ESPN and Future Revenue Models

Very interesting and informative article on ESPN and how they operate. The purpose of the article is to show how ESPN is the current commanding factor in cable rights and cable sports and how that might change or stay the same is the shifting technological future. But as good as the article is - some important considerations slip through the cracks.

Early in the article they mention Aereo but only as an excuse to get in a few quotes from Barry Diller. Later in the article they mention that 898,000 consumers have fled the pay TV market but they don't explain that even with declining TV subscribers many of the big cable operators are still raking in cash because of the bonanza that is broadband. The article mentions ESPN3 but just as a throw away sentence in how "warehousing" is being handled.

What was not mentioned is how ESPN/Disney has already been way out front of competitors when it comes to broadband channels. Currently they have ABC News Broadband, Disney Connection, ESPN3, and SOAP Net. Those 4 channels can be purchased as a package for roughly $.50 per broadband subscriber but any broadband provider who wants to carry ESPN/Disney channels going forward MUST carry ESPN3 which at about $.20 per broadband subscriber is more than what ViaCom charges for Comedy Central as a standard cable channel. Think about that for a minute.

Many people look at the HBO Go product as a model going forward. HBO has insisted that HBO Go will only be available to subscribers from a traditional cable MSO or satellite provider. But what if that changes? Suddenly HBO has a product that is as attractive as Netflix or Amazon Prime or Hulu or the "cord-cutters". It could be a market that gets too rich for HBO to ignore under loyalty to the old model.

Same might be true for ESPN/Disney. Currently their broadband channels are only available through providers carrying their channel packages but what if once the dust settles with Aereo -  ESPN / Disney allows them to build ABC News Broadband, Disney Connection, ESPN3, and SOAP Net into their basic product offering for $.50 per subscriber? Small drop in the bucket when it comes to overall revenues but money is money. What if they enhanced that package by offering ESPN, ESPN2 and ESPNU for $10 per month? Suddenly we are talking different magnitudes of revenue.

The future will allow for many changes to today's TV model. The cable company may soon be just a "dumb pipe" provider and when that happens ESPN /Disney will be prepared.

They already are.

NBC Lands NASCAR

Some good details on what went into NBC landing NASCAR rights away from ESPN and Turner.

It should be noted that if ESPN did bid for the rights then according to the article NASCAR would have been looking for a 30 percent bump over the $270 million per year they are paying currently. That would have been $351 million per year or $3.5 billion over the 10-year life of the new contract. NBC will be paying $4.4 billion. What will NBC be getting for that extra $89 million per year?

Well for starters they also get the 6 races per year that Turner was carrying. You could look at it that NBC payed just $15 million per race per year for those races which isn't a bad deal but maybe more important is all the extra stuff that was included in the deal by NASCAR. NBC will be getting the following programming - most of which I expect will be broadcast on the NBC Sports Network:

- NASCAR practice and qualifying sessions
- The K and N Series
- The Whelen Modified Tour
- The Toyota (Mexico) Series
- The Hall of Fame Induction ceremony
- The end of year awards banquets

That's a lot of programming for the NBC Sports Network. When you couple that programming at night with NHL hockey games plus the Dan Patrick Show in the morning - all of a sudden the NBC Sports Network becomes a very attractive channel for the average sports fan (especially any with even cursory NASCAR or NHL interests).

This was a good deal for NBC and positions the NBC Sports Network channel very well in case a la carte programming becomes a reality.

The Future of Content

Many people keep talking about people like Apple, Google, Amazon or Intel changing the current dynamics of content distribution and affiliate rights but they always seem to overlook something that may have a much more immediate tangible effect of "must carry" channel packaging - Canada a la carte TV.

If a la carte works in Canada - there would be no argument about it being able to work in the US. What will be interesting to watch is what direction programmers take. I would expect ABC/Disney to charge more for an un-bundled ESPN (and maybe for ESPN2 - say $5 and $1 respectively) but would they increase pricing for the lesser channels? Would they charge more for ESPNU hoping college sports enthusiasts would pony up or would they discount it to try and rope in the casual sports fans?

And if un-bundled a la carte pricing came into being - then that's really where the billing and streaming capabilities of an Apple iTunes or an Amazon Prime could really shine. There are so many possibilities. Maybe cable rules don't apply to over the top streaming so even if cable has to un-bundle maybe ESPN makes a deal with Apple to have monthly subscriptions to all the ESPN channels for $10 a month. That deal would actually have more gross margin for ABC/Disney than their existing affiliate rights agreements.

Many naysayers predict consumers actually paying more for content if a la carte came into being. I don't see how that's possible. A la carte will lead to more competition among content producers and more options of content delivery for subscribers.

Watching MNF on an iPhone

Peter Kafka had an interesting article about not being able to watch Monday Night Football at his home with his iPhone. I had a couple thoughts and comments about his dilemma which I'm sure is shared by many.

First - being able to watch something on your iPad but not on your iPhone while using your home WiFi is probably an encryption / conditional access / DRM issue. The cable company with any sort of TV Everywhere probably treats your PC, laptop or tablet device the same as a set top box. A cell device is probably a little more tricky.

Second - since it was the Watch ESPN app which should have allowed mobile devices like the iPhone - I have to wonder who Peter had his cell service with. If Verizon has an exclusive on NFL mobile rights then that may extend to the handset. I doubt this is the case but it was the first thing that popped into my head. Maybe iPhones are the exception to cross carrier availability?

Anyway - my two cents on the matter.

Google Fiber's Missing Channels

I've seen a number of articles about Google Fiber in Kansas City commenting on the channels their TV package seems to be missing. What I have not seen is a good explanation of why those specific channels seem to be excluded from the line-up.

I think I can explain. The noticeable missing content seems to be from ABC/Disney (including the ESPN channels), Turner (TBS, TNT, CNN, etc) and HBO. What these three companies have in common is they traditionally do not allow their content to be transported via fiber. If Google wanted to add the channels by pulling them down via satellite then those channels would probably already be secured. But the name of the company is Google Fiber not Google Satellite.

In my opinion this has little to do with the cost of the content - consider that HBO is premium content that only the subscribers who want it would be paying for it. This has to do with business models - both Google's and the content providers.  How subscribers access over the top portals like HBO Go or ESPN3 is probably one of the key sticking points. I'm also guessing that none of the three content providers are very excited about re-doing any existing most-favored agreements to satisfy Google.

It will be interesting to see how this is resolved.