ESPN may be the most valuable network on television, but it is locked into major, costly deals with U.S. sports leagues, and its subscriber base is shrinking as people drop cable TV or subscribe to cable TV packages that don’t include the sports channel.
John Skipper, ESPN’s president and co-chairman of Disney Media Networks, joined Re/code Senior Editor Peter Kafka onstage at Code/Media 2016 to discuss ESPN’s plans for the future.
He talked about the massive sports network’s plan to keep growing as the pay TV business contracts, touched on the cord-cutting and cord-shaving phenomenon and the rights agreements ESPN has inked. Skipper also talked about the efforts ESPN is making to become more diverse and why ESPN is changing its tune on eSports.
You can watch the entire video below:
And here’s an audio-only version:
This interview has been edited and condensed for clarity.
Peter Kafka: John, I’ve got to thank you twice. Because — one — I’m glad you’re here. And two, I did not realize when we scheduled this event a year ago that it would come up against the Duke-Carolina game.
John Skipper: Yeah, you really don’t want to go there, because I’ve been following the game, and the wrong team won.
Oh, all right. However, there is good news. It was 74-73. We’ll see a very good rating tomorrow morning. We’ll see a lot of people who received alerts today. We’ll see an awful lot of Gamecast uses and highlights, so it’s good for our business, and that will be my solace.
That’s it, you put a nice, positive spin on it. Good job. So you have one of the most interesting jobs in TV. I think this job got a lot harder for you in the last year or so. I don’t need to go through the whole preamble, but put it this way: I listened to the Disney earnings call a couple of weeks ago. They spent most of the call talking about your business, talking about what kind of drag it was on Disney. It’s a marked turnaround from a couple of years ago where you had this giant growth engine that was going to go on forever. No one ever talked about a problem with ESPN; it was a given that ESPN was going to grow forever. What happened?
ESPN is not a drag on the Walt Disney Company, and that’s not what [Disney CEO Bob Iger] said. We had the best year in the history of ESPN in 2015, and reported earnings — growth earnings again. We have some challenges to navigate. As the president of the company, I am quite confident that we will be able to do that. We have a fabulous collection of assets. We operate in a world of sports. You just heard me talking about watching the game before I came in here. I got a lot of feedback from this crowd about that game. We have the largest aggregation of sports rights in the history of the medium. We hold more sports rights than the other national sports entities combined. And we are going to be able to use those rights to continue to launch new businesses, new platforms, create new content and continue to grow. Bob said that on the earnings call. The Walt Disney Company is a growth company, and ESPN will contribute to that growth. And I am confident that I will deliver that for him and the company.
That’s easy. It all makes sense.
You said I have an interesting job. I have a very interesting job. And we have a very good hand to play in navigating the future.
So, last summer, everyone freaked out because Bob said on the call you guys had seen subscriber losses. The first time he had said it out loud. He has continued to say it. [For] Wall Street and many people, it was a surprise to them to hear this. You are considered the strongest cable network. Why are you losing subscribers?
I’m not sure why I would be surprised. There were public numbers available through Nielsen for a long time. Let’s level-set on this. There are, in this country, in the neighborhood of 100 million people who get pay television. It is the most widely distributed service in the country after heat and electricity. And ESPN remains in over 90 percent of those homes. We are focused on what to do for those homes that we’re not in, and we’re looking to try to create new packaging with our partners. We announced not long ago and put into the market Sling TV with Dish. We’ve had a good uptake on that product. That product has brought in new people to the pay television universe. It’s overwhelmingly millennial. ESPN is the driver of that package. We expect to discuss with other distributors new packages to bring new people into the market.
Before we get to the growth and how you’re going to get out of this, I want to understand why it’s shrinking. Because I think a lot of people said cable TV is flat, and eventually it’s going to decline. People assumed that if there was a decline, it might be in the marginal channels. It wouldn’t be ESPN, which is very popular content. So, why did you lose subscribers? Why are you losing them?
Again, in the public numbers, from a high of 103 million households, there are now 100 million households, so there have been some losses due to cord cutting. There has been some trading down from larger packages into lighter packages, and those two factors account for the change in our subscription base.
But you guys have shrunk faster than the rest of the cable business.
