A nor’easter has descended on ESPN headquarters one wintry day in March, and the outside world in Bristol, Conn., is still trying to dig itself out from under the snowstorm just hours prior. Nearly a foot of snow has fallen in some parts of the state, complicating commutes for the local workforce. But business continues apace at the 123-acre campus of the self-proclaimed “Worldwide Leader in Sports.” Heated tiles embedded in one of the bigger plazas have melted away the wet stuff. Inside, staffers are crisscrossing a vast room that features a TV-monitor bank made to look like a basketball scoreboard, ready to cut hours of video into highlights. Elsewhere at the facility, the usual broadcasts of “SportsCenter” go off without a hitch.
ESPN has weathered any number of tempests in its nearly 40 years. But the perfect storm brewing in Bristol these days is bigger than any that Disney’s most valuable asset has ever faced. The network’s newly installed president, Jimmy Pitaro, will be put to the test immediately in April with the launch of an app, ESPN+, that will charge fans a monthly fee for even more events coverage.
ESPN+ is an acknowledgment that the game has changed for sports broadcasters. “We have to challenge ourselves on how we maintain relevance and connection at every point along the way, so that the ESPN brand continues to mean something special,” says Justin Connolly, executive vice president of affiliate sales and marketing for Disney/ESPN Media Networks.
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The app is a gambit aimed at securing the future for ESPN at a time when its present couldn’t seem more precarious. Its core business — its cable networks — is expected to shed 14 million subscribers between 2010 and the end of 2018. After refashioning and expanding its flagship franchise, “SportsCenter,” ESPN sparked pushback with a version that fans found too opinionated. Viewership of mainstay program “Monday Night Football” has declined, and the relationship between ESPN and the NFL is looking shaky. Multiple layoffs in recent years reflect the network’s challenging economics. But it may have to ramp up its spending for sports rights: Digital powerhouses like Amazon, Facebook and YouTube are nudging closer to doing significant deals with pro leagues to stream games on their own platforms. Meanwhile, rivals from CBS to Barstool Sports are moving aggressively to seize the moment to capitalize on ESPN’s vulnerability.
“Leaders are always criticized, but ESPN has proven skeptics wrong for 38 years, and we will again,” Pitaro says.
Disney spends piles of cash on ESPN every year — one 2016 estimate has the company paying out $7.3 billion annually for sports rights alone. Yet with viewers being offered additional video choices and setting up new behaviors to watch baseball, football and other sports, money alone won’t solve the problem. “How many more subscribers go away?” asks George Pyne, founder of the investment firm Bruin Sports Capital and a former president of IMG Sports and Entertainment. “How much is that going to change as you switch from linear to direct-to-consumer in the next 10 years?”
ESPN’s path forward wasn’t always so thorny. Founded in 1979 by Bill Rasmussen, a New England Whalers executive intrigued by the idea of broadcasting Connecticut sports, the network and its signature “SportsCenter” drew the interest of Getty Oil, Anheuser-Busch and the NCAA. It was snapped up by ABC in 1984 and eventually became one of the main financial engines of the Walt Disney Co., which assumed a controlling stake in the operation when it bought Capital Cities/ABC in 1996.
Executives had reason to crow as recently as 2010. ESPN had snared its biggest base yet, reaching a peak of 100 million subscribers. “MNF,” the seminal TV show it took over from ABC in 2006, reached more than 14.6 million viewers — the most-viewed season during ESPN’s tenure.
Eight years later, however, the sports-media titan is grappling with severe challenges. To be sure, the service remains America’s dominant TV source in the genre: In 2017, ESPN and ABC programming accounted for 33% of American sports viewing, according to Brian Wieser, a media-industry analyst with Pivotal Research Group. By comparison, Fox accounted for 21%; NBCU, 16%; CBS, 12%; and Time Warner, 5%.
But the average viewership for the most recent “MNF” season fell 6% from the previous season, according to Nielsen, to about 10.8 million. Cord-cutters continue to leave ESPN’s traditional distributor base, and Kagan, a market-research firm, predicts ESPN’s cable and satellite customers will fall to 85.6 million by the end of the year. That would represent a more than 14% drop since 2010.
Some of those losses have been offset by steep growth in the enormous affiliate fees that ESPN Demands. According to Kagan estimates, the service last year averaged a monthly fee of $7.86 per subscriber — more than three times as much as the next-most-lucrative channel, TNT. That fee is expected to rise to $8.14 in 2018.
