000 on-air reporters, hosts, and commentators, more are likely to be let go in cost cutting measures in the near future.

A new way of airing content

If ESPN finally decides to break free of the cable TV providers, it can do more than just offer multiple sporting events live and on demand. It would be in a unique position to provide news that favors regions. ESPN already offers two SportsCenter broadcasts, one from LA and one from Connecticut, so it already has experience with regional broadcasts.

With an online service, ESPN could add regional SportsCenters with more content on nearby teams. Alternatively, viewers living somewhere new could get a glimpse of what’s going on back home by watching their region’s broadcast.

With very little effort, ESPN could move into the future and set the standard for online content. It just needs to get out of its own way.

Updated (7/27/15)

In a recent interview with CNBC, Disney CEO Bob Iger confirmed that the sports network may be moving towards a streaming model. “I think eventually ESPN becomes a business that is sold directly to the consumers,” Iger said.

Given that Disney owns ESPN, Iger’s comments are more than just idle chatter. Even if Iger is pushing for the transition, it will probably be years from now. There will need to be hundreds of hours of tense negotiations between ESPN and both the cable TV providers, as well as the various sports ruling bodies. Iger doesn’t seem to be in a hurry to jump into those.

“While the business model may face challenges over the next few years, long term for ESPN … they’ll be fine. They have pricing leverage, too.”

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Founder and DBP boss. Ryan likes the Kansas Jayhawks, long walks on the beach, and high fiving unsuspecting people.
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