We have had more losses from the move down to lighter packages, because in the manifestation that those packages have been in the markets the last couple of years, we were not in some of them.
Where can I pay for pay TV, and not pay for ESPN? That’s hard for me to imagine. Verizon tried something, and you guys are suing them over that. It’s hard for me to imagine getting a pay TV package where I can’t get ESPN.
I should be clear about Verizon. Our contention is that they have launched a packaging paradigm that doesn’t conform to our contract. And we have filed litigation. We are good partners with Verizon, and we expect to resolve that disagreement in the market. And I have no interest in telling you where you can get a package without ESPN. [Laughter]
Fair enough. [Applause]
Comcast, on its call a couple of weeks ago, said, “We don’t see people moving to skinny packages. We sell them. It’s not material.” They’ve got 25-plus million homes. You would think that if you guys were seeing people moving to these skinny packages they would see it, as well. So it seems like there is a divergence here.
There’s not a divergence. We’re talking with ESPN over a course of several years. Comcast has seen a diminution of the people taking light packages at Comcast. They, like we, have an interest in selling people the larger package, in which they make more money.
So, you’re seeing it, they’re not seeing it, but those two things are —
No, no, no — we suggested over the course of some amount of time that there were some trading down to light packages in a number of distributors. But there were some trading down in Comcast.
Did the speed at which people dropped your channel surprise you?
The current landscape does not particularly surprise us. We have been planning for a long time, understanding that there are a lot of options in the market for people to get video, new over-the-top services. We regard those, and what we have to act upon is the fact that those also represent opportunities for us. We have to find new distributors who come in. All of our content is delivered over-the-top, by the way. When we have this discussion about over-the-top and direct-to-consumer, we were the first in the market with authenticated television, and on Watch ESPN you can watch all of our linear content on any device you want to watch, anywhere you want to watch.
As long as you’re paying for it.
As long as you’re authenticating and paying for pay television. But all of our content is over-the-top.
Taking a shot with Sling
We had a version of this conversation a few years ago. I think the way you were describing it is, “Look, pay TV is going to stop growing, and we’ve got to find new ways to grow. What we’re going to do is we’re going to find new things that we can sell digitally” like the cricket package. I think you’ve been talking about selling basketball stuff. But you were clear, you said, “What we’re going to do is we’re going to sell additional stuff on top of the stuff we’re selling. We’re not going to change the core bundle that we’re selling at all. We’re going to keep that intact.” Is that still the plan, or have you had to change that?
No, that’s still the plan. Look, by declaration, for the 16th straight year, the distributors have declared that the most valuable content in their package is ESPN. And we derive a commensurate value to that from the distributors, and we have no intention of changing that proposition. That is excellent business for us. And it is part of how we delivered growth to the Walt Disney Company. I’m not going to take the content off of that and deliver it some other way. We’re going to keep that content in the pay television package.
So that core package — you’ve got to get ESPN.
And then on top of that, you’ve got to get this big bundle of other ESPNs. And ESPN one through eight, ESPN Classic. And then also Disney would like you to be sold along with ABC, Disney Family, all of its stuff. Is that a realistic prospect, given the move to skinny bundles?
Yes, it’s a realistic prospect. Again, we continue to have all of that Walt Disney Company product distributed in over 90 percent of the 100 million homes that get pay television. We believe that, for the foreseeable future, that is the predominant way in which people are going to watch television in this country.
I think I know the answer to this, but I’ll ask anyway. Any way that you guys could sell ESPN as a standalone product like HBO does with HBO Now?
We can sell ESPN as a standalone product, but we do not believe it right now to be good business. Again, we’re in 90 million homes. HBO has a significant delta between the 100 million homes and the 25 million [they have], give or take. So they have an opportunity to go and sell to those people. We don’t have that missing number. Now again, when we launched the Dish Sling TV package, we wanted to reach those people we’re not in. We want to make sure that people who have not yet gotten a pay television product have product that includes ESPN that they can enter the market in. But no, we do not have a contemplation right now that we would sell it as a standalone.
Let’s talk about Sling. It was launched about a year ago. And at the time, the vibe I got from people in your company [and] the people who were distributing stuff through them, was that it was an interesting experiment. They haven’t released numbers, but the best guess is there may be half a million subscribers. In this last call, you guys were mentioning them a lot. Is that because you really think they specifically are going to generate a whole bunch of new subscribers for you, or is it that you think they’re representative of a bunch of other Sling-type products that are coming out?
