Why ESPN Has Already Lost the Future
Published on: August 26, 2011 | Written by: Clay Travis
At its essence ESPN is a middle man. That is the network exists to bring the content of someone else to your home or business. The same is true for ESPN, ESPN 2, ESPN Classic, ESPN News, ESPN infinity. This year ESPN turned 32 and for the past several years it has been the most profitable arm of Disney. It is an all conquering behemoth that devours all competitors. To hear most people talk, ESPN's competitive advantage is so extreme that there can be no challengers. Clearly, I disagree with that position. A few weeks ago I wrote that Yahoo Sports had emerged as the biggest competitor to ESPN thanks to a series of eight deft moves. But today I'm here to tell you that ESPN has already lost the battle for the future of sports.
It will take years for others to recognize this fact, but ESPN's power in the world of sports will be on the wane each year going forward.
And it all comes back to that basic premise -- ESPN is a glorified middle man whose role is increasingly unnecessary.
My thesis is simple, ESPN owes its position of dominance to the fact that it has managed to create the largest distribution network in the world of sports. That is, ESPN can bring sports programming to more people than anyone else in the world. That ability used to be unique. No longer. As we move towards a world where computers, Internet streams, and cable all meld into one device, ESPN's place in the sports arena becomes obsolete.
Before you dismiss this idea, let me ask you a simple question: what does ESPN create that you absolutely, positively must watch? (Exclude all games from this equation because ESPN doesn't create any of those, it just airs them in partnership with the leagues).
You're still thinking, aren't you?
Yes, ESPN has good shows -- Pardon the Interruption, SportsNation, even SportsCenter, but how many of them are must watches for you? And what I mean by must watch is, you're excited when you turn on your DVR and see that a new program is in your lineup. The same feeling that I would get for Friday Night Lights or Curb Your Enthusiasm or Lost. The same feeling that you get for your own favorite shows.
Be honest, there aren't any, are there? In fact, ESPN doesn't have a single regular program that your average sports fan even records and watches on his or her DVR.
Therein lies the problem. It's already starting, but at some point in the next decade and beyond the leagues aren't going to partner with ESPN any longer. At least not in the way that they are now, with their biggest games as showpieces on the network's properties.
And once ESPN doesn't have the games, who is going to watch the network?
Already, I don't watch anything on ESPN other than games. (Alright, I love College Gameday). That's completely different than the ESPN I grew up with, the ESPN I would rush out of bed in the morning to watch or the ESPN I'd stay up late at night to watch. Back in those days ESPN had hardly any actual games. You and I watched ESPN because it gave us something we couldn't find anywhere else -- the luxury of time with our sports teams. No one else spent time on our teams, hell, no one else even showed us highlights of our sports teams if you happened to root from a team out-of-market.
ESPN's biggest competitor was the a three minute local sports segment, a newspaper box score, and an AP write-up.
Given these options of course we were going to love ESPN. Hell, I loved ESPN so much I had seven or eight different ESPN t-shirts and jackets. It wasn't just that I liked the brand, I wanted to clothe myself in it, wearing an ESPN product was a badge of honor.
Then it all began to change.
And if you're my age -- I'm 32, the same age as ESPN -- you can probably even pinpoint the moment when you thought -- Good Lord what is going on here.
I remember two moments, actually. The first was when ESPN started to run commercials for its first NFL football game -- a pedestrian contest between two teams no one cared about -- four months in advance of the actual game. Anyone who watched ESPN regularly saw this ad for this game a billion times. I remember turning to my dad and saying, "Don't they know what a crap game this is?"
I was around 12.
The second was the ESPYs.
If there has ever been a more promoted event in sports television history than the ESPYs, I've not seen it. Sixteen years later, I've never watched the ESPYs. Ever. Okay, maybe I've glanced up at a sports bar and seen it on television, but I've never actually put it on. I'm just not interested. Most of you agree. Sixteen years into the awards show -- sixteen! -- the ESPYs just put up their lowest rating in history a couple of months ago. It's the latest failing of ESPN's creative minds.
Put simply, ESPN doesn't create any programming that is must see television.
(At this point, I will acknowledge an exception for ESPN's 30 for 30 series. This is the best thing the network has done in a decade. The only programming that was truly as riveting as something you would see on HBO.)
In the same way I told you eight reasons why Yahoo had become ESPN's biggest competitor, I'll give you seven reasons you why ESPN has already lost the future.
