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Why WatchESPN Will Never Be A Standalone Service

WatchESPNPerhaps the biggest lament of would-be cord cutters is the lack of live sports that can be viewed legally on the Internet. This cupboard is not completely bare; 4 of the 5 pro sports leagues in the U.S. offer live streaming of regular season games, but they come with lots of caveats — local blackout restrictions, no playoff games, etc.

What most sports fans who want to cut the cord and dump the dish really want is to pay for a service like WatchESPN separately from cable. Indeed, the combination of Netflix, Hulu Plus, Amazon Prime, and WatchESPN, along with over-the-air digital TV, would likely be more than enough for most viewers. Plenty of sports fans would likely pay upwards of $20 to $25 per month for the privilege.

Don’t hold your breath waiting for that privilege. WatchESPN will never be a standalone service, nor it was ever meant to be one. Here’s why.

1.) Subscriber fees

WatchESPN is a TV Everywhere service, which requires a cable subscription to use. TV Everywhere is specifically designed to keep viewers attached to cable. That allows ESPN to keep collecting those subscriber fees — not just the network’s bread and butter, but its bacon, eggs, milk, and cheese, too.

As I detailed in this post, ESPN will collect $7.3 billion in subscriber fees from ESPN, ESPN2, ESPNU and ESPNEWS. (To say nothing of ESPN3D, which brings in another $2.71 per month from people who were fooled into believing 3D TV is the future.) If ESPN began offering WatchESPN as a standalone service for $19.95/month, it would need 30.5 million subscribers to bring in as much as it collects from pay TV subscriber fees. Not nearly that many people would dump cable right away if WatchESPN became available as a monthly service.

Even if ESPN struck some sort of exclusivity deal with, say, Apple or Google, that guaranteed the first 10 to 15 million subscribers, it wouldn’t be enough. It certainly wouldn’t be enough for Disney, either, who would lose subscriber fees from 3 Disney cable channels, ABC Family, and all the A+E Networks channels, in which Disney has a 50% stake.

Plus, ESPN would certainly have to contend with this:

2,) Backlash from cable companies

Comcast, Time Warner Cable, Bright House and Verizon aren’t just TV service providers, but Internet service providers, too. All of them would view ESPN going it alone as a massive threat to their business models. They could also claim a standalone WatchESPN service is a threat to the stability of their networks — which wouldn’t be an issue if they had bothered to upgrade their networks like they were supposed to over the last decade, but that’s a rant for a different blog.

This is another key reason why ESPN (and Fox and NBC) chose to tie their streaming services to pay TV. Cable companies would not stand for ESPN to charge so much in subscriber fees and use their Internet to stream a high-value product like sports, too. They would start demanding subscriber fee reductions and making not-so-veiled public suggestions that ESPN over the Internet won’t be nearly as reliable as ESPN on TV.

Net neutrality issues aside, that might actually be true. This points to the final reason why WatchESPN will never be a standalone service:

3.) Infrastructure

As Mark Cuban likes to remind us at least once a year, “The Future of TV is…… TV.” ESPN would need a massive network infrastructure to deliver live programming to 30 million-plus subscribers. By comparison, the TV infrastructure is already in place and far more robust than any online video network available now. ESPN can deliver high-quality video much more easily by using existing cable and satellite services, rather than attempting to go it alone with Internet video.

Are there market conditions that would push ESPN toward offering online streaming as a standalone service? Perhaps a complete collapse of the pay TV economy? Perhaps a buyout of The Walt Disney Company? Just because Apple could buy Disney with cash doesn’t mean they will. ESPN benefits far more from working with cable companies than they do from working around them. Until something drastic happens, don’t expect that to change.

 

6 Responses to Why WatchESPN Will Never Be A Standalone Service

  1. I’m not convinced at all by this article. The cable/satellite companies need Disney/ESPN FAR more than Disney/ESPN needs them. I fully expect that within the next 12 and 24 months, Disney will do exactly what you assert it will not, to offer ESPN, as well as its Disney library, as standalone subscription services. And when the cable companies/ISP try to jack the rates, I expect a consumer outrage so intense that Congress gets involved and it won’t be good for the cable/satellite business. Cable/satellite are in the buggy business. They may be able to hold off for a while, but the handwriting is on the wall and Disney has always done a pretty good job reading the wall.

  2. Your point #1 makes no sense.You seem to be assuming that ESPN has to deliver the service using either one model or the other. Why are you assuming that?

    I’m a cord cutter. ESPN lost any revenue they were getting from me when I cancelled my Comcast service. They are getting $0 from me right now. Why would they not want my $20/month (or whatever) on top of what they are getting from all those folks who are still buying into the legacy cable model?

    So what if “Not nearly that many people would dump cable right away if WatchESPN became available as a monthly service.” ESPN would still be getting cable fees from the old model, and the revenue lost in the old model would be replaced in the new model as people cut the cord and subscribe to the online service.

    The real reason is point #2. But the real power in this equation is held not by ESPN or the Cable providers. It’s held by the major sports leagues (NFL, NBA, MLB, and NHL). Do they *really* care how the pie gets split between the content providers (ESPN, TNT, TBS, et al) and the cable providers, as long as they are getting their revenue?

    On point #3, the massive network infrastructure already exists, and it’s already being used to deliver this content. It’s called the Internet. Cuban’s post is so wrong-headed that he must be embarrassed about it now. (It’s getting a bit long in the tooth. I wonder if he still thinks this.)

    This is going to change much more rapidly than you think.

    • You really aren’t paying attention, are you?

      ESPN is owned by Disney, which has been lobbying Congress for the last TWO DECADES to keep the cable bundle intact. Why? Because Disney owns several cable channels (Disney channel, Disney Junior, Disney XD, ABC Family) and has a 50% stake in A+E Networks, which owns at least 10 cable channels in the U.S.

      Disney isn’t just trying to make money for ESPN. It’s trying to make money for ALL of its channels, and that’s far more likely if sports fans have to get cable to get ESPN.

      Also, let me remind you that you’re just one guy. At last count, ESPN and ESPN2 still have more than 97 MILLION subscribers. And given that subscriber fees go up 6.5% every year, ESPN can handle a certain level of subscriber loss.

      http://www.whatyoupayforsports.com/2013/04/could-espn-weather-a-growth-in-cord-cutting/

      So why would ESPN change its business model now, when the current model is still really, really profitable?

      Oh, by the way, 20+ million people had little trouble watching USA v. Germany on TV, while WatchESPN struggled to get reliable World Cup streams to 1.7 million people.

      http://awfulannouncing.com/2014/watchespn-having-streaming-issues-for-usa-germany.html

      Do you think maybe the ISPs, nearly all of whom are also TV companies, might have had something to do with that? Big ISPs — especially the ones that own content companies, like Comcast — don’t want to be dumb pipes, because that makes it that much harder to get people to pay for bundles, and THAT is where they make their money. Comcast didn’t clear $1.9 billion in profits last quarter just by being an ISP. ESPN offering an Internet-only service would drive Comcast into full retaliation mode, and the results would be profoundly ugly for everyone.

      You and I cut the cord. Bully for us. What two people want isn’t going to make these giant money-printing behemoths change course so quickly.

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