As we were discussing with them launching such a product, our concern is whether or not we’re getting new subscribers or are we getting subscribers trading down from an existing package. The economics are immaterial to us, because we get paid the same thing in the Sling package that we get paid in the larger bundle. But what we have learned from meeting with Sling is that the vast majority of those subscribers are incremental. So we are much more bullish now about the ability to push further.
What does “pushing further” mean for you guys?
Sling is marketing that product aggressively, and there’s been a bigger take-up in December, January, February for the Sling product. We are discussing, with other distributors, putting a similar product in the market. I think we look to move aggressively, because we think we’ll move new people in to the universe.
I called Sling “a crippled version of ESPN.” I heard from someone that works in Bristol, Connecticut, who is upset that I called it that.
I’m sorry, who was upset?
Someone who works for you.
It wasn’t you. But it’s not the full version of ESPN. It doesn’t have a DVR function. You can’t pause and stuff, you can’t rewind. It’s only one stream. It seemed pretty clear that when you launched that last year, you weren’t entirely sure you wanted a product that was 100 percent competitive with conventional pay TV out there on the Web. If you keep working with Sling — it sounds like you are — if you do other versions of this, are you going to make it closer to the actual ESPN?
Your characterization is consistent with my assertion that we were concerned that it would be a trade-down product. So we calibrated the services that were delivered there.
And you gave yourself an out, too. You said, “If it gets too popular, and it cuts into our business, we can get out.”
We are now in discussions, including with Dish, about creating other multi-stream products, which would still be different from the services we deliver in the larger bundle, but which would narrow the differential.
What differences do you want to keep in a Web TV service versus a linear service?
You know, since we’re having discussions which are confidential, I’m not really going to comment on that.
ESPN versus ?
Here’s another one you’re probably not going to comment on, but who are these other services? We had Erik Huggers on, who was trying three years ago to do a version of pay TV over the Web. That didn’t work. Since then, Sling is the only one that’s actually entered the market, and we’ve heard about Apple, and lots of people circling this for a long time haven’t got in. Are you saying they’re going to show up this year?
I don’t have a prediction about when they’ll show up. There is very significant interest from a bunch of people. I mean, most of it is public, right? Amazon has been public about discussions they are having for video content. Apple has been public —
I don’t think Amazon said it loud. Or Apple, but thank you. You guys can type that up now. [Laughter]
So, you’re talking to Amazon, talking to Apple. Who else are you talking to about —
I didn’t say we were talking to anybody. I said a number of people have expressed interest, and we’re in discussions with a large number of people. I think other people would enter into some market with lighter packages in this calendar year.
But your contention is, “We’ll sell you this stuff over the Web, but you’ve got to take a bundle of our stuff. You’ve got to work with ABC.” Those conditions still apply.
The Sling package has ESPN 1, ESPN 2, ABC Family, the Disney Channel. So we did not sell them the entire package of service.
So you’re already sort of making those concessions already.
I don’t know that I would refer to them as “concessions.” We understand that we have to create entry packages. And again, you’re calibrating which services are in, what it costs, with the expectation that it’s an entry ramp, they’re going to buy that package and they’re going to trade up in the future for more services.
Is this stuff happening faster than you expected?
You referenced before — you and I had a similar session, in which I acknowledged that we had reached a plateau with the paid television universe, and it was likely to be some slight decline.
And that is what has happened. I do not pretend to have predicted it exactly, but I think we understood generally what was happening. I’m not going to give any prediction as to what rates things are going to happen. We have had Bob on the earnings call, who suggested we have had an uptick in subscriptions recently. We did have — in December and January, we had net incremental adds to our subscription base. We are quite heartened by that. I am not ready to call it a trend or make any prediction, but we see our distributors being more aggressive about trying to have improved customer service, about trying to have better user interfaces for their product, and marketing aggressively to bring new people in. That is all good for us. Again, we are the greatest beneficiary of this business model, and as there are any adds or any improvements, that’s good for our business.
Let me ask you specifically about Apple. When you are talking to them — not publicly — about this, do they anticipate that you would be part of a core set of packages? Because they want to sell something for 30 bucks. It’s hard to imagine how you fit in that package. Would you be in a separate tier?
