[Business★★★] Why ESPN Won’t Pull an HBO

(P1) When HBO and CBS announced they’d offer paid apps that would allow viewers to completely BYPASS TV and stream their content directly to their preferred device, it was hard not to see the moment as dominos starting to fall. Everyone from DISRUPTIVE INNOVATION THEORISTS to CHEAPSKATE APPLETV-streaming HIPSTERS has been SALIVATING OVER the UNBUNDLING of cable for years. AEREO’s lost legal battle? A BUMP IN THE ROAD on the inevitable way to A LA CARTE TV. (P2) It’s widely accepted that live is one of the major things keeping cable’s profitable bundle INTACT. But might that begin to change? I spoke with JAMES ANDREW MILLER (@JimMiller), author of Those Guys Have All the Fun: Inside the World of ESPN. What follows is an edited version of our conversation. (P3) HBR: I think the first thing to establish is whether ESPN is, like HBO, a generator of premium, exclusive content, or whether they’re just a MIDDLEMAN who brokers sports between the leagues and the fans. (P4) Miller: They really started creating a lot of original content in the 1990s, when they developed , , documentaries, series, movies, stuff like . There was a lot of attention and money paid to that. Then when became head of content he decided it was all about live sporting rights. He went on one of the great SHOPPING SPREES for television rights of all time. He went after a lot, and also engineered longer contract terms than was usual — eight, 10, sometimes 12 years. They’ve invested a lot of money — for instance, their last deal with the NFL was over $15 billion. Their recent deals for total over $20 billion. (P5) And what’s been the impact of that on the COMPETITIVE LANDSCAPE? (P6) They think it’s essential. It builds a big MOAT around ESPN in terms of competition. When 1 went on the air, everyone was talking about how they’d be a FORMIDABLE competitor for ESPN, but I didn’t believe they could GO TOE-TO-TOE WITH them because there’s just not a lot of inventory left out there. ESPN has so many deals LINED UP, and they’re lined up for quite some time. So how are you going to compete with ESPN when they have such a head start in terms of inventory? (P7) What’s interesting to me about the recent changes in the TV landscape is that you have distributors like NETFLIX turning into content providers and you have content providers like HBO trying to become distributors. It just seems like if you can have both a direct relationship with consumers and exclusive, premium content, that’s the best of both worlds. So why wouldn’t ESPN want to PULL AWAY FROM cable and STRIKE OUT on its own? (P8) Both ESPN and [parent company] Disney are addicted to the huge increases coming in from subscriber fees. ESPN does not want the cable universe to go away. They’ll bring in over $6.5, $7 billion dollars in revenue from subscriber fees this year and that’s a lot of money, for them and for Disney as well. They’ve spent a lot of money since the 1980s lobbying to make sure no one got rid of the cable package and create this a la cart universe, because they did feel like that was a threat. (P9) Look, my mother spends more than $6 a month for ESPN and she’s never turned the channel on. That’s true of probably 90% of people — at any given time — who have cable. We think of ESPN as this BEHEMOTH, but in terms of people who watch it day in day out, that’s probably not a huge percentage of the cable viewing universe. They don’t want to go to an a la carte system. (P10) What if they have no choice? What if the cable industry FALLS APART and they have to FLY SOLO? (P11) Let’s say Congress passed some law and there was no cable bundle. ESPN would be able to go out and charge a monthly fee that would probably be pretty high, because they have so much inventory. (P12) Or what if, when those broadcast rights do EXPIRE, a major partner like the NFL decided they could make more money going direct-to-consumer? It seems like ESPN’s original programming wouldn’t be enough to keep people; it’s really just FILLER AROUND the games. (P13) I don’t think the NFL is going to not want a broadcast and a cable partner. At least for quite some time. The idea that Google might compete for rights next time they’re up, that’s possible, but the NFL is ESPN’s crack cocaine. It’s not just about 16 weeks or a wildcard. It’s about taking those rights and creating shoulder programming throughout the year — like the NFL draft, the countdown to the pre-season, the COVERAGE during the pre-season. ESPN MONETIZES the NFL 365 days a year. They’re not about to let them go. They’re paying now $2 billion a season for the NFL, and they have it for many years to come. The NBA deal is also a long one. There’s just no way that ESPN is going to allow itself to be out of the running. The leagues don’t want that to happen either. They want to be in business with ESPN, particularly when it comes to college football and college — the coaches love ESPN as a recruiting tool. Now, ESPN LOST OUT ON the World Cup, so those things may happen, but by and large they have a ton of , the basketball, soccer, football. They’re going to be as aggressive as they need to be. (P14) So where do you see change starting to happen? (P15) The deal ESPN just struck with the NBA is really fascinating in terms of the future. READ BETWEEN THE LINES of that deal, there are a MULTITUDE of possibilities for ESPN to create a new universe with certain rights and possibilities. You could possibly spend a couple bucks to go on demand and buy a specific game you want; there are all sorts of options. I think it shows that ESPN is building for the future. (P16) We are STRADDLING two worlds right now. Consumers are definitely in a multi-screen universe. But the architecture of the pricing and the way it’s all going to work hasn’t been fully realized. Those things will shake out in the next couple of years. And in the end there will be more customization, more choice, more flexibility for the consumer, depending on what a particular consumer’s appetite is. (P17) One thing that has always BUGGED me as a Red Sox fan is that I can’t go out and buy, say, Pedro Martinez’s 10 best regular-season starts. Is that the kind of thing you’re talking about? (P18) Yes. I mean if all of a sudden I wake up this morning and I have an old Beatles or Led Zeppelin song in my head, I can buy that song on iTunes. If I’m getting PSYCHED UP ABOUT the World Series, though, and I want to watch the last time the Kansas City Royals were in it, there is no mechanism to pay and watch that game. But there will be. (P19) What if you get some Aereo-type, low-cost disruptor coming in? Is that a VIABLE threat to a company like ESPN? (P20) I just think in the world of televised sports, “low-cost competitor” is an OXYMORON. Here’s what ESPN knows. Five years from now, we don’t know if THE GOOD WIFE is still going to be a popular show, we don’t know whether there’s going to be contract problems with Julianna Marguiles or if the writers are going to stay. But we do know that there is going to be an incredible amount of interest for the ROSE BOWL. We know that the NBA finals are going to be popular. Depending on who the teams are, they may be up or down 5% but there is a built-in CONSTITUENCY. And that’s the genius of live sports programming. People want to see these games, and see them right away.

