ESPN Seeks To Expand Distribution on New Platforms,
While Being "Respectful" of Its Current Distributors
Bill Niemeyer, Senior Analyst
April 22, 2011
Last week, Light Reading's Steve Donohue interviewed Disney ESPN Media Networks SVP of Digital Video Distribution Matt Murphy on the outlook for distribution on new platforms including OTT. It's a thoughtful interview, but what was most interesting to me was what was not said.
Murphy's core message was that ESPN is seeking to "take advantage of technology to serve the needs of our fans" while being "respectful" of their current cable, satellite and IPTV distributors. My rough estimate is that MVPDs (multichannel video programming distributors - cable, satellite and telco IPTV) are paying well over $5 billion a year in carriage fees to Disney just for the core ESPN network itself, something that does certainly command respect.
As to OTT distribution, there was nothing new to report. Murphy noted ESPN continues discussions with OTT providers, but making the linear feeds of ESPN TV networks available depends on reaching the "same types of agreements that we have with current MVPDs." Our sources indicate other network families are telling OTT providers the same thing. This means an OTT service is required to offer effectively the same linear channel packages as incumbent MVPDs. One key driver of this likely the desire of both networks and incumbent operators to keep "a la carte" channel pricing from surfacing in OTT lest it creep over to TV.
Much of the rest of the interview was devoted to ESPN's recently released WatchESPN iPad app, which allows viewing of live streaming of ESPN, ESPN2, ESPNU and ESPN3 if you are a Time Warner Cable, Bright House or Verizon FiOS TV subscriber. If you have Verizon High Speed Internet, you can view ESPN3 only.
What was it that was not said that I found interesting? There was little mention of ESPN3, the Internet-delivered live and on-demand HD video sports service available on PCs, Xbox Live and iPad. And while some of the sports are certainly on the fringe in America (sorry Cricket and Lacrosse fans) there are major college games and even selected NBA games. ESPN3 may not have been featured because it is a potentially disruptive service - direct competition to the traditional "linear TV channel on a MVPD" model. And because ESPN3 does have OTT distribution direct to TV sets via Xbox Live (although it's likely most ESPN3 consumption currently occurs on PCs).
ESPN3 is an example of a "diginet" - a TV-like video service that isn't shown "on TV." In a world where launching a new linear cable channel is almost impossible (even Oprah had to partner with Discovery to launch OWN by repurposing Discovery Health), diginets allow major network families to expand their offerings either within their current categories or in new ones.
ESPN3 and the WatchESPN iPad app allows Disney to expand distribution but also form a more direct relationship with consumers as they own the user interface and can drive user registration. This strategy of expansion that also creates a direct-to-consumer link is reflected in ESPN's successful efforts with web, mobile, radio and magazine properties. Granted, ESPN3 and WatchESPN are not trying to be revolutionary, rather evolutionary. WatchESPN is tied to a subscription with an incumbent MVPD.
ESPN3's business model is cable's classic dual revenue scheme - combining advertising with fees paid by the operators (in this case broadband providers - you can't access ESPN3 if your service isn't paying the fees). And in many cases, the broadband providers are units of the same cable and telco IPTV operators that carry ESPN TV networks.
Nonetheless, ESPN3 is an example of using Internet delivered video and OTT to provide premium content under a new form of business structure, and offer more choice to consumers, sports rights holders and advertisers. Diginets, from media majors and new entrant independents, are an example of how OTT platforms can drive usage and revenue models by offering something new, just as cable TV did when it first entered the market.
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