Welcome back to The Varsity, I’m John Ourand.
As I was
rushing to finish this early-evening dispatch (so I could start packing for the drive up I-95 to get my daughter set up for her junior year at Villanova), I saw the news that the campus was on lockdown due to an active shooter. It’s the exact situation that every parent dreads. But then Villanova president Fr. Peter Donohue emailed students that, actually, there was no active shooter: “It was a cruel hoax.” Regardless, it sounds like the campus is still on
edge.
In today’s issue, a close look at the distributors who feel decidedly less than enthusiastic about the launch and planned trajectory of ESPN’s new streaming app, which finally debuted today. Plus, we’ve got Julia Alexander taking the new ESPN and Fox One services for a test drive; an excerpt from my chat with Yahoo’s Ryan Spoon; more trouble in the R.S.N. universe; and much, much more.
🎧 Pod alert: College football kicks
off this weekend, so I grabbed top Fox college football analyst Joel Klatt for the upcoming Varsity podcast to bring some clarity to the current chaos in the sport. That episode posts Sunday. Meanwhile, make sure to listen to yesterday’s episode, in which Yahoo Media Group president Ryan Spoon broke the news of the launch of Yahoo
Sports Network, a FAST channel that produces 60 hours of original programming each week. Subscribe to The Varsity here and here.
Okay, let’s get to it… |
Player of
the Week: Jimmy Pitaro
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How much emphasis is ESPN placing on the direct-to-consumer app that launched today?
Well, after ringing the NYSE’s opening bell, ESPN chairman Jimmy Pitaro visited CNBC and said, “We’re approaching our 46th year here, and I would say that this is one of the biggest days at ESPN, if not the biggest.” Indeed, ESPN is banking a lot on its new
$30-a-month streamer as its still very profitable linear business faces a future of inevitable decline. Much more on this below, including Julia’s day-one review. |
Down to the
J.V.: Scott O’Neil
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Judging by the summer crowds in Indianapolis and Chicago, it certainly seemed
like LIV Golf was finally hitting its stride. But then came a story out of Detroit that LIV had pulled press credentials from Bill Hobson, a local reporter, because the league didn’t like the questions he’d asked league broadcaster Pat Perez on a podcast. Back
in January, LIV hired sports business veteran Scott O’Neil as C.E.O. partly to bring the tour into the mainstream. O’Neil has always been one of the most accessible and upfront executives in sports, which makes this misfire all the more disappointing—especially when LIV still needs to shake off its bush league image. |
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- Julia on
the ESPN vs. Fox One split screen: From the moment I opened ESPN’s new, premium streaming service and Fox One’s more bare-bones version—both of which came out today—I could recognize the opposing digital strategies of Bob Iger and Lachlan Murdoch. From a user perspective, the main difference is that the ESPN app feels designed to be interacted with at all times. Using the PGA Tour Championship for my test drive, I found a
customizable multiscreen feature, which allows you to view three different Tour feeds, plus a show of your choice (I went with First Take, but I imagine you could add other live games if they were airing). That’s all pretty standard fare in the YouTube TV era, but things got interesting when I clicked on the main feed and hovered over the interactive elements. Statistics for Tour players conveniently appeared, and live betting odds popped up on the right, alongside a shopping portal and
an opportunity to revisit missed highlights.
In comparison, Fox One was relatively clunky to navigate. But that almost felt like a feature, not a bug. After opening the app and selecting my interests, the typical streaming interface appeared: rows upon rows upon rows. Some were dedicated to live news and specific topics, while others were focused on sports (with options for replays and multiview). In short, it felt less curated and more cobbled together.
Of course,
unlike ESPN, Fox’s goal isn’t to squeeze more out of its subscriber base, but rather to catch anyone interested in watching the NFL on a Sunday who happens to be away from a television. It’s a smart, relatively low-cost, low-effort simulcast feed that won’t lose much money if no one ends up paying for it, but can bring in supplementary revenue while executives determine how much runway they have before cable falls off a cliff. —Julia Alexander -
Pricing the app: At $20 per month, it seems that Fox’s streaming service is carefully priced to avoid cannibalizing the media company’s existing linear business. On his great podcast The Town, Matt Belloni asked Fox One C.E.O. Pete Distad how he came up with that price. “We want to be in a world where we build a sustainable, profitable business here,” Distad replied. “We don’t want to just chase subscriber numbers and then have to increase
prices. Our goal here is to create something that allows us to continue to basically be able to invest in content profitably, regardless of whether the customer is watching on traditional cable or digital… We’re certainly not going to undercut the pricing that we give to our existing distributors.”