1. By the end of this decade every content provider, pro or college -- the NBA, the NFL, Major League Baseball, the NHL, the SEC, the Pac 12, the Big Ten -- will have the ability to directly target every single one of its core audience members without ESPN's help.
If you want to watch, say, every SEC game on a Saturday, you will be technologically able to pull up a screen featuring every game and flip back and forth between those games at your leisure. Probably with a small portable device that you can take anywhere.
We're not far from an era when every single one of us can have our own HD flat screen television that projects directly in front of us no matter where we are. My kids are three and eleven months. By the time they're stuck in an airport delay, they'll just shrug their shoulders, flip a switch, use their backpacks as a pillow and watch any movie, sporting event, or show that has ever been filmed on the screen in front of them.
The inability to do this will be as foreign to them as a world without air-conditioning.
In the future, we'll all be our own programming executives in charge of our own individual networks.
2. ESPN's business model is a shell game.
Instead of accepting up front payments from ESPN, leagues will accept the mantra -- "If we show it, they will come. And pay."
Sports fans are going to pay for big games. Hell, we already are. Every single one of us with the family of ESPN networks in our cable or satellite package is already paying around $100 a year just for these networks.
It's just buried in the cable bill so none of us actually know what each channel costs.
Well, know this, ESPN is the most expensive channel that any of us pay for on our cable bills.
Right now the leagues are playing a shell game where ESPN pays the leagues and then recoups the money it pays for these rights fees off of, mostly, subscriber fees from us and, to a lesser extent, advertising to us. If you want a quick lesson on why ESPN can presently pay more for sports than any other sports entity that's the answer -- because its business model isn't reliant on advertising. All of the networks that it is competing with -- chiefly NBC, Fox and CBS (ESPN is ABC) -- rely on an advertiser model to pay for sports rights.
And it's really damn hard to make those sports rights fees profitable based on an advertising model. That's why most of these "free" networks actually lose money when they televise major sporting events.
Not ESPN. They use the money we're paying them to buy sports to show us and make a profit.
If you think about it, the business model is genius, almost money laundering for sports -- ESPN charges us for the games we watch on the network and we think we're getting them for free because we're all too dumb to break down the cost of our cable bill.
Voila, ESPN has dual revenue streams, subscriber fees and advertising dollars, and a competitive advantage that can't be matched.
But, and I come back to this -- at its most basic level ESPN is using our money to pay the leagues for their games.
It's a big shell game with ESPN acting as the middleman. Which brings us to the next question.
3. What if the leagues get smart, eliminate the ESPN middleman, and start taking their money directly from the consumer?
Then ESPN's business model crumbles and the leagues make a ton more money than they do now. Because right now ESPN's entire business model is predicated on the fact that they can deliver a huge audience of sports fans that can't be matched by anyone, anywhere else. And thanks to the subscriber fees from that audience -- that is what you and I are paying them -- ESPN can guarantee payments to the leagues without any risk to the leagues of selling the product themselves.
But even with these payments ESPN's still making money off the content and the leagues see this.
Eventually leagues are going to bundle their content and sell it themselves. You've already seen this with the Big Ten network. For the 2010 year the Big Ten received $8.2 million from ESPN/ABC and $7.9 million from its own network. This year the Big Ten Network will surpass the payout from ESPN/ABC.
In just four years the Big Ten Network has almost matched the payout from ESPN's family of networks. By 2015 analysts are projecting network revenues of $333 billion.
Other conferences will follow.
Again, in a competitive business environment what value is ESPN going to be giving these leagues in a decade that they can't get by going directly to their own consumers? That's why the MLB, NBA, Big Ten, NHL, NFL, all have their own networks.
But the network model carried on cable isn't really the future.
The future isn't in networks at all -- and probably not in cable at all -- it's in selling content directly to the consumer.
You think there's big money in sports now? Wait until the leagues truly go independent and sell their own content without a middleman taking a massive share of the profits.
4. In the event leagues don't decide to sell their rights, in the future ESPN's top competitors for rights fees aren't going to be television networks.
I think that most leagues will eventually sell their own content and squeeze ESPN out of the game. But if the leagues don't sell the content themselves, they'll set up their own partnerships with companies like Google/YouTube, Facebook, and Apple to share their content on the Internet/TV/computer devices that are coming down the road at a rapid pace. ESPN has a competitive advantage over other networks, they won't have a competiive advantage over younger, smarter, more savvy tech competitors.
