Streaming is the the future. Cord cutter is a major buzz-word. ESPN and Disney could only hold off for so long. Now it’s official: Disney announced that a streaming, stand-alone, ESPN offering will be launched in 2018. This was always going to happen, especially if people took notice of the steps to get to this point.
ESPN’s subscriber base was falling hard in 2015. That trend only continued into 2016 and now 2017. Cord cutting is not some boogeyman. It is real. Millennials simply don’t value the cable bundle as much as their predecessors. Even older consumers were looking into why their cable package cost so much when they only watch one-third of the programming available. Subscriber fees were key to the ESPN revenue model since it was built as powerful dual-revenue machine. One piece of revenue comes from advertisers, while the other subscriber fees that ESPN set at upwards of $7 according to reports. Those subscriber fees even accounted for people who weren’t watching ESPN and subsidized the channel for most consumers. As rights-fees soared and subscriber fee income dipped, the problem was pretty obvious. ESPN and Disney had to look for answers elsewhere.
The Fields of Green had been calling for an a la carte option for some time now — and to be fair we weren’t the only people suggesting it. Once HBO showed that an a la carte option was financially feasible, it was all a matter of time before ESPN decided it had to offer the option. The easiest way to offset falling subscriber fees is to create a whole new set of subscriber fees. The a la carte option was the best choice there. What else were they going to do?
Still ESPN held fast to the idea that an a la carte option simply wasn’t economically feasible. John Skipper, president of ESPN, said it wasn’t even an option in 2016. Either he wasn’t being completely truthful or things changed fast. He did say, “We will look at direct to consumer…and decide to be more aggressive when we think it will help us grow our business.” Apparently that time is now.
Even the casual observer could see the steps being taken by Disney and ESPN to launch their own streaming service. Once Disney purchased one-third of BAM-Tech — an investment that valued BAM-Tech at $3 billion — it wasn’t a matter of if, but when. Companies like Disney don’t invest in technology or buy into a company unless they have a plan to use it. The deal was signed, and it was obvious to most in the industry that the stand-alone option was coming. Again, follow the steps. Subscriber fees were falling. Cord cutting wasn’t slowing down. ESPN came out and said it wouldn’t offer stand-alone to placate its current distribution partners. All along it had an eye on creating their own streaming package. The company bought a portion of BAM-Tech — originally known as MLB Advanced Media, the leader in streaming technology — and everything started in motion.
While doing this ESPN came to deals with other streaming services. There were rumblings that ESPN would even be spun off — this would have hastened a stand-alone streaming service — but that idea died quickly. Disney couldn’t let go of its crown jewel that, even though it was losing subscribers, ESPN was still one of the most watched cable channels in the United States. Live sports content still pulls in viewers better than any other content on television.
And that’s how we got to where we are today. ESPN will offer a streaming service. Pricing and information still haven’t leaked out, but it’s safe to say to won’t be the $7 people are paying in subscriber fees — it will be much more. ESPN will scrape back some revenue, and eventually will figure things out. There are too many smart people there for ESPN to just wither away. In fact, their streaming option could be top of the line thanks to their purchase of BAM-Tech. Disney even invested more in BAM-tech recently, now valuing the company at $3.75 billion.
The streaming service was always going to be the option ESPN went with. Even though they tried to fight back as long as they could, the market was pushing them in this direction. Now with the official announcement, we will find out how ESPN plans to leverage its brand equity, content, and talent into being a successful streaming service. It’s about time they took this step.
Michael Colangelo is Managing Editor of The Fields of Green and Assistant Director at the USC Sports Business Institute.