Words: 1,334 Source: https://hbr.org/2014/10/why-espn-wont-pull-an-hbo/

Discussion Questions If you found the passage difficult to read or had problems understanding specific words or idiomatic expressions, please discuss them with your tutor. The following discussion questions should be answered in your own words and with your own arguments.

1. Briefly summarize the content of the article in your own words. 2. According to Miller, is ESPN like HBO (P4)? In what ways are they similar (or different)? 3. How does ESPN have competitive advantage over other broadcasters? What made this possible? (P6) 4. Does ESPN want to pull away from cable and strike out on its own? (P8) 5. What changes is Miller expecting from ESPN in the future (P15)? 6. Do you follow sports? What are the latest trends in business models of video content providers? Share your insight with your Cambly tutor!

What/Who/Where Are They? HBO (TV Network) HBO is an American premium cable and network that is owned by Home Box Office Inc., an operating subsidiary of Time Warner. HBO's programming consists primarily of theatrically released motion pictures and original television series, along with made- for-cable movies and documentaries, matches and occasional stand-up comedy and concert specials. HBO is the oldest and longest continuously operating pay television service in the , having been in operation since November 8, 1972. CBS (TV Network) CBS is an American commercial broadcast television network, which started as a radio network; it continues to operate a radio network and a portfolio of television and radio stations in large and mid-sized markets. The name is derived from the initials of the network's former name, Columbia Broadcasting System. It's the world's second largest major network. One of the main headquarters is located in , New York. The network is sometimes referred to as the "Eye Network", in reference to the shape of the company's logo. It has also been called the "Tiffany Network", which alludes to the perceived high quality of CBS programming during the tenure of its founder William S. Paley. It can also refer to some of CBS's first demonstrations of color television, which were held in a former Tiffany & Co. building in New York City in 1950. The network has its origins in United Independent Broadcasters Inc., a collection of 16 radio stations that was bought by William S. Paley in 1928 and renamed the Columbia Broadcasting System.

