ESPN is facing challenges from other cable companies. Fox, NBC, CBS and even regional networks have continued to target sports programming because of the value of live events. As a result, the increased competition is creating bidding wars for content. The hefty expenditures associated with acquiring these rights are mostly covered by a dual stream revenue model. Subscriber fees from the cable companies, such as Comcast and Time Warner, help generate a significant amount of revenue for the rights holder, and ESPN commands one of the highest per subscription fees in the market.
The second revenue stream comes from advertisers. In an attempt to differentiate itself from competing networks through big data, ESPN is now releasing the findings of a multi-platform advertising study it started almost two years ago. It is well known that sports content is resistant to the DVR, or in the parlance of our times, it is time-shift proof, but the findings also indicate that viewers of sports programming are more brand aware than normal viewers.
This gives ESPN a value-add to current and, more importantly, potential partners. ESPN can discuss the return on investment of different types of advertising (length of spot, digital vs. mobile vs. traditional, etc.), and can justify increases in the costs of advertising during highly engaging programming. All while telling the client the data is really just for the client’s benefit.
The on-going study (ESPN plans to continue this type of data mining) also allows ESPN to act in a consultative role. ESPN will already have all the research and data that an expensive middle man normally charges the client. How long until ESPN charges directly or indirectly for its data? ESPN could add this revenue stream to its $50 billion business.
In sports, statistical data analysis usually gives the first mover a huge advantage in an inefficient market. It was the reason small-market teams embraced that model before the big spenders. ESPN is taking a similar data-driven approach with its advertisers to keep an advantage over competitors.
Michael Colangelo is Assistant Director at the USC Sports Business Institute.