On Monday, Disney CEO Bob Iger told some Comcast-employed blowhards that ESPN could, at some point down the road, be sold directly to customers outside of the cable bundle. Here’s the bulk of what Iger actually said:
“I have very bullish feelings about ESPN [in the] long term, but I’m a realist in terms of the disruption in the business. I happen to believe that if we end up seeing more erosion in terms of the so-called multi-channel bundle, quality will win out, and popularity will win out, and while the business model may face some challenges over the next few years, I think [in the] long term ESPN, because of the strength of its brand and everything else that I said, will be fine. They have pricing leverage, too.
“I think it’s impossible in the media business today to really look ten years out, because it’s changing so fast, and I think while we could make predictions, I wouldn’t necessarily make them with conviction. Five years out, I don’t think you see significant change. I think eventually, ESPN becomes a business that is sold directly to the consumer, where there’s an engagement that ESPN will know who their consumers are, will use that information to customize their product, to enable personalization, to essentially engage in a much more effective way, and also to offer advertisers a lot more value as well. That’s longer term. I think there’s an inevitability to that, but I don’t think it’s right around the corner.”
Naturally, the internet reacted to these quotes in the calm, rational manner you would expect…
While other sites are good at hyperbole, this site prefers to operate in the real world, in which ESPN and ESPN2 are still in 92.9 million homes and still collecting well more than half a billion dollars per month in carriage fees. Let’s take a closer look at why ESPN is still a long way from becoming a stand-alone service.
1.) ESPN’s annual carriage fee income isn’t dropping precipitously for a while.
While ESPN’s monthly subscriber numbers are dropping, its annual carriage fee income is still expected to increase for at least another year or two, largely because its asking price keeps climbing more than subscribers drop the channel. Here again is a protection of ESPN’s potential subscriber and carriage fee numbers over the next five years, based on numbers from its peak in 2011:
Bob Iger would probably call these numbers pessimistic, but either way, they still show that ESPN is due to make more than $7 billion per year in carriage fees through 2018 — more than enough to pay all its rights fees and still remain profitable. Costs will be cut along the way, of course, but ESPN remains perfectly viable within the traditional cable bundle for a few more years.
That brings us to the other reason Iger might be optimistic about ESPN’s future prospects:
2.) ESPN is already separating itself from the cable bundle.
You want ESPN and ESPN2? You can get it through Sling TV for $20 a month. You can get all the other ESPN channels (ESPNU, ESPNEWS, etc.) for another $5. Yes, Sling TV has some kinks to work out and will experience a lot of customer churn until they do, but that doesn’t change the fact that you can absolutely get ESPN without cable.
When Apple’s streaming TV service launches later this year, you should be able to get ESPN and Fox Sports 1 together in a small bundle for about $30 a month. That offers a slightly more robust option to those who are tired of traditional cable TV but still want sports.
What’s more, Apple and Sling won’t be the only players in the over-the-top video market. Other companies will jump into this game as well. It’s entirely possible that by 2020, ESPN will still be in a lot more than 43 million homes, thanks largely to OTT video, and letting other companies handle distribution while ESPN continues to rake in carriage fees sure beats the hell out of building your own distribution and billing system, doesn’t it?
This would explain Bob Iger’s optimism in the face of a changing video market. Perhaps he believes that Apple’s entry into the OTT market is going impact the Comcasts and Time Warner Cables of the world far more than it will impact ESPN, and he could very well be right. We’ll have to wait and see how that plays out. In the meantime, the fact that Bob Iger understands that ESPN will eventually have to connect with its customers and give them reasons to stay subscribed actually bodes well for the network’s future.
Of course, the other danger facing ESPN is the possibility that pro sports leagues will eventually go it alone and use their own OTT distribution to stream games online. That’s still even further down the road, as all five pro sports leagues in the U.S. have deals with sports networks into the next decade, and individual teams in baseball, basketball, and hockey have big-money deals in place with regional sports networks that block local teams from streaming packages. Plus, if the TV money is still pouring in, there’s no real reason for leagues to change their strategy and go it alone. Bob Iger is surely counting on that, too.