AppleTV (Product line) Apple TV is a digital media player and a microconsole developed and sold by Apple Inc. It is a small network appliance and entertainment device that can receive digital data from a number of sources and stream it to capable TV for playing on the TV screen. The most recent version of Apple TV is the third generation, introduced on March 7, 2012, incorporating the higher resolution video standard. Apple TV is a HDMI-compliant source device connected to an enhanced-definition or high-definition widescreen television via a HDMI cable to the TV's HDMI port, and the TV is put into HDMI mode. The device has no integrated controls and can only be controlled externally, either by an Apple Remote control device using its infrared capability or by the 'Remote' app on iOS devices, such as the iPhone, iPod Touch, or iPad, using its Wi-Fi capability. Its Wi-Fi capability is also used to receive digital content from the iTunes app using AirPlay or directly from iTunes Store, which is then streamed to the TV.

Aereo (Company) Aereo is a technology company based in New York City that allowed subscribers to

view live and time streams of over-the-air television on Internet-connected devices. The service was launched in February 2012, and was backed by Barry Diller'sIAC.

James Andrew Miller (Author) James Andrew Miller is an author and screenwriter.

Pardon the Interruption (Topic) Pardon the Interruption is a sports television show that airs weekdays on various ESPN TV channels, TSN, ESPN America, XM, and Sirius satellite radio services, and as a downloadable podcast. It is hosted by and , who discuss, and frequently argue over, the top stories of the day in "sports... and other stuff". The show has emanated from Washington, D.C. since its debut, as both Kornheiser and Wilbon were writing for at the time. Originally recorded at Atlantic Video's facilities in Washington, the show now occupies space at ABC News' Washington bureau. Voice actress Kat Cressida lends her voice to commercial bumpers for the series and has since its premiere. From the premiere of PTI until September 8, 2014, served as the show's statistician and eventually became a de facto co-host. Reali became the host of Around the Horn in 2004 while continuing his job on PTI, eventually leaving when ATH moved production from Washington to New York City.

Playmakers (Football Position) A midfielder is an position. Midfielders are generally positioned on the field between their team's defence and forwards. Some midfielders play a more defensive role, while others blur the boundaries between midfielders and forwards. The number of midfielders on the team and their assigned roles depends on the team's formation; the collective group of these players on the field is sometimes referred to as the midfield. Most managers assign at least one midfielder to disrupt the opposing team's attacks, while others may be tasked with creating goals, or have equal responsibilities between attack and defence. Midfielders are the players who typically travel the greatest distance during a match.

John Skipper (Film producer) John Skipper is a American businessman and is the the president of ESPN Inc. and co-chairman of Disney Media Networks as of January 1, 2012. In June 1997, Skipper became senior vice president and general manager of ESPN the Magazine. Since October 2005, he has served as executive vice president of content. Skipper attended Lexington Senior High School in Lexington, North Carolina. He then attended UNC-Chapel Hill and earned a bachelor's degree in English literature. After receiving his master's degree in the same field from Columbia University, he went to work for Rolling Stone, starting as a secretary but moving up. He also worked for Us and Spin before becoming senior vice president of Disney Publishing Group.

NFL (Sports Association) The is a professional league that constitutes one of the four major professional sports leagues in North America. It is composed of 32 teams divided equally between the National Football Conference and the American Football Conference. The highest professional level of the in the world, the NFL runs a 17-week regular season from the week after Labor Day to the week after Christmas, with each team playing sixteen games and having one bye week each season. Out of the league's 32 teams, six from each conference compete in the NFL playoffs, a single-elimination tournament culminating in the Super Bowl, played between the champions of the NFC and AFC. The champions of the Super Bowl are awarded the Vince Lombardi Trophy. Various other awards exist to recognize individual players and coaches. Most games are played on Sunday afternoons; some games are also played on Mondays and Thursdays during the regular season. There are games on Saturdays during the first

two playoff weekends. Sometimes, there are also Saturday games during the last few weeks of the regular season.

Netflix (Company) Netflix, Inc. (Nasdaq: NFLX) is the world's largest online movie rental service, offering more than 7 million subscribers access to 90,000 DVD titles plus a growing library of over 5,000 full-length movies and television episodes that are available for instant watching on their PCs. The company's appeal and success are built on providing the most expansive selection of DVDs, an easy way to choose movies and fast, free delivery. Netflix has been named the #1 rated Web site for customer satisfaction for five consecutive periods, according to a semi-annual survey by ForeSee Results and FGI Research in the spring of 2005, the winter and spring of 2006 and the winter and spring of 2007. In the fall of 2005, Fast Company named Netflix the winner of its annual Customers First Award. In January 2007, Netflix was named the Retail Innovator of the Year by the National Retail Federation. Netflix has revolutionized the way people rent movies - by bringing the movies directly to them. With today's busy lifestyles and consumers demanding more value and control, it's no wonder that Netflix has become the preferred online provider of the home entertainment experience.

