ESPN Starting A Streaming Service Is The Beginning Of The End Of Cable

Last month, it was reported by the Wall Street Journal that ESPN has been actively planning to launch a standalone, direct-to-consumer, streaming service. The code name for the project is “Flagship”. It was also reported that such specifics as a timeline, launch date or cost has yet to be determined. The announcement comes at a time, when the number of cable subscribers continues their downward spiral. In first quarter 2023, a record 2.3 million U.S. households cancelled their cable subscription. The percentage of households with a cable subscription, is at their lowest penetration, in over three decades.

The loss has impacted the revenue of the Disney owned ESPN. In 2011, ESPN had over 100 million household subscribers, this has since dwindled to 74 million households. The loss is deepened by S&P reporting that ESPN charges MVPD’s $9.42 monthly, the highest of any cable network. ESPN’s announcement coincides with Bally Sports, the largest regional sports network, filing for bankruptcy protection. Also, AT&T SportsNet, another RSN, announced they would be leaving the business for financial reasons. Next to ESPN, RSN’s generate the highest subscriber fees in the cable industry. For example, the YES Network which televises New York Yankees and Brooklyn Nets games, charge MVPD’s $7.42 each month.

ESPN televises numerous top-tier sporting events, that cost billions of dollars, in media rights fees every year. These include; NFL Monday Night Football, MLB Sunday Night Baseball, MLB Wild Card games, NBA (including postseason games), WNBA, college football including dozens of bowl games, men’s and women’s college basketball, women’s “March Madness”, NHL and Stanley Cup Playoffs, Wimbledon, Australian Open and U.S. Open tennis, LPGA and PGA golf and global soccer leagues to name a few.

Five years ago, Disney launched ESPN+, which streamed sports content that has been complementary, not competitive, to the linear cable network. Presently, the monthly cost for ESPN+ is $6.99. The service is also part of the Disney bundle (along with Hulu and Disney+), costing $13.99 monthly. In its most recent earnings report, ESPN+ had 25.3 million subscribers.

It is expected the standalone service would not happen until 2025, at the earliest. One question yet to be answered, will be the reaction of MVPD’s having to compete with a streaming service, offering identical content. Awful Announcing notes, in Canada, the two national sports networks, Sportsnet and TSN, have had DTC content available, since 2016 and 2018, respectively. To date, both continue to provide identical content on MVPD’s.

In its latest earnings report, Disney’s CEO Bob Iger said, “We think there’s an inevitability to that, but it’s a huge decision for us to make. And we know that we’ve got to get it right, both in terms of pricing and timing.” James Pitaro, President of ESPN, Inc. told Bloomberg, “That’s a ‘when,’ not an ‘if’…We’re only going to do it when it makes sense for our business and bottom line.”

Daniel Kirschner, CEO and Co-founder of Greenfly says, “ESPN has been historically the biggest beneficiary of the cable carriage fees system, and has served as a bulwark against cord cutting. The ESPN announcement is an acknowledgment that we are reaching a tipping point in viewing habits where even dedicated sports fans may not maintain a cable bundle, especially as streaming options for sports continue to proliferate. The challenge in a streaming à la carte world is, how do you reach the casual fan, someone who five years ago may have stopped on a game when flipping channels but may not subscribe to a service just to watch that game? Even though ESPN is a pure sports play, its place as part of a broader Disney bundle gives it special opportunities to continue to reach that more casual fan, and points to the recreation of a bundle approach in the streaming world as well.”

In recent years, premium sports have been slowly migrating to streaming platforms. Amazon
AMZN
Prime Video began streaming exclusively NFL Thursday Night Football last season. Amazon will be adding the first NFL “Black Friday” game next season. Peacock will exclusively stream its first regular season NFL game next December. Peacock will also exclusively stream an NFL Wild Card next January, the first NFL postseason game available only online. Additionally, the NFL recently reached an agreement with Google’s
GOOG
YouTube to stream the Sunday Ticket roster of games, replacing DirecTV.

Starting with the 2022 regular season, a handful of MLB games have been streamed on Apple TV+ on Friday nights and Peacock on early Sunday afternoons. In a ten-year agreement starting this season, every MLS game will be streamed on Apple TV+. The next round of negotiations for the media rights of the NBA will begin within the year. ESPN, which has expressed an interest in continuing their partnership with the NBA, is widely expected to renew. It is also widely expected, the new agreement will have a streaming component.

Other premiere sporting events such as the Super Bowl, NBA Finals, World Series, Masters, Stanley Cup Finals among others are available on both linear TV and streaming. Last month NBCU announced every event of the 2024 Paris Summer Olympics will be streamed on Peacock.

Also, several RSN’s have launched direct-to-consumer live sports, bypassing MVPD’s. Last season, NESN launched NESN 360, which live streams Boston Red Sox and Boston Bruins games. The subscriber costs are $29.99 monthly or $329.99 annually. The YES Network, launched a streaming service in time for the start of the 2023 baseball season, at a monthly fee of $24.99. This summer the MSG Network will launch MSG+, which will stream local NBA and NHL games. Subscribers can purchase a monthly package ($29.99), an annual package ($309.99) or an individual game ($9.99). The three RSN’s continue to be available on MVPD’s.

André Christensen, CEO and Co-founder, Quickplay, says, “Cable companies are increasingly pressurized, losing subscribers, and have limited ways of monetizing content. Sports continuing to go DTC is going to be an even bigger blow. To create sustainable businesses and show that they can be a good home for sports, cable companies need to focus on distribution. How can they reach their total potential audiences through OTT-like experiences and monetization? How can they move to an advertising plus strategy? I think we will also see a lot of smaller regional sports networks disappear because they’re not big enough or innovative enough to compete with others who have nailed things like personalization and localization.”

Despite the emergence of cord cutting and more competition for eyeballs, live premium sports from ESPN and RSN’s are considered saviors to the cable bundle (for now). For example, last season NFL Monday Night Football on ESPN averaged 14.2 million viewers. The CFP national championship (Georgia-TCU), last January on ESPN, averaged 17.2 million viewers, despite being a blowout. In May, ESPN benefitting from the NBA playoffs, averaged 2.45 million viewers in primetime, second to TNT.

As media companies continue to prioritize streaming over their linear cable networks, the loss of original content and viewing to most cable networks has plummeted. According to Nielsen’s Gauge Report, in April 2023, cable accounted for 31.5% share of viewing, a decline from 36.8% in April 2022. (The relatively large share comes from the quantity of networks, not the quality of programming.) The recent plans announced by ESPN, coupled with the struggles of RSN’s will only accelerate cord cutting. By the end of the decade, the cable model will be extinct.