Distad continued: “It’d be unfair for us to sell the exact same product for less. The reason we’ve been sitting out of this business for as long as we have is that we want to make sure that we
can enter it profitably and continue to invest in the types of great programming and content that we have.” The whole interview is worth a listen. - How did ESPN get here?: I got to know Ryan Spoon, the president of Yahoo Media Group, back in the mid-2010s, when he was in charge of ESPN’s
nascent digital and social businesses. At the time, he often waxed poetic about the challenges of getting the network’s linear TV execs to think differently about digital and social.
We caught up on the Varsity pod yesterday, where I had the chance to ask him how ESPN’s thinking had evolved to the point where it could launch a direct-to-consumer app.
“When I got to ESPN in 2012, even within digital, there was a different mobile team versus a web team. And both of those were different from content creation and programming, which was different from the studio side,” Ryan explained. “That broke down. It wasn’t instant, and it wasn’t easy, but that broke down to the point where now, content’s content. … There are still nuances to every platform, such as how you schedule, and how you hold the tune-in. But at the end of the day, there’s clearly
awareness that voices are able to traverse all these platforms, if they welcome it, and I think that’s very clearly working at ESPN.” - R.I.P. the glide path?: Last summer, we spilled plenty of ink on Comcast’s carriage battle with Diamond Sports Group, now known as Main Street Sports. Longtime Varsity subscribers will recall the story: Comcast’s Greg Rigdon would not move off the cliff path, thereby relegating the Bally Sports
R.S.N.s to a high-priced digital tier. But Diamond’s David Preschlack advocated a glide path, which would move the R.S.N.s to that tier more gradually. Anyway, the R.S.N.s went dark on Comcast for three months before Diamond reluctantly accepted the cliff path.
Here’s the latest: That deal was only for one year, and the contract needed to be renewed this month. Today, the two sides struck an extension that keeps all the FanDuel Sports Network
channels on Comcast’s Xfinity Ultimate package—with zero talk of a glide path to a better tier. Last week, Ted Leonsis’s Monumental Sports Network in D.C. was forced to accept a cliff path deal to stay on Xfinity systems in the D.M.V. The next one to watch: YES Network, whose Xfinity extension ends after the baseball season. Earlier this spring, YES called on the Trump administration to help it avoid Rigdon’s cliff path. But Comcast’s strategy has been
clear with R.S.N.s across the country, and this could be a flash point in a couple of months. - Remembering Humpy: Humpy Wheeler, the larger-than-life showman who was dubbed the P.T. Barnum of Racing, and one of the executives most responsible for NASCAR’s popularity, and the voice of Tex Dinoco in Pixar’s Cars and Cars 3, died Wednesday at the age of 86.
Wheeler was a beloved and honored figure in
NASCAR circles during his long run as president and G.M. of Charlotte Motor Speedway. He came up with out-of-the-box ideas to bring people to the track for more than just the race—military reenactments, boxing matches, school bus races—and effectively transformed NASCAR races into multiday events. The Athletic’s Jeff Gluck did the
honors.
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When the opening day cheers subside for ESPN’s new streamer, some of
the distributors who helped build the poky cable channel into a sports juggernaut may worry they’ll end up with Venu by another name. |
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The excitement surrounding ESPN’s direct-to-consumer launch was palpable this
morning—from the John Cena promos to the convivial Bob Iger–Jimmy Pitaro joint appearance on CNBC. Of course, in the run-up to launch, Pitaro & Co. had fanned out across the mediasphere to hype ESPN’s streaming future and tout the launch as a wise, forward-looking bet on the network’s ability to retain its sports dominance for decades to come.
And yet, while Bristol executives have been positively gleeful, there was at least one sector of
the business that didn’t share their excitement. Earlier today, I spoke to several distribution executives to assess their thoughts on ESPN’s move. “What’s a stronger word than melancholy?” one executive asked. “Rage? We built this business together, and they’ve slowly been inching away from us to go out on their own.”
Indeed, ESPN has been trying to placate distribution companies by cutting carriage deals that allow bundled subscribers access to the direct-to-consumer app at no added
cost. Charter, DirecTV, Fubo, Hulu, and Verizon have all cut those deals. Comcast and YouTube TV are in the middle of renewal negotiations, and should have deals in place that allow their subscribers access to the app by the end of the year. That leaves Charlie Ergen’s Dish and Sling TV, along with Cox, as the biggest hold-outs.
ESPN executives will point to other ways where they feel like they’ve bent over backward to appease distributors, who still provide billions of
dollars of revenue to ESPN. Look no further than the cost of the app, which is certainly priced high enough that it seems unlikely to cannibalize the cable bundle. Instead, Pitaro has always said that it will target the so-called cord-nevers and cord-cutters—a position that financial analysts largely support. Today on CNBC, BofA Securities analyst Jessica Reif Ehrlich said that ESPN’s launch is “not cutting off the pay TV universe and potentially getting cordless viewers.”
