It didn’t take long after the first week of football blackouts on YouTube TV for sports fans to develop a conspiratorial bent.
“ESPN is trying to make us think this is YouTube TV’s fault, when really they’re just trying to add new subscribers to their new standalone DTC app,” a now-viral post from the X account @JoshOnAir reads. “Unbelievable. Don’t fall for it people. ESPN/Disney are the worst.”
@JoshOnAir’s sentiment was parroted in a handful of viral posts that only seemed to gain momentum over the weekend as consumers missed three days of college and pro football on ESPN networks. The frustration was easy to understand: Sports fans were missing out despite their role as dutiful paying customers, while the lawsuits at YouTube TV and Disney were negotiating sickles in a stalemate with no end date in sight.
It wasn’t long before the arguments crossed familiar political lines: greedy corporations exploiting the common man, profits stolen with little concern for consumers, and the continued displacement of yet another valued institution.
But there was a problem. These arguments were largely… false. The standoff between ESPN and YouTube TV wasn’t about ESPN’s efforts to achieve that to delete itself of cable TV, but on ESPN’s still significant desire to do so to stay on cable. The network had an uncomfortable secret about its activities, and the showdown with YouTube TV offered a glimpse behind the scenes.
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More than any show or talking head, ESPN’s success can be traced back to one holy grail: for every viewer who tunes in, ESPN gets paid twice.
First, advertisers pay ESPN for the right to air commercials, and second, cable providers pay ESPN for the right to air the network. This second payment is called a “carriage fee” and amounts to approximately $10 per subscriber per month – a huge coup that is responsible for much of ESPN’s profitability over the past thirty years.
Carriage fees are managed on a contractual basis and must be renegotiated every few years, which has led to the current standoff between YouTube and ESPN. According to to YouTube TVESPN is asking too much of the next wave of carrying fees, while YouTube TV wants a better rate than any of its cable TV counterparts, according to ESPN.
As with most corporate disputes, the truth lies somewhere in between, and is overshadowed by a much larger reality: the cable TV model is collapsing. Today, cord-cutting has made the cable industry resemble the newspaper industry of thirty years ago: still profitable, but steadily losing ground. According to the latest estimates, standard pay TV bundles are being placed in the market 65 million homescompared to more than 105 million in 2010.
For ESPN, the downside of that shift is potentially catastrophic. The network has been forced into a corner: either increase the cost of carriage fees, in line with the decline in cable customers, or find a way to get that money back directly from consumers.
That rock hard spot leads us in Today rock-and-hard-place: where ESPN has launched its own direct-to-consumer app that allows sports fans to pay $30 a month for an access pass to the network, and where a feud with YouTube TV over higher transportation costs has come to light.
If you find yourself thinking, Doesn’t this feud help ESPN launch its new product, hastening the eventual demise of cable TV? Well, you’d be right. Except for one important point: ESPN doesn’t do that want to its customers are fleeing cable TV for a $30-a-month app. In an interview about Peter Kafka’s brilliant Channels podcast last month, ESPN CEO Jimmy Pitaro clearly explained the problem.
“If you contact us directly, the biggest problem we will have is churn,” Pitaro said. “If you go back to the [cable] ecosystem, you don’t really have a churn problem. I can easily enable or disable a streaming service. I do it all the time. It is much more difficult for me to do it via cable.”
Pitaro’s point? Every cable subscriber lost to the ESPN DTC app represents a high-risk exit. The goal is to slowly grow the DTC audience and ultimately create an ESPN app that provides value to customers twelve months a year, discouraging people from keeping their subscriptions only during, say, football season.
According to Pitaro, the goal of the new app is to attract the 60 million people who do left cable television over the past twenty years, and not the 65 million that remain, because the 65 million that remain represent a low-risk path to billions in near-term revenue.
‘We wanted to protect [traditional cable]” said Pitaro. “Besides, we still believe there is a lot of value in the traditional ecosystem.”
The subtext of this point is hard to ignore. For now, ESPN needs cable providers at least as much as cable providers need the network. In today’s battle for the latest freight charges, that sense of power could give YouTube TV the upper hand.
Of course, that upper hand could manifest itself in a matter of weeks without ESPN on YouTube TV — an ugly outcome that would hurt both sides in the carriage battle. But with nearly eight weeks until the next network golf programming – the launch of season two of TGL on December 28 – golf fans have plenty of time.
Rest assured, an agreement will be reached and a lot of money will be made. That’s the way the cable business has always worked for ESPN. But times are changing… and in the long run that might not be a bad thing for the people paying.
#Secret #Truth #ESPNYouTube #Feud