Jimmy Pitaro was recently announced as the new president of ESPN. Pitaro’s experience in entertainment and sports is vast from his time at Yahoo! where he was head of sports and entertainment to his most recent stint at Disney. Unfortunately for Pitaro, he won’t have time to get settled. He takes over the worldwide leader in sports, and he does so at a time where ESPN is facing myriad challenges.
The changing business model
ESPN’s main business model has been built around the dual revenue streams of subscriber fees and advertisement. Pitaro enters at a time when both of those income generators are in a tough situation.
Cord cutters are eating into ESPN’s subscriber base. This is an issue for a lot of cable channels, but ESPN has to answer to Disney shareholders. ESPN has — in recent history — been Disney’s cash cow. It compromised a large portion of Disney’s overall revenue. That revenue has been in decline and a cause for concern for some time now.
There are no simple answers. ESPN can make up some of their lost subscriber fee revenue by finding OTT services to partner with, but that won’t rake back the same amount of revenue lost. There has been talk of a stand-alone ESPN offering similar to HBO Now, but their current answer of ESPN Plus will not be a complete substitute.
As cord cutter numbers continue to increase, it creates a problem for advertisers as well. People are tuning into fewer linear television shows without a real-time component. ESPN shows aren’t DVR proof like their actual game content. Advertising revenues may go down if ESPN can’t provide viewership numbers like it used to.
Pitaro is one of the more prepared candidates for this battle. He has a history in digital and experience outside of the ESPN bubble. He’s not tied to old business models and may bring fresh ideas to Bristol when it comes to changing how much ESPN relies on its traditional business model.
ESPN, whether deserved or not, has gained a perception of being more liberal than center when it comes to its news coverage. Folks such as Clay Travis has dubbed them MSESPN. Issues with Jemele Hill have been red meat for more conservative media outlets. Joe Conservative on the street believes ESPN trends left in its coverage whether that is fair or not.
Sports entertainment companies don’t really want to be involved in a left/right political battle. They want as many eyeballs watching their expensive content as possible. Maybe being perceived as left or right wasn’t a big deal in the past. Now people will call for boycotts. They will hammer home their personal slights. It could be overplayed, but it’s part of the entertainment world now. Viewers tend to find politics in everything, even when it’s not there.
It’s not ESPN’s fault that the country has moved in a politically divisive direction, but they still have to convince viewers the company is neither left nor right. As the urban legend goes, republicans buy sneakers too. They also watch sports. Both sides of the aisle do. That’s why Pitaro will have to walk a fine line in deciding where ESPN moves in the future.
Expensive content rights
The problem with the deals ESPN signed is that they did so when television rights for sports products were at its peak. That’s why the company spends $1.9 billion per season on Monday Night Football rights. If ESPN leadership could see into the future and saw the viewership numbers and ratings decline of one of the NFL’s most historic properties they may not have invested so heavily.
These deals are longer term. There is no end in sight. The best way to make a company more profitable is to either increase revenue — which we’ve reviewed ESPN’s struggles — or decrease expenses. That’s impossible for the worldwide leader as it’s locked into these current deals.
ESPN has tried to cut talent and headcount, but that’s throwing a bucket of water out of a flooding boat. ESPN will have to be judicious with the company’s television rights investments moving forward. They may not get involved with UFC rights because of their current content expense situation. Other content may not provide enough return on investment.
#MeToo and Time’s Up movements
This is happening everywhere, and ESPN is not immune as a recent lawsuit shows. ESPN has a long-standing reputation of being a bit frat-house like. Those Guys Have All the Fun didn’t do much to dispel that notion. And, the folks in Bristol have gone through multiple issues where the work environment was uncomfortable for women in the industry. The company’s history is scattered with situations that should not fly in any corporate environment including infamous stories about Harold Reynolds and Steve Phillips.
This is a major problem for all of corporate America. It’s not an ESPN thing.
Catering to a younger demographic
ESPN attempted to cater to a younger demographic by partnering with Barstool Sports on Barstool Van Talk. The show lasted exactly one episode due to an internal ESPN uprising lead by multiple ESPN personalities and members of leadership.
Partnering with Barstool was never part of ESPN’s brand. It was probably a bad idea to enter into a deal with a company that has targeted ESPN constantly. The idea itself was smart even if execution led for a lot to be desired.
ESPN needs to be fun at some level. It needs to be cool. Websites like Barstool are stealing its younger audiences. Twitter and YouTube are providing highlights in real time and they allow comments and interaction. The shareability economy is hurting traditional media companies who are slow to react and change.
ESPN has been the leader in sports for some time now. It’s easy to get fat and lazy when you’re on top. It’s hard to convince anyone to change anything. That’s could be part of the reason ESPN was so late to the game with recognizing its business model issues. It’s also a reason why some of ESPN’s content has gotten a bit stale.
Everyone is shooting for the king
For as much as everyone seems to enjoy saying that ESPN is in free fall, it’s simply not. It is still the leader in sports television and entertainment. It still has a great portfolio of rights. It still has strong personalities such as Scott Van Pelt, Stephen A. Smith, Tony Kornheiser and Mike Wilbon. It still has some of the smartest people in the industry making important decisions for them in terms of their business and content. It’s still what everyone in the sports media world strives to be.
But people always shoot for the top. Being on top makes for an easy target. ESPN and Jimmy Pitaro still have to defend the throne. It’s tough to see them not doing so with the behemoth that has been built, but it’s still a challenge to remain above all other competitors. That’s really Pitaro’s number one job.