The only thing I’m willing to discuss relative to Apple — and [Apple SVP] Eddy Cue is a friend of mine — is that Apple understands the value of the content of the Walt Disney Company, and it’s the first stop toward trying to create a video offering. I’m not going to characterize what other products might be in it, or what the price of it will be, but he is pretty clear. And Eddy is a happy guy because Duke won, so I think he would back me up here, that he acknowledges the value of our content.
One year we will get him onstage to have that conversation, as well. At the beginning of this, you said, “We have more sports rights than all of the other programmers put together.” For a very long time, that seemed like this awesome moat that you built up. There was no way you were going to watch sports on TV unless you had ESPN, or you could get some rabbit ears and you could watch an NFL game. Now the tenor of the conversation has changed, and there’s a lot of folks saying, “No, this is now a weight for you guys, because these sports rights are expensive. They get more expensive over time.” Your bill for these rights keeps going up. Your subscriber base for the moment is shrinking. How are you going to make up the difference?
That’s not the actual world I live in. We are very excited about having those rights. We think those rights are the greatest asset we have, which allows us to navigate any environment. Sports is ascendant in this culture. Ninety-five percent of everybody that has a television in this country watched sports last year. In September of 2015, 200 million people watched some ESPN product. That’s 82.4 percent of every adult in the country. Sports is a mass product and it’s a non-replicable product. You can’t knock it off. We have the Rose Bowl. You have to watch it on ESPN. It’s a live product, which means you have to watch it when it happens. It is ascendant in the advertising world. In the last six years, our growth rate has been triple that of the overall television industry, because people increasingly recognize the value of “live.” So we are very happy to have those rights.
But what’s going to fuel the growth? Are you going to charge me more? Are you going to charge the distributors more? Are you going to charge advertisers more?
We have a long history of programming-cost increases and increasing our revenues to absorb those costs. You already heard me say we had the best year in the history of ESPN, our financial performance in 2015, after absorbing our new NFL deal, our Major League Baseball deal and our college football playoff deal. And we continue to grow revenue. It’s a fairly simple matter. We have to grow revenue faster than these expenses grow, and we’re going to continue to do so. When we bought the NBA, we understood what it meant to us, and we have planned for how we are going to continue to grow our revenues to absorb that cost.
One last time: How are you going to grow the revenues if the subscriber base is shrinking?
Our affiliate revenue continues to grow because our annual increases are greater than the diminution of the subs. I already said we have ascendant advertising revenues. Let me give you an example on the NBA of how we’re going to grow those revenues. We have over 100 regular-season games. On February 6, we had the Golden State Warriors against the Oklahoma City Thunder. Good game, thank you very much, good game for us. 3.2 million people watched on television. Another 321,000 people watched on Watch ESPN, authenticated to their pay television subscription. Another 850,000 people watched it on a simulated Gamecast. Another 450,000 people watched highlights during that game. And another 200,000 people read alerts or content during that game. That gives us a total audience of five million. We’re in the market now for advertisers to sell impressions across all mediums at the same high, above-market CPM. And so that allows us — we increased our television audience by 36 percent with all of the rest of those impressions and we charged for all of that. So we can increase revenues on this content with advertising. And in the first quarter, our advertising was up 25 percent. Adjusted exactly for like-to-like up 14 percent. Our digital revenue was up greater than 25 percent in the first quarter.
So the answer is all of the above. You’re going to raise your ad rates, and people are going to keep watching stuff.
Sports rights, Snapchat and eSports
One of the great successes of ESPN was that when it started, you guys didn’t have any sports rights. You weren’t there at the beginning of it, but they had Australian rules football and log-rolling. And what they did is they showed sports highlights, which you couldn’t — it’s hard to imagine, but you couldn’t get those anywhere else. You could only see it on your local news at 10:20.
Now I can see instant highlights on your stuff, but I can also see instant highlights on Twitter and Facebook. And there’s SB Nation — the company I work for runs that — they’ll show stuff immediately. You can have a conversation with them about that later, if you want. The sports highlight is a commodity, and I can get it anywhere. And that’s because of the Internet. How much of that has made life more challenging for you, the fact that it’s no longer a precious resource?