You want some mind-boggling numbers? The market caps of Apple, Google, and Facebook (estimated for Facebook since it isn't publicly traded) are presently $619 billion dollars.
The market caps of CBS, News Corporation, Disney, and Comcast combined, the biggest current sports partners in the United States? $173 billion. That's less than Google by itself.
If Apple, Google, and Facebook eventually get into sports content partnerships -- and they will try -- ESPN is going to get blown out of the competitive bidding water.
Again, the network model is in the past, the future will be either in the leagues going directly to the consumer or in hybrid plans set up with major innovative tech companies that aren't restricted to just television.
(Please don't send emails about ESPN's digital network. That entire "network" relies upon the league partners providing rights to ESPN. Without the league rights, what is ESPN's network? Exactly.)
5. Most sports fans don't trust ESPN anymore.
ESPN could overcome a lot of the looming business difficulties if the brand had a strong value to sports fans. But increasingly sports fans, aware of the modern media marketplace, are becoming cognizant of how much ESPN gives up its journalistic independence in favor of shilling for broadcast partners.
Hell, it makes business sense. Without the games, ESPN is really nothing. The business value of breaking a story about Ohio State cheating is really low when it compares to the business value of the Big Ten being happy. But sports fans are starting to see through that charade now. ESPN doesn't break very many big stories that actually matter. (By stories that matter I'm not talking about who a particular free agent is going to sign with -- we'd eventually all know that -- I'm talking about the stories that Yahoo Sports is doing now. Stories that otherwise wouldn't exist.)
ESPN has never been at the forefront of sports reporting, but it's very omniscience made it appear that the network was. It used to be that a story wasn't "breaking news" unless you saw it on ESPN. But with Twitter, Facebook, and other social networks most of us can see that ESPN is just regurgitating the news that others have already broken. Often that news is at least a half-hour behind when it actually "breaks" on ESPN.
Every year ESPN's trust crumbles anew. Last year it was the LeBron James spectacle that torpedoed ESPN's credibility. This summer it was the Bruce Feldman imbroglio in conjunction with holding up the Texas A&M to the SEC deal.
ESPN, like all too many corporations, simply can't be trusted as an objective and independent voice for sports news. The network has lost that right.
6. ESPN can't do original content.
Again, the eventual loss of games wouldn't be a big deal if ESPN had great original programming, a show that left us all talking about in the morning.
It doesn't have to be a great show, but it does have to pull ratings. Put simply, what's MTV's Jersey Shore?
Other than the games -- and a brief respite for the 30 for 30 series -- ESPN's content is worthless.
ESPN executives would curl up in the fetal position and start crying if you asked them what their network ratings would be without major live sports included. They better run those numbers because it's the future.
Now, here is a bit of a silver lining, if ESPN loses the games it could become a fount of great, original programming. Not worrying about offending network partners could lead to ESPN becoming must watch television. Of course the profits would decline in a hurry.
The future of an ESPN without big games? It's not going to have anywhere near the money, and it will employ a ton less people, but could it also produce shows like Friday Night Lights that couldn't be aired anywhere else?
One could hope.
Does ESPN have the kind of creative minds that could pull this off right now? I doubt it.
7. Despite this technological onslaught that will wipe out its competitive advantage, ESPN's arrogance is growing.
Read ESPN: The Book. Particularly the sections about negotiations with the leagues in recent years. Then go read this great piece by Teddy Greenstein about how ESPN's arrogance led the Big Ten to start its own network.
"Consider them rolled,' said Jim Delany after an arrogant negotiation with ESPN led to the creation of the Big Ten Network. In later years this anecdote may be cited as the moment when ESPN's trajectory turned. Already other leagues are looking at the massive profits the Big Ten Network is generating and wondering why they're partnering with ESPN.
It's an old cliche to trot out, "The pride goeth before the fall," but I think ESPN's the opposite; I think the network is going to fall before the arrogance leaves.
Because right now ESPN is so drunk on its own power that it actually has the audacity to force leagues out into this new digital world to create value for their own properties. That's despite the fact that the market is going to be incentivizing leagues to do the same. That's because most ESPN employees in positions of power aren't looking to the future. If they were, they'd be doing everything they could to keep everyone in house so they didn't realize the economic potential waiting outside the network's contracts.
Every single day that passes from here on out ESPN becomes less relevant, less dominant, and more vulnerable to competitors.
The ESPN monopoly of sports is over -- most of us just haven't realized it yet.