Judging solely by the headlines (see: ESPN Pay-TV Carriage Fell Another 10% to End Fiscal 2021 at 76 Million U.S. Households), it would be logical to believe ESPN is dying a slow death. But a series of newly signed rights agreements and a rapidly growing DTC platform (never mind the $9 billion from distributors) tell another story. In fact, David Levy (former Turner Sports president, current Genius Sports Group chairman) believes the fractured cable environment that has spawned the negative media coverage has actually strengthened ESPN’s value proposition in the eyes of rights owners, advertisers and fans alike. “They have all the content. They have all the reach. They have all the data. And [now] they are on all of these other platforms [like ESPN+],” he said. “When ESPN finally buys or builds a sports betting business and spins out of Disney, I’m going to be their first shareholder.”
JWS’ Take: It is important to understand that ESPN is not alone; every linear network within the bundle is watching sub counts decline as the pay-TV universe shrinks. “This is a cable industry problem, and I don’t think the genie is going back in the bottle,” Levy said. It should be noted that despite the secular decline, pay-TV bundles remain profitable, and ESPN as a company is more profitable than ever (which has allowed the company to invest heavily in emerging platforms).
As the media ecosystem splinters, there is an increasing need for rights owners to place live game content in more places. Burke Magnus (president, programming and original content, ESPN) explained that leagues today must “be able to reach sports fans in multiple different ways, across platforms and technologies, to have a fighting chance to capture everybody, much less grow a fan base.”
ESPN has done a particularly good job of developing the various distribution channels needed to reach a wide array of demographics. “If you consider the big tent poles to be [a] broadcast network, a fully distributed cable network—or networks, in our case—digital and social traffic and reach, and a meaningful direct-to-consumer product, we have all of [them. And] our competitors have a major weakness in [at least] one of those areas,” Magnus pointed out. For reference purposes, ESPN digital generated a record 120 million unique visitors in October.
The decision to go headlong into DTC streaming in April 2018, before anyone else in the sports broadcasting space, is now paying off for ESPN, both in terms of content opportunities and subscriber growth. Though ESPN+ is not believed to be profitable yet from a P&L standpoint, the company reports subs rose 66% during fiscal 2020-21 (ended in September 2021). The streaming service now has more than 17.1 million subscribers. “They are establishing [ESPN+] to be the dominant sports streaming service in the business long-term,” Levy said. “And remember, once they control the consumer, they control pricing and the relationship.”
The viability of ESPN+ has fueled the network’s pursuit of sports properties it would otherwise would have ignored in a purely linear world, simply because it lacked the shelf space. The UFC is a prime example. “We really didn’t have a way to optimize or maximize the entirety of the UFC [before],” Magnus said. “But [with a streaming service], which is virtually limitless from a capacity perspective and you don’t have to worry about conflicts from a window or timing perspective, we can do some [programming] on ESPN+, some on linear, there’s pay-per-view; [we now] have this entire array of ways to distribute UFC content.” The UFC has become a key driver of subs—and retention—for the DTC service (remember, high-profile PPV events are only available via ESPN+).
Capacity restraints would have also prevented ESPN from acquiring LaLiga or Bundesliga rights in the past, but now it can distribute 100% of those leagues’ games—in both English and Spanish. “That is fueling the super avid LaLiga [or Bundesliga] fan or global soccer fan [to sign up] and [enables us to serve] them in a way that is completely different than only a couple of years ago,” Magnus said.
In addition to LaLiga and Bundesliga, ESPN signed rights deals with the NFL (a renewal for Monday Night Football), the NHL, the SEC (for the package formerly on CBS), Major League Baseball (renewal), Wimbledon (extension) and the PGA Tour over the last 18 months. Magnus is convinced the “mousetrap” Disney has built, from a reach and relevance perspective, is the reason for the success on the acquisitions front.
Said UFC CFO Andrew Schleimer: “The deal with the Walt Disney Company and ESPN has done extraordinary things for us as a company in terms of exposure, marketing, touch points and tentacles…. It’s a very important cog in the wheel that has allowed us to grow.”
The company views its newly signed pact with the NHL as the prototype for future rights negotiations. “We have ABC for the Stanley Cup finals. We have ESPN for the playoffs and an exclusive package of regular season games,” Magnus pitched. “We have all sorts of industry leading social and digital platforms, like the [ESPN] App, ESPN.com and our branded YouTube, Instagram [and] Snap [channels], which [are] so far beyond every competitor from a traffic and usage perspective. And then we also have ESPN+ on the direct-to-consumer side.”
The ability to remain relevant to fans still in the linear ecosystem and to a younger demographic, who may reside outside of the cable bundle, is “a pretty compelling proposition for us and one that has resonated in every conversation we’ve had over the last almost two years on the rights side,” Magnus said. But that is not to say ESPN has landed every rights package it has gone after. The company expressed interest in the EPL rights that NBC Sports was able to retain. The Premier League declined to comment on its decision.
Still, for some sports, being inside of the ESPN machine can hold tremendous value for sports properties from a relevance and awareness standpoint. Schleimer said: “For a fight week Tuesday, they put a bug [on the bottom line] throughout the entire day across all of their programming. We have SportsCenter mentions. We have library content across ESPN and ESPN News…. It’s unbelievable the amount of exposure we get.” And that is paying dividends for the fight outfit. Dana White stated during a Dec. 1 appearance on The Jim Rome Show that the company expects 2021 to be its most successful year ever in terms of PPV buys.
While ESPN didn’t set out to become the ideal distributor for emerging sports properties (see: Formula One, WNBA), its distribution and packaging flexibility and the opportunities for exposure it provides has made that the end result.
(This post has been updated to correct Burke Magnus’ title.)