Disney CEO Bob Iger was interviewed on CNBC’s “Squawk Box” this morning (see below embed) and offered a surprising long-term vision for ESPN, saying, “Eventually, ESPN becomes a business that is sold directly to the consumer, where there’s an engagement that ESPN will know who their consumers are, will use that information to customize the product to enable personalization, to engage more effectively and offer advertisers more value as well. That’s longer-term. I think there’s an inevitability to that, but I don’t think it’s right around the corner.”
It was the first time that I’ve heard Iger articulate so clearly how he sees ESPN’s future unfolding. Iger made the comments in the context of describing the huge distribution, promotion and consumption changes roiling the media landscape. Iger observed that despite a fall-off in pay-TV subscriptions, he doesn’t see the ecosystem changing significantly in the next 5 years, and that it was impossible for anyone predict with conviction how the media world will look 10 years from now.
Iger also noted that ESPN is number one in sports television and said that 83% of U.S. multichannel households tuned into ESPN at one time or another in Q1 ’15. He also emphasized ESPN’s broad rights to televise live sports and the technology investments to improve the on-air experience and reach consumers digitally position it well.
Still, Iger was quite candid with CNBC’s interviewers in acknowledging how the world is changing. And that’s evident in ESPN’s push to cut costs, as ESPN is doing with talent, most prominently reflected in the recent departures of Bill Simmons, Keith Olbermann and Colin Cowherd. It’s also facing pushback by operators who themselves are trying to contain subscriber fees that are heavily driven by increasing sports’ network costs (Verizon’s introduction of Custom TV, which puts ESPN on an optional sports tier is the best example of this. And of course ESPN is suing over it).
I’ve been writing about the diminishing relative value of pay-TV for entertainment-only viewers for a long time, given the proliferation of inexpensive entertainment-centric OTT services (e.g. Netflix, Hulu, HBO Now, Showtime, etc.). There is no doubt this is causing many of these viewers to question their $100+ monthly pay-TV bill. All of that is bad news for ESPN and other expensive sports networks which have benefited dramatically from having virtually all pay-TV subscribers pay for them whether they watch any sports or not.
Despite all of this, I agree with Iger that it’s hard to see ESPN doing anything dramatic, like going direct to consumer, within the next 5 years. ESPN has long-term carriage deals with pay-TV operators, which provide a safety net. Still, those deal renewals will be heavily influenced by broader changes unfolding in the video landscape. Iger is right that it’s impossible to predict 10 years out, but all the trends do seem to suggest that ESPN will be standalone at some point down the road.