ESPN Chairman On Cord Cutting And Uncertain Future | Full Interview

Introduction (0s)

• Jimmy has joined for an interview to discuss ESPN. (11s)
• The discussion begins with what is considered the existential question of ESPN. (12s)
• ESPN is operating in a world with a changing cost structure. (18s)

ESPN's challenges (20s)

• ESPN faces challenges due to increasing sports rights costs and declining cable subscribers, which is part of a larger ecosystem that the company cannot control (20s).
• The company is navigating through a storm with people cutting the cord at a higher rate, resulting in a decline in the traditional business model that has been successful for ESPN and The Walt Disney Company (54s).
• ESPN's priorities do not include revenue or operating income, but rather quality storytelling and programming, and if the company delivers on these priorities, it believes it will see revenue growth (1m22s).
• The company recently closed an NBA deal, which is expected to deliver growth in ratings, reach, and financial performance, both domestically and internationally (1m53s).
• ESPN is planning to launch its primary channels direct to consumers, à la carte, over the top, which will be a disruption to the traditional ecosystem but will allow the company to value itself based on the totality of subscribers (2m52s).
• The company will continue to make its content available through traditional means, such as cable and satellite, while also offering its flagship network directly to consumers (3m15s).
• ESPN will evaluate itself based on the totality of subscribers, including those who access the network through traditional means, ESPN+, and the new flagship product (3m33s).
• The direct-to-consumer relationship will provide ESPN with new insights and access to customer data, allowing for a more personalized experience, but the company is also aware of the potential for churn in this model (4m12s).
• The NBA deal will help address the churn concern, as it includes professional basketball year-round, reducing the seasonal fluctuations in viewership (5m8s).
• The NBA deal is a significant investment for ESPN, with a cost of $2.6 billion per year (5m25s).

NBA/WNBA media rights deal (5m28s)

• The reported number for the NBA/WNBA media rights deal is roughly $1.9 billion per year, which is higher than the previous $1.4 billion per year number (5m31s).
• Maintaining exclusivity around the NBA finals was a key priority, and the deal delivers complete exclusivity for the 11-year duration (5m53s).
• The deal also includes exclusivity for one of the conference championships for ten of the 11 years (6m4s).
• The rights acquired include flagship and digital rights, as well as international rights potentially for Disney Plus (6m12s).
• The WNBA is considered an ascending league, and the NBA is also seen as ascending due to increased parity and emerging younger talent (6m26s).
• The deal is considered valuable and a cornerstone property, with the NBA and WNBA being marquee content (6m57s).
• The inclusion of the WNBA in the deal made the process easier, but it's unclear if it was a good deal, as the WNBA's ascendance might have led to more money if negotiated separately (7m4s).
• A bid on the WNBA rights would have been made independently, and there was a clear interest in extending and renewing the WNBA side of the deal (7m12s).

Chairman responsibilities (7m34s)

• The responsibilities of running a major media company include managing major rights deals, talent negotiations, traveling, and receiving research briefings, in addition to being a succession candidate for the Disney CEO job (7m35s).
• The focus is on delivering for ESPN, the sports fan, and the Walt Disney Company, with a robust roadmap in place to guide decision-making (7m59s).
• The job requires earning the position every day, with a sense of responsibility and excitement about the roadmap ahead (8m33s).
• Part of the goal is to take people inside the business and management of sports, providing insight into the industry (8m47s).
• The day-to-day prioritization involves a range of tasks, including learning the culture, understanding the business, building relationships with leagues, and focusing on audience expansion and long-term thinking (8m58s).
• The early days at ESPN involved learning the culture, understanding the business, and building relationships with leagues, with a focus on making ESPN+ a success (9m18s).
• The current focus is on audience expansion, long-term thinking, and how younger people access sports content, including investments in third-party platforms and resource allocation (9m56s).
• The top priority is working on flagship and product enhancements, including significant upgrades to the user experience (10m24s).
• The flagship product will offer more than just the ability to buy ESPN channels directly, with a focus on creating the best product experience imaginable for sports fans (10m37s).
• The team is being built around good product people and technologists, including the recent hire of Adam Smith from YouTube to lead tech and product teams (11m2s).