Enter ESPN+, a doubling if not tripling down on what executives say is the network’s core mission: delivering live sports to rabid fans. ESPN showed at least 16,000 hours of live events in 2017 and 65,000 hours of live TV. The new service will layer on top of that programming unavailable anywhere else, such as a show in which Kobe Bryant offers quick analysis of a recent basketball game. ESPN hopes to draw $4.99 a month from either existing subscribers who want everything it has to offer or die-hard fans of niche sports who can’t survive without a connection to their favorite team or game.
Transforming the company from linear-TV kingpin to a direct-to-consumer digital outlet will not come easily. ESPN needs to create a “compelling product,” says Wieser, “without harming existing distributors and without incurring costs for content and customer servicing that could make it unprofitable.”
There are other distractions. ESPN has in recent months become as famous for drama as it is for sports.
Sundry ESPN personalities have set off controversies with their pointed remarks on Twitter. The ongoing revamp of “SportsCenter” sparked more viewer resistance than executives anticipated. Jemele Hill and Michael Smith had planned to lead an opinion-heavy version of the programming warhorse at 6 p.m. Hill’s decision to call out President Trump on Twitter last year put the show and the network under intense scrutiny. Both have left “SportsCenter” for other duties within ESPN.
“One of their biggest issues is going to be how to survive and thrive without this personality-driven programming model that has got them to this point,” says Windy Dees, a sports administration professor at the University of Miami. “The other issue is that everybody wants their 24/7 sports news as it happens. So how are they going to drive people to watch these news shows when everyone is getting their news all day on social and mobile?”
ESPN is likely to continue tinkering with voice and tone. “I think authority mixed with personality is a really good thing,” says Connor Schell, the network’s exec VP of content. Today, sports touches on politics, race, class and more, and on-air staff can’t ignore that. “We try to be as thoughtful as we can about where those boundaries are,” Schell says. “That’s complicated.”
Indeed. ESPN is set to launch a morning show, “Get Up,” in a specially designed studio at Manhattan’s South Street Seaport. Mike Greenberg, Michelle Beadle and Jalen Rose, three of the network’s most colorful personalities, will host. “We need to remember we have to hew to sports,” says Bill Wolff, who will executive produce the show. “We can’t indulge all of our craziest ideas.”
All of these changes were put in place under John Skipper, who stepped down from his post late last year, citing substance-abuse issues. He recently acknowledged he had a problem with cocaine and had been threatened with extortion by someone from whom he bought the drug. “It was shocking,” says Schell of the exit.
Skipper was replaced last month by Pitaro, who previously ran Disney’s consumer products and interactive media division. He has experience in sports content from a nine-year stint in various lead roles at Yahoo Sports ending in 2010. Pitaro had his first town hall with Bristol employees on March 14. He has many issues to confront, including the fact that a recent reorganization of Disney means some critical parts of the operation will not be under his aegis. Kevin Mayer will supervise not only ESPN’s ad sales but streaming projects like ESPN+. An ESPN spokesman says Pitaro will retain influence on these operations and will be regularly engaging with these teams.
Rivals smell blood in the water. CBS has launched a stats, news and highlights broadband outlet — CBS Sports HQ — no doubt aware it did so just weeks before ESPN’s new service debuts. “I’m a big sports fan. I’m turning on ESPN a lot and I’m seeing people yelling at each other. I want to see whether the Dodgers or the Yankees won last night. And often, it takes 20 minutes to get that,” said Leslie Moonves, CBS Corp.’s chairman and CEO, while describing the venture to investors last year. “On our sports network, you won’t have to wait 20 minutes.”
Barstool Sports, the raunchy digital start-up, tried to strike a programming alliance last year with ESPN, only to find the more traditional company was uncomfortable with its content. “ESPN needed us more than we needed them,” said Barstool founder Dave Portnoy after the split.
Even die-hard supporters can’t ignore the many trials ESPN will have to pass to succeed in a new era. “They are still the behemoth,” says David Carter, executive director of the Sports Business Institute at the University of Southern California’s Marshall School of Business, but “this confluence of events has not been great.”
“One of their biggest issues is going to be how to survive and thrive without this personality-driven programming model that has got them to this point.”
Windy Dees, Univ. of Miami
In a facility tucked beneath 23 white satellite dishes on its corporate campus, ESPN is working hard to nix the naysayers.