We have always faced competition. We deliver more highlights. The consumption of highlights on ESPN is greater than everybody else’s combined. Fifty-six percent of all news and information consumed in sports is consumed on the ESPN platforms. And we have successfully transitioned from a cable television company which was a disruptor of the broadcasting sports business to a digital company in the ’90s which used that disruption not to worry about our other business or abandon our other business, but to build on top of that business. And we added mobile in the 2000s. Again, we didn’t worry about disruption, we didn’t resist new technology. We adopted it and grew our business. And sports is different, because we hold these rights that we can move across all these platforms. People can’t take these new platforms and beat us at the things we hold rights to. We have more highlights, we have a proprietary technology called “Fast Clipper” — I will urge you to watch a game on ESPN while you have your phone with you, and you will see sometimes the highlights will show up before they actually happen in the live game.
But I bet you that if I was watching the Golden State game, that if I wanted to, I could have turned on Twitter and I would have seen — via Twitter, or Vine, which is owned by Twitter, because the NBA loves Vine — all sorts of highlights, probably taken from your broadcast and slapped up there.
You would get ours first. Ours are better. And people want to consume their sports on ESPN. Brand matters. And ESPN is by far the most-popular sports brand. People trust ESPN. They know they’re getting the highest-quality highlights. We continue to drive a very good business with highlights. I don’t believe that people abandon ESPN to watch highlights another place. And look, where there is interesting sports on any of these platforms, we are the greatest beneficiary of that, because we have the most rights. We have the most usage. We are the only fully integrated multiplatform entity in all of media, but certainly in sports. We have competitors across all aspects of our business, but nobody looks like we do. Nobody has radio and television and magazine and mobile and Internet. And we have a leading share in every one of those, and those all tend to promote the other. We can sell advertising impressions across all those platforms, and we don’t have any issue competing.
Do you ever consider, “Maybe we shouldn’t be working quite so closely with Twitter. Maybe we should make our stuff a little harder to find on Twitter or Facebook.”
No, again, we look upon every new innovation, including social media, as an opportunity for us to grow our business. We did the first advertising deal with Twitter, back I think in 2010 or 2011, on the NBA finals. We had the first live video player in Facebook’s timeline. You’re talking about news information — we have 25 million Twitter followers for SportsCenter, and a similar number for the ESPN Twitter handle. We adopt all of those technologies and use them to reach our fans under ESPN-branded content. We have a deal with Snapchat Discover. That’s under the ESPN brand, is where sports information comes in there. And most of those companies understand that as they want to drive content, they want to drive it with the ESPN brand.
How is Snapchat working for you guys? Do you have numbers that are meaningful for you?
I’m not conversant with the numbers. I apologize. The guys who did the deal tell me it’s great.
They’re happy about it.
And I’ve talked to the Snapchat guys, and they’re happy with the deal. But I’m not conversant enough with the numbers, so I can’t really tell you.
Again, I’m thinking of a conversation we had where someone asked you about eSports. And you looked at them like they had a tin-foil hat on. Now you guys are in the eSports business. Why are you in the eSports business?
It just means I’m a lifelong learner, right? And it was one of the things that you have to always work toward, is making sure that you have people who work for you who are more connected to different things. You know, I’m a 60-year-old man. I wasn’t particularly connected to eSports. I had smart people who told me, “There’s something to this. We should look at it and get involved. We should cover it.” And I did so.
Did you guys have a chance to buy Twitch, the thing that Amazon ended up buying?
We did not look at it, and we did not pursue it.
Am I going to one day turn on ESPN and there will be eSports on TV?
We’ve had some discussions with a number of players in the eSports area about ways in which we could participate more fully. None of that has come to fruition yet, but I think that we’ll continue to pursue opportunities for us. Look, it’s consistent with the discussion that you and I have been having, which is of course with everything going on, we have to be smart about finding new opportunities, new revenue streams, growing different things. And we are aggressively doing that.
How do you help yourself — I’m going to confess that I’m not an eSports fan, and I don’t think you are, either. But it turns out you need to be in the eSports business. You didn’t know that a few years ago, now you do. Do you think about how you can get your employees, your team, to help you, say, “John this is something you’ve got to pay attention to”?