The Good Wife (TV Program) The Good Wife is an American television legal and political drama that premiered on CBS on September 22, 2009. The series was created by Robert King and Michelle King. It stars Julianna Margulies, Christine Baranski, Archie Panjabi, Matt Czuchry and Alan Cumming, and features Chris Noth in a recurring role. The current executive producers are Ridley Scott, Charles McDougall, and David W. Zucker. It is a heavily serialized show with many story arcs that also feature stand alone procedural story lines that are resolved or concluded by the end of each episode. The serial plots have been especially showcased in its highly praised 5th and 6th seasons. This is a rarity among The Good Wife's broadcaster CBS, as most of their shows are procedural. The show has received widespread critical acclaim and won numerous awards, including five Emmys and the 2014 Television Critics Association award for Outstanding Achievement in Drama. The performances of the show's cast have been particularly recognised, with Julianna Margulies' role as Alicia Florrick receiving significant praise. On March 13, 2014, CBS renewed the show for a sixth season.

Rose Bowl (Recurring event) The Rose Bowl is an annual American college football bowl game, usually played on January 1 at the Rose Bowl in Pasadena, California. When New Year's Day falls on a Sunday, the game is played on Monday, January 2. The Rose Bowl is nicknamed "The Granddaddy of Them All" because it is the oldest bowl game. It was first played in 1902, and has been played annually since 1916. Since 1945, it has been the highest attended college football bowl game. It is a part of the Tournament of Roses "America's New Year Celebration", which also includes the historic Tournament of Roses Parade. Except in the years when the Rose Bowl Game served as the BCS National Championship Game, it has continued to be played in the afternoon. In 2014, the Rose Bowl Game celebrated its 100th game. Previously, it was known as the Rose Bowl Game presented by Vizio The Rose Bowl Game has regularly hosted the conference champions from the Big Ten and Pacific-12 conferences since World War II unless the teams or the game are involved in the national championship.

Vocabulary Bypass (v) 우회하다 Disruptive (adj) involving, causing, or tending to cause disruption Innovation (n) 혁신, 쇄신 Theorist (n) 이론가 Cheapskate (n) 구두쇠 Hipster (n) 최신 정보통, 박식한 사람 Salivate over (expression) 군침을 흘리다 Unbundling (n) (제품, 서비스 따위에) 개별 가격 매기기. A bump in the road (expression) 장애물; 도로의 요철 부분 A la carte (expression) (각각 가격이 따로 붙어 있는 요리를) 따로 따로 시키는 Intact (adj) (하나도 손상되지 않고) 온전한, 전혀 다치지 않은 Middleman (n) (어떤 일을 중간에서 주선하거나 조정하는) 중개인 Shopping spree (expression) 물건을 왕창 사들임 (지름신 내림) Competitive landscape (expression) 경쟁적 전망 Moat (n) 호, 해자(성 주위에 둘러 판 못) Formidable (adj) 가공할, 어마어마한 Go toe-to-toe with (expression) 어깨를 나란히 겨룰 수 있다. Lined up (expression) 줄을 서다[이루다]; 줄을 서서 기다리고 있다 Pull away from (expression) …에서 떼어놓다 . Strike out (expression) 독립하다 Behemoth (n) 거대 기업 Falls apart (expression) 무너지다 Fly solo (expression) 단독비행을 하다 Expire (v) 만료되다, 만기가 되다 Filler around (expression) 사방에(서), 빙 둘러 Coverage (n) (신문・텔레비전・라디오의) 보도 Monetize (v) <금속을> 화폐로 주조하다; 화폐로 정하다 Lost out on (expression) …에게 지다, …을 놓치다 Read between the lines (expression) 행간[속뜻]을 읽다 Multitude (n) 다수 Straddle (v) (양쪽으로) 다리를 벌리고 올라앉다 Bug (v) 귀찮게 하다 Psyched up about (expression) ~에 대해 굉장히 기대하다 Viable (adj) 실행 가능한, 성공할 수 있는 Oxymoron (n) 모순어법 Constituency (n) (특정 인물・상품 등의) 지지층