Today's Wall Street Journal offers an in-depth piece on ESPN's strategic approach to the digital landscape. Cutting to the chase, they recognized that cable revenue was at stake with the rise of streaming video on the web. And no matter how much you raise your license fees to cover drops in cable subscription, eventually, cord cutting would impact its business. The result, a digital network/app for cable authenticated customers, called WatchESPN. "ESPN collects money for the app from pay-TV providers such as cable companies, which pay for the right to offer it to their customers. For ESPN, a second revenue stream comes from advertising on the app. "
Talk about a great extension of its linear channels. An online app that cable operators pay a monthly license fee to ESPN and then market to its cable subscribers as an extension of their cable service. And ESPN gets both some subscription revenue and advertising revenue from their digital business.
Sports fans, especially ESPN fans, are most likely not the households dropping their cable subscriptions. Consumers that are cord cutting tend to find non-sports content through other platforms. So ESPN may be seeing loss of subscriber revenue because consumers are cutting off their cable subscriptions, but their ratings remain unchanged as their viewers are not the ones cutting the cord. Ratings though could eventually drop as the cost of cable service eventually drives even the ardent sports fan away from cable.
For now, ESPN has created a smart digital business that retains cable subscribers and keeps cable operators happy while building out an ESPN digital business that could one day become a standalone subscription OTT network. "ESPN is talking to broadband providers about other Internet products,
such as an ultra-high-definition version of its TV channels that would
be offered only to people who upgrade to faster tiers of broadband. " ESPN seems to have found a way to straddle the cable and digital business; hopefully, they can keep their balance as consumers continue to adapt to a digital world.