That’s what happened. I mean, I have a very bright guy who works for me named John Kosner, and John said, “You need to pay attention to this.” He took me to Madison Square Garden to see the League of Legends final, and I spent some time there with the guys, and had a great time. It was great fun and interesting to me. I saw the crowd that was there, and learned that the sport mattered to those people. Those were young, predominantly male consumers, and that’s what matters to us. And so we entered the business, the coverage of it, and we have carried some games and we continue to have discussions to do other things.
Does pro wrestling fall in that category?
No, we don’t cover pro wrestling as a sport. Most of our interaction with WWE has been around charitable activities. We have done a lot of Make a Wish with them. They were sponsors with us of the Special Olympics, and I become friends with Stephanie McMahon, and we’ve done a lot of good things together, but we have not been interested in carrying it as programming.
Here’s one that I think will be hard for you to engage in but I’ll ask: You guys have bet big on the NFL, and bet big on football, college football. There is a growing discussion that says there is a good chance that one day the NFL becomes like boxing — a niche sport. It’s hard to imagine now, but boxing used to be a really big deal, enjoyed by everyone. It’s hard to imagine football becoming a niche sport. Can you imagine that happening in five, 10, 15 years?
No, I really can’t. I mean, the popularity of the sport continues to grow. Our ratings and usage across all of our platforms for the NFL is good. I can’t imagine it.
Are you a fan?
I am a fan of football.
Do you have any squeamishness [about injuries and health concerns with football players]?
Look, like everybody at the League… we cover it as news. And we certainly have concerns about the health of the players. Again, we cover that in our news cycle.
Because I find that to be a genuine conflict when I’m watching, because I love watching the game, and then I’ll read a story about a 34-year-old former Steeler who can’t walk down the stairs, and can’t remember things, either. So it’s hard for me to reconcile, but I’m still watching.
That is difficult to see.
Okay. We’ll leave it there. We could go on for about an hour, but I only have a limited amount of time. We can talk about a lot of big-picture stuff, smaller-picture stuff. You guys worked with Bill Simmons for a long time. Last spring, you said, “We’re done working with Bill Simmons.” Why did you do that?
The Bill Simmons territory may be the most-plowed territory on the face of the earth, and I have very little interest in going down the furrow one more time.
[To audience] By the way, that is how you do not answer a question on the stage — that’s an acceptable no answer. I really want to ask again, but now I can’t, after I just praised you for that.
Live and in color
What about the other niche sites — you’re doing FiveThirtyEight, you’ve got a new one coming out. Why do you want to invest time and energy into things that are not really big mass websites?
We have specific reasons for doing smaller niche sites. I am very excited about the Undefeated, and despite a misstep or two, I am fully committed. I think there is nothing more important in our culture right now than race relations. I think there is a very fertile territory.
Tell people what the Undefeated is, in case they’re not aware.
The Undefeated is a new site we’re launching sometime in this calendar year that is about the intersection of race, culture and sports. And again, our intention here is to do smart investigative enterprise, smart features that celebrate the world of sports. I think there is not enough black media in this country. There is not enough black-owned media. There are not enough sites run by people of color. And we are going to have a site run by people of color, by black Americans who are going to manage, they’re going to curate the site, they’re going to create the content for that site. I’ve had a couple of people tell me it’s great to be in the majority at my workplace. It provides a different kind of perspective. And I’m very excited about that. We at ESPN are dramatically committed to diversity. In the Richard Lapchick sports survey of diversity and culture, he identifies that there are 49 national writers of color in this country, and 42 of them work at ESPN.
Is that important to you ideologically, or is that important for business reasons?
It’s important to me for all of those reasons. It’s social, it’s cultural, it’s ideological and it’s business. African-Americans are a very important part of our constituency. They watch a lot of sports. And I believe that we have to be in their homes. I believe that they have to believe that we represent their interests, that we are an employer of choice, and we do those things. If I can finish my spiel, which I’m committed to doing?
Yeah, I can’t stop you.
There are also 36 women, and we employed 32 of those. So there are 75 women or sports writers of color. We employ almost all of them. By the way, shame on the rest of the —
That’s a staggeringly low number, right?
— of the press media, yeah.
All right, I’m not going to stick my foot in that.[Laughter]
So you’ve got the Undefeated, you’ve got FiveThirtyEight. Do you want to do more of these sites, or are you done?
