It’s upfront season in the US, the time when broadcast and cable networks make their glitzy annual pitches to marketers, and secure half their advertising sales for the year.
As the highest-rated US cable network, the sports-focused Disney-owned channel ESPN has historically held an enviable position during the upfronts. But on Tuesday (May 17) when it makes its presentation amid uncertainty and increasing competition from younger rivals such as NBCSN and Fox Sports 1, the network is facing something of an identity crisis. Ad buyers are looking for a clear statement of ESPN’s focus, going forward.
The trouble with ESPN
Last year, Disney chief executive Bob Iger sent media analysts into a frenzy when he revealed that ESPN’s subscriber base and profits were down. Up to that point, the sports network appeared largely unscathed by the tectonic shifts reshaping the media landscape. But Iger’s announcement that Disney’s crown jewel was threatened by cord-cutting and shaving—the same forces that shuttered NBC’s Universal Sports Network and G4—made it abundantly clear that no network was invincible. (Cable networks, primarily ESPN’s, account for a 50% of Disney’s overall operating income.)
Iger’s revelation ignited a firestorm of questions about whether ESPN was spending too lavishly on the rights to major American sports, including the National Football League (NFL) and the National Basketball Association (NBA); whether ESPN’s absence from “skinny” cable-subscription bundles was hurting the sports network; and whether Disney was prepared to sell the network directly to consumers online, as HBO, Showtime, and CBS have started to do.
“Seldom have words on a conference call created so much analysis as yours did,” Michael Nathanson, media analyst at MoffettNathanson, later told Iger.
And if investors were worried then about the state of ESPN, their fears have only grown since. The network laid off 300 employees and pulled the plug on the widely admired sports and pop-culture blog Grantland late last year, and ratings for ESPN’s flagship production—SportsCenter—have continued to tumble.
That’s even as every outlet from CBS to Twitter clamors for live sports, which have never been more desirable to advertisers than now, in the era of time-shifted viewing. In the last decade, the amount of sports programming on US television has risen 40% and viewing has more than doubled (pdf, page 4).
Choose your battles for sports rights
And, as the network loses its grasp on lucrative, though costly, international sports like the FIFA World Cup, it may be difficult to leave the rights to cheaper, niche sports on the table, especially as they build in prominence.
A flurry of younger networks, such as NBCSN and Fox Sports 1, are having success with fledgling sports such as the Ultimate Fighting Championship (UFC), or internationally popular sports such as soccer.
A few weeks ago, for example, a newbie sports network, NBCSN, had a coup with one of the most-watched ever English Premier League soccer matches in the US—Leicester City’s 1-1 tie with the indomitable Manchester United. The game, the culmination of a Cinderella story for Leicester City, was ratings gold for NBCSN, and ESPN was left out in the cold.
But to put that in perspective, ESPN had a win of its own that same week: The NFL draft, an event that doesn’t even include any actual sports being played, garnered more than double the viewers of the Premier League match, just during the first two nights of the NFL’s three-day presentation on ESPN.
To be sure, world soccer is a smart move for NBCSN, which airs a hodgepodge of US sports including NASCAR and the National Hockey League, as well as Olympic sports such as equestrian and curling. The channel signed a six-year, $1 billion deal for the Premier League in 2015, which is turning out to be fairly remunerative.
ESPN certainly could have bid on, and possibly won, those Premier League rights, expanding its footprint in the largest global sport. But the fact is, that’s not what ESPN’s core audience watches. (ESPN2 did join with Fox Sports and Univision to nab the broadcast rights to the US soccer league MLS, for a relative bargain—$720 million, between the three networks, over eight years.)
Pick an identity and stick to it
Here’s the thing: ESPN doesn’t need an iron-clad hold on all the world’s sports. Its core audience and advertisers turn to the network for football, basketball, and baseball. Those are the rights it needs to hold on to. Instead of land-grabbing all the contracts it can, and over-paying in the process, ESPN should cement its standing as the hub for major US sports.
David Gaines, chief planning officer at the media agency Maxus Global, said he’s looking for the network to reaffirm this position at the upfront presentation tomorrow. “ESPN would regain some credibility by saying, ‘This is what we stand for—our reason for being within that sports-media ecosystem is big tentpole US sporting events,'” Gaines said. ”I’m interested to see this clarity and ownership as part of the way they talk about the next 12 months.”
That’s what the network did a decade ago when it had lost its way, as the Atlantic has reported. In 2005, ratings had declined after ESPN strayed into niches such as horse racing and figure skating. When current ESPN president John Skipper took over as the head of TV content that year, he centered ESPN’s flagship channel on live sports, with a focus on blue-chip American sports such as baseball, as well as college sports, to reach the network’s core young, male audience. There was an immediate and drastic ratings turnaround after the shift.
Remember your roots
Dating back to the Connecticut-based network’s humble beginnings broadcasting local games, ESPN has been rooted in US sports.
The network has done a good job securing them so far. It locked down three of the big four US sports—NFL, NBA, and Major League Baseball (MLB)—as well as national college football and basketball, into the next decade. (ESPN relinquished the rights to the National Hockey League, which has the smallest viewership of the big four, more than 10 years ago.) Those rights collectively account for half of ESPN’s annual TV advertising revenue, according to iSpot.tv data.
The rights to the major American sports that are ESPN’s bread and butter, however, do not come cheap, as some analysts, including BTIG Research’s Rich Greenfield, point out. The network recently invested somewhere in the ballpark of $12 billion in NBA rights for the next nine years and $7.3 billion to air the College Football Playoffs through the 2025-2026 season. ESPN is disproportionately affected by the unbundling of cable TV. And, with the cost of sports rights rising, Greenfield questions whether the networks will be able to maintain the same profit levels.
But these deals, while expensive, make sense for ESPN and its brand. NBA and college football games make up around 12% and 19% of the network’s annual advertising revenue respectively, by iSpot.tv’s estimates. And that doesn’t even account for the ad revenue they get from commentary and highlight shows tied to the sports, as well as the affiliate revenues they receive from cable providers whose subscribers demand ESPN’s programming.
The network can demand higher prices for these ads because ratings are declining for other TV programming, James Zayti, who oversees media buying for Hyundai America at Innocean says. ”As they renegotiate with these leagues, the prices are ridiculous, but as too are the prices for that ad inventory,” he explains.
For Zayti, the value of ESPN is that its roster of red-blooded fare is “all things sports to all people”—in the US, that is. Even the mighty ESPN can’t afford the rights necessary to be all sports to all people worldwide. It should instead stick to what it’s known for, and just focus on being the best at that.