That is not to say there aren’t storm clouds on the horizon. Dish Network’s current carriage deal with ESPN is set to expire at the end of this year, and given the tenor of the satellite TV provider’s recent wranglings with AMC Networks and its decision to pull the plug on SNY, the home of the New York Mets, a friction-free renewal is far from guaranteed. And frankly, no programmer wants to spur any undue scrutiny on that front.
Last month, National Cable & Telecommunications Association president Michael Powell warned programmers that the escalation of sports rights packages (ESPN’s eight-year extension with the NFL will cost $1.9 billion per season, a 63 percent increase from the previous payout) could lead to the implosion of the cable model and attract the unwanted intervention of the federal government.
For his part, Skipper sees the sports debate as largely muddied by misinformation. “There clearly is a lot in the atmosphere about sports right costs and what that means for distributors and consumers, but you really have to separate us from the regional sports nets,” he says. “Nobody is really complaining about us. Never a peep was heard when we did our deals, because the operators understand that we bring the most value.”
While the allure of local sports franchises in major markets has made the RSN model one of the most enviable in media, there is a significant shortfall between what a regional network can deliver and the sort of audience ESPN can whip up on even a slow night. Per Nielsen, the top-rated YES Network in 2012 averaged 68,000 households per night in the New York DMA, while Yankees telecasts drew 290,000. In the same period, ESPN averaged 1.75 million HHs, or roughly 26 times YES Net’s prime-time deliveries. And while there’s an obvious disparity in distribution, YES Net still commands a princely carriage fee of nearly $3 per sub per month.
“ESPN’s average-minute audience is greater than all—it’s double that of all the RSNs combined, every single one of them,” Skipper says. “And that needs to be kept in perspective if people want to talk about what we receive from distributors versus what they receive.”
NOT PHONING IT IN
Though no one could have guessed that this would be the case back in 2006, mobile now stands as ESPN’s fastest-growing segment. Per Nielsen, the company last year ranked No. 1 in unique visitors (13.3 million) and total minutes (642 million) in the sports category across the mobile Web and apps. Moreover, ESPN.com dominates the mobile sports space with a 33 percent share of minutes, triple that of its closest competitor. And yet for all that, an early experiment in the wireless space was anything but promising.
Launched with much fanfare during Super Bowl XL in 2006, Mobile ESPN was billed as a unique way for sports fans to access real-time scores and news in the pre-smartphone era. All consumers had to do was plunk down $399 for a specially branded, black-and-red phone (a onetime fee that did not include a monthly service charge), and they got a direct line to Bristol. The trouble was, there were two significant flaws in ESPN’s business model. For one thing, the pricing was all out of whack for what amounted to a flip phone on human growth hormone. More importantly, much of the allure of the service depended upon inflexible number-portability regulations, which were legislated out of existence just three months before ESPN rolled out the mobile service.
“Our business plan called for us to take a certain percentage of the people who moved every month and sell them an expensive phone,” Skipper recalls. “As soon as number portability went in, the phone companies went nuclear with retention programs that included free phones, and so there went our business plan.” All told, a mere 30,000 subscribers signed up for Mobile ESPN. Shortly before ESPN shuttered the service on Dec. 31, 2006, Walt Disney Co. CEO Bob Iger said the company’s investment in the service amounted to $150 million.
Despite the loss, no one was hurled under the bus, least of all Skipper. Besides, the initial outlay gave rise to the company’s current mobile suite. “One of the bigger advantages is that our company has always invested,” says John Kosner, evp, ESPN digital and print media. “They invested when the bubble burst in 2001 and they invested when the economy went totally south in ’08 and ’09. They invested in the creation of the ESPN phone, which, however misguided this little hardware opportunity was, the investment in the software we benefit from today.”
Skipper says it was worth taking a big swing because the initial foray into mobile helped Bristol prepare for the smartphone revolution. “We took a chance … and cut our losses pretty quick. People lose the most money being stubborn,” he says. “But we did learn the business. We learned how to create content on a phone and we used that expertise to have the share we have now. It’s our highest share, north of 50 percent, because those same people we brought in-house to create the phone now create the content. So it’s a weird way to have gone about it, but we now generate significant revenue and operating profits on our mobile platforms.”
As Kosner puts it, the guiding principle behind ESPN’s mobile development is a constant recalibration of how best to serve up content to the nation’s restless army of sports fanatics. “There’s some serendipity to it. You realize that there are these periods of time where audiences are available for a media experience that simply did not exist in the past,” he says. “I’ve worked for John Skipper since 2000, and the idea of the going after something new, something you didn’t expect, is very motivating. And I think the fans respond to that as well.”