We don’t have any plans right now to do another site. Look, we do these for specific reasons. We are very proud of the sites. FiveThirtyEight just had its best month ever, 7.6 million uniques. We wanted to be leaders in analytics, so we want Nate [Silver] to help us do that. So we have specific audiences that we want to reach. It’s not about driving our business. I have talked about the advertising and the digital, looking for new opportunities. These are not drivers of the business directly.
You’ve spent a bunch of time talking about your growth. Is there a new product coming out within the next year that’s separate from the skinny-bundle packages with Apple or Amazon or other people we haven’t said out loud onstage, that you think would be material for you guys?
No, I think the things we talked about are the things that can make a difference for us this year.
Okay, fair enough. I’m sorry about your team, but I appreciate you coming onstage. Can we hear from the audience please? We’ve got a big crowd here. I’m asking everyone to stand up and identify themselves and ask a question. Your name is Rich Greenfield — I see your T-shirt. You don’t need to identify yourself.
Tossing it to the stands
Rich Greenfield: Thanks for taking the question. And John, thanks for making the trip. I just wanted to follow up on Peter’s question on direct-to-consumer, because I think that’s probably one of the questions that’s on everyone’s mind sitting here. How does ESPN decide when is the right time to go direct; what are the key decision factors you are looking at as you think about timing? And just related to that, you know, in the MVPD world, there is no transparency on price. So nobody really knows what ESPN costs them. In the direct-to-consumer world, there is total transparency. And I’m just wondering how that total transparency on you’re paying exactly what you’re paying for, how does that alter or affect the ability to transition from the cable bundle to direct-to-consumer.
The first part of the question, difficult to answer exactly. Of course, we will look at direct-to-consumer and our overall business and decide to be more aggressive in direct-to-consumer when we think it will help us grow our overall business. You heard me say that, right now, our contemplation is with the number of people who still have pay television; with the amount of remuneration we get from that, our best business right now is to stay in that bundle. I think generally people have a sense of the value of ESPN there. It is certainly accurate that if we go to direct-to-consumer, we’ll be charging people a certain amount of money. I do think that, as people think about this, they oversimplify the binary nature of it. And we hear people talking about, “Well gee, if you’re doing this here and you have to do this here, how do you replicate this?” That’s not what’s going to happen. What’s going to happen is some amount of this is going to happen. We’re going to be doing different packages, and we’ll do some amount of direct-to-consumer. For the foreseeable future, we’ll be looking for different incremental content to sell direct to consumers.
Kafka: Are you set up, and is the Internet set up, for you guys to do a version of what you do on TV at scale on the Internet?
That would be very difficult to replicate right now with the amount of usage we get. Again, at ESPN we can deliver more content direct to consumer than almost anybody, and do it at scale. We get hundreds of thousands and millions of people who watch games on smartphones and tablets. So we can deliver a lot of content. To deliver the college football playoff with 25 million people watching would be very difficult for —
Kafka: And that’s on your end? That’s on the pipes, that’s everything.
That’s everything. That’s on the pipes. We can deliver it. I think it would be difficult, it would clog up the entire system.
We’ll ask Bob Bowman from MLB the same question.
Bob would be quite knowledgeable on where that is. I think that Bob and MLBAM and ESPN probably deliver more content over the top than anybody else. And I’m talking about the traditional media business. Obviously, we don’t deliver as much content as Netflix.
Jack Rotherham: Hey John, Jack Rotherham, at FreeWheel. Good to see you. At some point, could you dial down the eSports business between the years 2017 and 2019 so my 11-year-old son can get into a good college at some point?
I cannot guarantee such an action.
Rotherham: On a more serious note, globally, the European sports business, Discovery, Eurosport, the Olympics coming up, can you share some color on where you see the global ecosystem relative to ESPN?
When I got this job in 2012, I made the decision that we did not have significant growth prospects in Europe and Asia, and we sold the networks, we had been operating in Europe and Asia for many years. I thought that we had significant opportunity in Latin America, that’s another growth area I hadn’t mentioned. We are the largest pan-regional pay television operator, sports operator in Latin America. We have significant businesses in Columbia, Argentina, Brazil and Mexico. I believe they will continue to grow at significant rates. We have recently done a deal with Sony in India, a deal with Tencent in China. We’ve had a deal with BT in England. I think around that part of the world what we’ll do is we’ll be a licensor of content of our brand. We will launch co-ventures. We will be a digital media — a mobile player. We have ESPN-FC, we have ESPN-Quick Info, so we do think there is business to be had there, but it’s not in the business of starting networks, buying rights in those areas.
