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The death of cable television in the US has been reported with such frequency over such an extended period of time that it’s perhaps no surprise that some headline writers felt like putting it out of its misery this past week.
The general consensus is that live sport is the only thing keeping the traditional bundle together amid intense competition from streaming services. And with NBC, CBS and, soon, Warner Bros Discovery (WBD) simulcasting their sports coverage on their DTC platforms, ESPN and Fox Sports are seen as the guardians.
So when Disney pulled ESPN from Charter Communications’ 14.7 million Spectrum TV subscribers, there were plenty of observers eager to draft cable’s epitaph. But, to paraphrase Mark Twain, reports of cable’s death have been greatly exaggerated.
Eventually, all sides got what they wanted. ESPN is getting more revenue per subscriber, boosting its coffers as it prepares to renew key contracts with the National Basketball Association (NBA) and College Football Playoff (CFP), while Charter has secured ad-supported access to ESPN and Disney+. Viewers who might have been chagrined at missing out on the US Open tennis finals and the first weekend of the college football season were still able to watch the first Monday night game of the new National Football League (NFL) season.
Daniil Medvedev can’t watch the US Open because his hotel has Spectrum:
— The Tennis Letter (@TheTennisLetter) September 5, 2023
“A lot of hotels have Spectrum. So I can’t watch on TV anymore. I don’t know if it’s illegal, but I have to find a way. Probably pirate websites.. I have no other choice” 😂 pic.twitter.com/UUQ6b5FLmI
Life carries on as normal but the dispute has undermined some conventional wisdom in the broadcast industry.
The first is that it would be Disney to decide when to call time on the bundle. ESPN’s ability to extract high carriage fees from providers mean cable is a more lucrative business for Disney than streaming, which requires a critical mass to be profitable and incurs additional costs. Until the economics make sense, ESPN plans to continue its hybrid model and dictate its own timeline for a full DTC version of ESPN – which could launch in 2025 or 2026.
In effect, pay-TV providers are paying significant sums to a company that is using the proceeds to develop an existential threat to their business. However, Disney is banking on the fact that ESPN is just too important for the cable companies to go without and that any provider that didn’t have its flagship sports network wouldn’t survive to see the bundle die out.
When Charter played hardball, Disney pushed out a statement claiming its channels accounted for more than half of the most-viewed broadcasts in Charter homes in the past year and that 71 per cent of subscribers tuned into its services in a given month. Surely its channels were too important for Charter to hold out for too long?
But Charter also knows the writing is on the wall when it comes to the bundle. It already offers a cable package without live sport in a bid to reduce churn and believes its future might be as a high-speed broadband provider that aggregates content for cord cutters. In many ways it had less to lose than Disney, and its willingness to dig its heels in has secured additional concessions that will help futureproof its business.
Its footprint of 14.7 million homes – many in major markets like New York and Los Angeles – was also a factor. That’s a significant proportion of the 72.5 million households that ESPN is available in and that’s a lot of subscription income to lose out on.
Nearly 15m homes lost access to major sporting events when Disney’s channels went dark on Spectrum
What if affected households decided they would swap cable for ESPN+ or even ditch ESPN altogether? The loss of valuable cable income at this moment in time would have placed considerable strain on ESPN’s carefully orchestrated migration from linear to streaming.
ESPN still has plenty of things in its favour when it comes to a full DTC strategy. It has significant brand awareness, an attractive rights portfolio, and an existing – albeit plateauing – direct-to-consumer (DTC) service that promises a solid customer base and technological foundation to build on. But the need to balance a successful but endangered legacy business with an all-streaming future is an increasingly difficult task.
Cable companies that were expected to fall in line ahead of the great migration are proving tricky negotiators, perhaps recognising their reach remains a hugely valuable asset and sensing an opportunity to gain valuable concessions.
ESPN’s migration to DTC is one of the most significant developments the sports industry must contend with in the next few years. This dispute shows why it will also be one of the most complex.
The bundle isn’t dead and lives to fight another day. But it might yet unravel before ESPN believes it’s time.
Streaming-native commercial distribution will save the sports bar
I love watching sport in the pub. I’m not talking about appointment-to-view events like the Premier League or NFL, but something that just happens to be on the big screen just because the venue has a TV on out of habit and can’t be bothered to change the channel from ESPN, Eurosport or Sky Sports Main Event. I’m talking a late-season dead rubber baseball game, a US Open third round clash, or a random snooker matchup.
Streaming is a threat to this simple joy because it requires venues to have a relevant subscription, the necessary infrastructure to show it, and a member of staff to deliberately choose a sporting event. While I might ask the pub to put on a rugby match I intend to watch in its entirety, I’m less inclined to ask for them to put on a Bundesliga game for 20 minutes while I finish my pint.
Major properties going OTT creates potential hurdles for commercial premises offering live sport
Commercial premises have a lot more to think about when a major property goes over-the-top (OTT) than a consumer does, as upgrading internet connectivity is a much more challenging task than installing a new satellite dish.
When Amazon first secured 20 Premier League matches in the UK – many of which would be shown concurrently – it partnered with BT Sport, which had pre-existing relationships with pubs and clubs, to distribute the games using existing hardware. This eliminated upfront costs and the risk of an internet connection failing during a crucial part of a game.
The tech giant did something similar in the US when it became the home of the NFL’s Thursday night games. It partnered with satellite television platform DirecTV, which has a network of more than 300,000 sports bars, restaurants, and other public venues in the US thanks to its previous role as the home of NFL Sunday Ticket. In Germany, DAZN created two linear channels for pay-TV platforms to avoid similar pitfalls.
But even for venues that have a sufficient broadband connection, many don’t have the bandwidth necessary to support large numbers of concurrent events. The NFL, which sees streaming as an increasingly important part of its programming mix, recognised this and established EverPass Media with RedBird Capital Partners.
EverPass has signed a deal that allows DirecTV to remain a commercial distributor of Sunday Ticket, allowing existing customers to continue showing games without significant infrastructure upgrades. But EverPass is also able to sell subscriptions directly, while it has also partnered with NBC’s Peacock to bring the Premier League, Big Ten college football, and an exclusive NFL playoff game to public venues across the US.
Given the upheaval in the RSN space, the rise of new DTC platforms, and the NBA’s reported plans to sell a package to a streamer in its next rights cycle, digitally-native commercial solutions will be crucial.
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