Aaron LaBerge’s team has spent hours making sure every pixel on ESPN+ is put to its best use, no matter whether the app shows up on Apple TV, a smartphone or Roku. Having the app in place gives ESPN a chance to get ahead of what LaBerge, its chief technology officer, describes as a significant turn in its customer base.
“The shift to mobile has been staggering,” he says. “Our job is to make sure you understand this isn’t your father’s ESPN.”
ESPN wants current devotees to spend more money on the service. With the four major pro sports leagues all featuring dedicated channels that provide a flood of content, it has turned its attention to luring aficionados of niche sports. What if alumni of the University of Louisiana at Lafayette could get broader access to Ragin’ Cajun games? ESPN recently struck a deal with the Sun Belt Conference to show more of its sports across more platforms through the 2027-28 academic year. Have a hankering for Chicago Fire soccer? ESPN recently snatched away rights for the team’s non-national games from a regional NBC Sports network. Now the matchups will be available only on ESPN+.
If ESPN plays things right, it will be able to grow some of these events into bigger draws. International sports like rugby and cricket could also make for potential showcases. “Some of the biggest events in those sports are already pay-per-view propositions in this country,” says Burke Magnus, executive vice president of programming and scheduling, who supervises ESPN’s quest to secure sports rights. “We know there is an installed base of fans that have already demonstrated their willingness to pay for that content.”
One reason for confidence in the new service is that it’s being provided with technology from BAMTech, a pioneer in developing streaming-video services. Developed under the aegis of Major League Baseball, BAMTech was intimately involved in building HBO Now for Time Warner and has a reputation for delivering millions of individual video streams largely glitch-free. Disney already controlled one-third of the venture, but in 2017 accelerated an agreement it had to buy a controlling interest by 2020, spending $1.58 billion to buy another 42% stake.
Another Disney acquisition that could prove transformative to ESPN: the 22 regional sports networks owned by 21st Century Fox that are expected to be part of the $52.4 billion in assets Rupert Murdoch will be handing over to Walt Disney chief Bob Iger. As important as the RSNs themselves is their ability to give Disney and ESPN more heft in negotiations with cable and satellite distributors.
And the company has put a great deal of effort into getting Madison Avenue to come along for the ride. About four years ago, ESPN began working to watermark its content, or add elements that allowed a program to be tracked no matter the venue on which it ran. The result: Last year, ESPN began providing Nielsen-backed ratings for live traditional TV viewing and live streaming in a single number. What’s more, about half the company’s advertiser base has agreed to pay for “out-of-home” viewers — people who see ESPN content in bars, hotel rooms, airports and friends’ homes.
“We are not spending our time admiring the problem of Nielsen not measuring the right people or the right way,” says Ed Erhardt, ESPN’s president of global sales and marketing. “We have been aggressive about working with Nielsen and others to understand where the audience is and how they are consuming.”
As it prepares for an increasingly mobile audience base, ESPN doesn’t want to forget about pay TV. It can’t. According to Kagan, ESPN and ESPN2 will throw off almost $9.5 billion in subscriber fees from cable and satellite distributors in 2018 and nearly $2.6 billion in ad revenue.
Disney struck a new distribution contract with Northeast cable operator Altice last fall that Connolly, the executive who oversees those relationships, says is “in some ways the template for the types of deals we will do.” Under the terms of the pact, Altice will launch the ACC Network, which shows Atlantic Coast Conference games, and help sell ESPN+ to its own subscribers. ESPN, says Connolly, is willing to reconsider the package of networks it asks distributors to carry. “ESPN Classic is less important to us today than it has been in the past,” he notes. He holds out hope that people who interact with its apps, social-media programming and other new-tech perches will find their way to pay-TV down the road.
Until then, LaBerge and his team are busy concocting alternative kinds of next-gen experiences to entice audiences, including a virtual-reality interface for internal use that allows producers to wander around the interior of the new “Get Up” studio. ESPN has even configured its Apple TV app so that a viewer can watch four ESPN programs — some via on demand — at a time. Eventually, he says, fans will likely be able to use the interface to choose among various feeds of a game, and put many of them on-screen at once. “That dynamic is certainly something we are experimenting with,” he says. “That will happen.”
No one disputes the network’s ability to devise a great sports-viewing experience. Executives have been doing it for nearly four decades. In the future, however, the company will have less control, not more, over the people it needs to watch what it has built. And the costs of several of its main attractions are bound to increase. What happens if one of the digital giants snatches up valuable sports properties — or bids up their costs?
ESPN has proved it can survive many a storm. But the coming turbulence will be unlike anything the company has ever seen.