Audience member: Hello there. It was feeling like a “60 Minutes” episode here.
John, loving everything, loving ESPN, and go Dubs, so a good year for us. It’s becoming more and more expensive for all of these different cable packages. And with ESPN, and those who are sports lovers and lower-income, it’s becoming harder and harder for them to have access to things that they truly love that were actually free to everybody. What are your comments on that?
Again, you heard me reference that we are working with distributors to try to create lighter packages which include ESPN. It’s clear to us that there are lots and lots of people who want ESPN, and it’s our task to try to figure out how to try to get packages to them — that’s worked for them.
Kafka: But she’s not talking about just ESPN, right? If I want to watch the Final Four championship —
Audience member: It’s all over. You know, it used to be free. And it’s now getting specialized to the different cable channels, and it’s very difficult for those who are lower-income and love sports, and it’s part of their family, and so forth. And you know, they have to go to the bars now to go see it.
I’m not against that. [Laughter] Because at all those locations, ESPN is on. Look, the cable package continues to be the greatest value in the history of entertainment. The average hour watched on cable television costs between 15 and 25 cents. For most people who cannot afford other kinds of entertainment, it is their entertainment. It is dramatically cheap compared to what it costs to go see a movie, to see a Broadway play, to see a concert.
Kafka: You’ve heard this question before.
Jason Rapp: Hi, I’m Jason Rapp from Science Inc. I’m a Duke grad. I did have a math question. So Yahoo just paid 17 million for one NFL game, and I was wondering based on your comment about five million viewers for a basketball game, how much would you have spent for a single NFL game if you were them. How did they do, and how would you do the math on how they got to 17 million?
I do not know. I mean, I can’t really speak to what their valuation was, or what they felt. I think that mostly what the NFL and Yahoo were engaged in was experimentation. I think they were both trying to sort of understand some things. I think they both appear to be quite satisfied with what they learned. We have a very different contemplation for how we evaluate what games and rights are worth to us. We don’t buy games. We buy very large packages of content, data, rights to highlights, studio shows, lots of games that we can put anywhere. So you heard me talk about that game. We have the ability to use content from sports leagues in ways that nobody else has, and to monetize them in a way that nobody else can. So we don’t even look at it on a cost-per-game basis. We look upon it as a totality of the large package we buy.
Rapp: So when you saw a game like that, you didn’t say, “Well, I’ve got more distribution, I should be in that bidding”? Or do you ever expect to do an online-only stream of a specific game?
We would not necessarily contemplate that, certainly not for NFL product. Our goal is to put it on as many devices and as many platforms as possible, and allow people to see the game wherever they want to see it on whatever device. We are not particularly interested in bifurcating the platform on which you watch something. Our practice has been since 2005 — so, for 11 years — that when we do rights deals, we buy content, we buy the right to use that content on all of our platforms.
Ryan Nakashima: Hi John, Ryan Nakashima with Associated Press. I was wondering specifically on the issue of whether to go standalone with ESPN, is the issue that the price of a standalone ESPN service to a single consumer would be too high to replace the money you’re getting in the bundle? There are estimates it would have to cost $20 or $25 or something like that. And is that a real issue that you’ve thought about?
Look, that’s just a hypothetical and ultimately specious mathematical problem — that’s not what we’re going to do. We don’t sell it alone right now because we generate more revenue by being in a larger package, being ubiquitous across the households in this country, in which we can sell advertising. That simply works better for us. And that is the job we have as a division of a public company, to generate the most value for shareholders. So that is the calculation we make — how can we generate the most revenue? The most operating income. So that is why we do that.
Kafka: We’re going to leave it there. I guess you can’t reiterate this enough, but you’re not selling ESPN direct to consumers tomorrow. So I don’t have to worry about getting scooped tonight.
Good question. No. We’re not. Thank you, Peter.
K, Thank you, John.
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This article originally appeared on Recode.net.