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Still, distributors remain wary. In fact, one of the more frustrating aspects of the
D.T.C. app, to them, is ESPN’s deal to bundle it with Fox One for a discount. Many distribution executives see this as a backdoor move to re-create the failed Venu service, which was scrapped before launch earlier this year amid antitrust concerns and lawsuits. Distributors universally hated the idea of Venu, especially since Disney and Fox hadn’t allowed them the flexibility to offer the same style of skinny bundle.
The ESPN–Fox One bundle, the distributors believe, is essentially the
same business—especially considering ESPN’s NFL deal, which gives it ownership of NFL Network and NFL RedZone, not to mention the likelihood that ESPN will carry MLB.TV’s out-of-market package. “Now, instead of a linear partnership, they’re trying to do this through an app-based delivery partnership? What’s the damn difference,” one distribution executive fumed. “This has almost turned out better for them than Venu, since Venu included Warner Bros. Discovery, which has since lost the
NBA.”
Despite the revelry in Bristol, it would be a mistake to wave away these complaints. After all, the Justice Department is likely to review ESPN’s NFL deal over antitrust concerns, which would provide a forum for distributors to air their grievances. |
Meanwhile, distributors also worry about what happens to them if the ESPN app actually
becomes popular. Right now, ESPN says that it has no interest in having people pay twice for the same content, and an overwhelming percentage of bundled subscribers watch ESPN the old-fashioned way—via a television set. But what happens if these subscribers start sampling the technology more frequently, especially for content that is exclusive to the app, like WWE events? “Are we really just training people how to use the app?” one distribution executive wondered.
Of course,
cable history is rife with examples of networks that gained popularity and, in turn, demanded a lot more money from distributors. A quarter-century ago, ESPN’s affiliate fees increased 20 percent annually, giving the network a war chest to pick up sports rights and helping the entire pay TV business to grow. In 1996, Rupert Murdoch famously paid distributors to carry Fox News. Once the channel developed a loyal following, those same distributors ended up paying Murdoch
to carry the channel.
Underpinning all these emotions, there is also a sense of betrayal. After all, it was distributors that helped grow ESPN, helping transform a welterweight cable channel into a behemoth that’s become a competitor—even if all of this had been foreseeable for ages. And though they collected decades of premiums themselves, part of what rankles these executives is the knowledge that ESPN still needs them in the near term. Not only are the linear cable and
satellite businesses still profitable for the network, but digital revenue comes nowhere close to matching those returns—at least for now. |
On ESPN’s D.T.C. launch: “Linear Dollars will continue to prop up
Streaming Digital Dimes for the next round of linear distribution renewals—hence the need to offer ESPN ‘Unlimited’ to cable bundle customers for free… probably forever. It will be dollars over dimes until current middle schoolers (what Gen is that?) have kids of their own. Cable folks thought the kids that grew up on Nickelodeon and MTV would be cable lifers, which is mostly true. Their kids, though, are anything but, hence the current economic situation.” —A cable guy
On
Xfinity’s world soccer ticket bundle: “The All In Soccer Football Package might not do huge numbers in the States, but it’s a good test case for the wider football media landscape, especially here in the U.K., where fans have to subscribe to so many different platforms. I think a reason for the increase in piracy here is a result of having so many subs. As a huge football and sports fan, I would welcome the all-in-one. I do think this would be good for the wider game in general.” —A
media executive across the pond
On baseball’s labor issues: “I suspect there is potentially more support among players for a cap/floor than Jeff Passan [suggested]. The average annual salary grabs the headlines, and continues to climb, but the median salary peaked in 2017. A floor isn’t the only way to address that—shortening the service time to reach arbitration eligibility and free agency is another, but the owners didn’t budge on that last round.” —A
Varsity subscriber
On Versant’s sports strategy: “Mark Lazarus informed Versant staff that USA’s sports content will merge with Golf Channel as USA Sports. I’m curious if that brand will become the equivalent of the TNT Sports umbrella, which spans beyond TNT to include TruTV and TBS, or if it will become the new home of a rebranded, 24/7 sports network that’s reportedly in the works, which will also include Peacock-exclusive sports content not
available on NBC’s broadcast channel.” —A sports business veteran
On the Great Rebundling: “Last issue, you gave an example of somebody subscribing to HBO Max from within Apple TV. But you can’t actually do that within Apple TV. You can, though, subscribe to HBO Max on Amazon and YouTube.” —A media executive who’s watching the watchers |
Have a great weekend and see you Monday,
John |
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