ESPN flagship app (11m37s)

• The flagship app will feature innovations such as personalization, including betting integration, allowing users to link their ESPN and ESPN BET accounts to view their bets on the app's digital pages (11m49s).
• The app will also show contextually relevant bets, such as game-specific bets, and Fantasy results for users who have players from the game on their Fantasy team (12m28s).
• A personalized SportsCenter is being developed, which will use AI to show users highlights from their favorite teams first, followed by more general highlights (12m52s).
• The personalized SportsCenter will have a voice narration, but the voice has not yet been decided, and it may be in partnership with ESPN talent or a separate entity (13m32s).
• The launch of the flagship app raises concerns about customer confusion, given the various ways to access ESPN, including ESPN+, MVPDs, and digital MVPDs (13m55s).
• To address this, the flagship app aims to serve sports fans across platforms and price points, offering an opportunity for those who are not currently participating in the pay TV universe (14m53s).
• The flagship app is expected to be priced between $25 to $30 per month, but research is still being conducted to determine the optimal price point (15m44s).
• The flagship app is a code name and will be marketed towards the 50-60 million households that are not currently participating in the pay TV universe, with a focus on sports fans (15m11s).

Talent acquisition (16m10s)

• The decision to let go of high-profile talent at ESPN has been largely financially driven, rather than based on performance, with the goal of making the company more sustainable in the long term (16m15s).
• ESPN has a talent department that researches and identifies potential talent who can deliver, represent the brand well, and move the needle in terms of ratings and reach (17m25s).
• The company looks for talent who can resonate with sports fans and move the needle, with examples including Stephen A. Smith, who is seen as someone that fans tune in specifically for (17m45s).
• ESPN has a deep bench of talent and prides itself on developing and advancing the careers of its on-air personalities (17m59s).
• There has been a migration towards more opinion-based, talking-head style shows, such as First Take and Get Up, rather than traditional journalism, although the company still invests in quality journalism (18m28s).
• The shift towards more opinion-based content is not due to a deprioritization of journalism, but rather an effort to drive ratings and resonate with a younger audience (19m28s).
• Pat McAfee was brought in as part of an effort to extend the ESPN brand and resonate with a younger audience, and his show has been successful in doing so (19m53s).
• As part of the partnership with Pat McAfee, he has creative control over his show, and while he may say things that make some people uncomfortable, he has been open to feedback and willing to work with ESPN (20m21s).
• Pat McAfee's authenticity is seen as a key factor in his ability to resonate with younger people, and while this may sometimes lead to issues, he has been willing to take feedback and adapt (21m7s).

ESPN policies (21m28s)

• The mission of ESPN is to serve the sports fan anytime, anywhere, and to achieve this, the company needs to cover sports, which is challenging in itself. (21m39s)
• ESPN has clear policies in place for its talent and producers, which they understand, and these policies allow for the coverage of the intersection of sports and society, sports and politics. (21m56s)
• The company acknowledges the sensitivity of covering politics, especially during an imminent election, but believes it should be present when there is an intersection between sports and culture, society, or politics. (22m18s)
• However, ESPN does not focus on politics in general, leaving that to its "good siblings" at the Walt Disney Company, such as ABC News. (22m43s)
• There have been internal communications and regular conversations among the content team and producers about the upcoming election, serving as a reminder of the company's policies. (22m58s)
• These internal conversations have been ongoing, with a reminder being issued more than a year ago, following a statement by Bob Iger on CNBC. (23m1s)

Selling ESPN? (23m4s)

• Conversations are ongoing in two departments: content and tech/distribution, to explore potential partnerships for flagship, with the goal of generating more content and accelerating its adoption (23m18s).
• The idea of selling a small equity piece of ESPN is still on the table, but no further information is being disclosed at this time (24m5s).
• A tile, an ESPN-branded title, will be launched on Disney+ by the end of the calendar year, featuring a subset of ESPN content, with the goal of expanding the brand and audience (24m26s).
• The ESPN tile on Disney+ will not include all of ESPN or ESPN+ content, but subscribers to the trio bundle (Disney+, Hulu, and ESPN+) will have access to everything within ESPN+ (25m21s).
• When flagship is launched, subscribers to flagship or the trio bundle that includes flagship will have access to everything within flagship within the ESPN tile on Disney+ (25m45s).
• There is a possibility of bundling flagship with other streaming services, outside of Disney, to increase take rate, but no specific partnerships have been announced (24m13s).
• Partnerships and bundling with other services, such as a Peacock and ESPN flagship bundle, are being considered, but careful consideration is being given to avoid customer confusion (26m23s).
• The idea of media companies owning leagues has been discussed, with Endeavor, Netflix, and Jeff Zucker mentioning it, but no further information is available at this time (27m0s).

