With other brands like HBO and Showtime launching direct-to-consumer streaming products, millions of sports fans may wonder when powerhouse ESPN will do the same. The simple answer may be, not anytime soon. While a direct product seems a natural evolution for a strong product like ESPN, the question is so easy.
Similar to a quarterback’s dilemma to pass or kick on the 30 yard line, ESPN’s potential move to a direct-to-consumer model would not come without the risk of losing substantial revenue ground that its fought hard to reach.
ESPN enjoys one of the highest per-subscriber fees of any channel in the Pay TV line-up, averaging an estimated $6.60 per household with access to it from cable and satellite distribution partners, plus a national advertising reach of nearly 93 million homes, one of the highest in the industry.
Such strong brand recognition and loyalty suggests ESPN could quickly move out of Pay TV bundles and sell itself directly to consumers, offering access to NFL, NBA, Major League Baseball and other sports leagues through a subscription OTT product. With HBO Now commanding about $15 for it’s stand-alone streaming product, ESPN might fetch twice that rate from an estimated 20 million loyal viewers.
Yet, a win like this is not quite so certain. Such a transition could prove painful for ESPN. To build and scale an audience with a direct subscription model, the most-watched sports network would risk losing existing lucrative channel locations in widely distributed Pay TV packages. ESPN might see significant and immediate spikes and dips in its existing subscriber base while bearing the huge direct marketing costs needed to reach potential subscribers.
Throughout their product life, HBO and Showtime have been premium add-ons where customer turnover known as churn and seasonality are considerable factors, not to mention subscribers who come in and out of the services depending on favorite shows. Similar to this, ESPN could experience seasonal fluctuations as a stand-alone service, which have been greatly smoothed out by its current position as a basic network, widely available as part of a much broader package of channels.
The money gets even more complicated for ESPN when advertising revenues are considered. As a popular network with solid ratings, ESPN is able to sell advertising at a very profitable rate. If it becomes a stand-alone subscription service, users may object to any advertising at all since they would be paying a hefty monthly subscription fee for the service. Some ads might be tolerated if consumers see it as a way to keep subscription costs low, but it’s not likely ESPN could advertise as it currently does, or keep it’s advertising rates where they are.
The other issue for ESPN is scale and operation. With Pay TV distributors handling delivery and customer service issues, the sports network would have to deal with direct customer interactions (both sales and service issues) plus the delivery backbone necessary for OTT. While the technical aspects of streaming delivery are improving all the time, it’s not a perfect world. Picture degradation is a common complaint, as are buffing and freezing issues. While these technical issues are annoying when watching a movie or series, these interruptions can be intolerable for a fast-paced sporting event. Miss a few seconds, and the game is over. Except for the irate customer calls.
While there are some examples of successful streaming sports events, including the solid MLB technology, it is something ESPN would have to consider. Millions of customers would come in an out many times each day, especially during big events. Streaming architecture must adequately support these user fluctuations and balance delivery loads.
Disney CEO and Chairman Bob Iger recently assured shareholders that ESPN will no launch a direct-to-consumer streaming product any time soon. While there is a solid case for considering this in the future, and perhaps taking some small steps in that direction, the overall risk, even for a well-established network like ESPN, is considerable.
Still, with more homes streaming content as part of their overall entertainment behavior, even a proven winner like ESPN must give careful thought to it’s future while not jeopardizing it’s very successful present. Like any good coach, the leadership at ESPN has to keep its eye on development to meet future needs, even as they prepare for today’s game.
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