Media owning sport leagues (27m14s)

• ESPN has a strong rights portfolio, with recent deals including the NBA, NCAA Championships, U.S. Open, College Football Playoff, and NFL FLAG Football, making them pleased with their current portfolio (27m33s).
• Many of these deals are long-term, such as the 11-year NBA deal that starts next season, leaving 12 years remaining on the current NBA contract (28m1s).
• The company is well-positioned for the next decade with its current rights portfolio, which reduces the need to consider alternative strategies (28m12s).
• Media companies, including ESPN, typically rent sports rights rather than owning them, unlike much of the content owned by The Walt Disney Company (28m29s).
• Currently, ESPN is not considering owning a professional sports league instead of renting rights, primarily due to their satisfaction with their existing rights portfolio (28m40s).

Future of business (28m50s)

• ESPN has a history of securing long-term contracts and paying significant amounts of money for them, but they have walked away from some deals in recent years due to unprofitability (28m50s).
• There are not many major contracts coming up in the next few years as many have been locked up, but ESPN does not plan to take a back seat in acquiring smaller deals (29m2s).
• ESPN has a sophisticated rights and programming team, as well as a strategy team, that uses a model to consider various revenue streams, including affiliate sales, ad sales, direct-to-consumer sales, and pay-per-view revenue (29m12s).
• For ESPN to pursue a deal, they need to be confident that it will be profitable, taking into account their different revenue streams (29m38s).
• The company has walked away from deals that do not meet their profitability requirements, such as their multi-decade partnership with the Big Ten, which they wanted to keep but ultimately decided against due to financial concerns (29m49s).
• The regional sports world is currently in disarray (30m4s).

Regional media rights (30m7s)

• ESPN wants to play a role in the reconstruction of regional media rights, particularly for leagues that have been successful from a local in-market perspective, and has made this clear to League commissioners (30m16s).
• With its flagship direct-to-consumer platform, ESPN aims to leverage its technology to geotarget and locate sports fans, as well as its incredible reach, which includes 112 million unique users per month across ESPN digital properties (31m3s).
• The company believes its reach should be the top of the funnel for leagues, providing the best opportunity to get content in front of as many fans as possible (31m16s).
• League commissioners have not provided a clear response, with timing being a major factor, as they work through internal decisions and complications on the regional sports network side (31m41s).
• ESPN is optimistic about working out a deal and is open to aggregating regional rights to sell access to multiple leagues, or breaking them out individually (32m13s).

Women's sports (32m30s)

• ESPN takes pride in amplifying women's sports, having made it a priority over the past four decades, and is looking for ways to further advance women's sports with better time slots and more reach through broadcast, cable, and ESPN1 (32m56s).
• Integrating women's sports into studio programming is also being considered, with the goal of increasing exposure and coverage (33m22s).
• A dedicated women's sports show is being thought about, with several ideas currently on the content whiteboard, but no specific plans have been announced (33m32s).
• ESPN's talent, including Elle, Chiney, and Andraya, have been a source of pride, particularly during the NCAA March Madness tournament, and can be expected to be featured more in the future (34m3s).
• The success of ESPN's women's sports coverage is attributed to the energy and thinking across the organization, with a focus on showcasing talented women in sports (33m43s).

Sports betting (34m19s)

• The launch of ESPN BET is considered to be in its early stages, with significant product upgrades having been made and more to come, particularly in the area of parlays (34m40s).
• The chief technology officer at the Walt Disney Company, Aaron LaBerge, is now the CTO at Penn Entertainment, indicating a strong connection between the two companies' products and technology teams (34m45s).
• The integration of ESPN BET into the flagship platform is expected to be critical for its success, and will also involve the ability for sports fans to link their accounts for a more seamless experience (35m5s).
• A consistent bet module will be available across ESPN digital pages, which is anticipated to be a major development for the platform (35m18s).
• The current partnership between Penn and ESPN BET is a 10-year deal, with the launch in New York being just the beginning (34m35s).