It didn’t take long after the first week of football blackouts on YouTube TV for sports fans to adopt a conspiratorial bent.
“ESPN is trying to make us think this is YouTube TV’s fault, when in fact they are just trying to add new subscribers to their new standalone DTC app,” a now-viral post from the X account. @JoshOnAir reads. “Unbelievable. Don’t like them people. ESPN / Disney are the worst.”
@JoshOnAir’s opinion was parroted in a handful of viral posts that only seemed to gain steam over the weekend as consumers missed three days of college and pro football on the ESPN networks. It was easy to understand the frustration: sports fans were losing out despite their role as dedicated paying customers, while the suits at YouTube TV and Disney haggled over the shekels in a stalemate with no end date in sight.
Before long, the arguments fell along familiar political lines: greedy corporations exploiting the common man, stolen profits with little concern for consumers, and the continued harassment of another valued institution.
But there was a problem. These arguments were mostly … untrue. The impasse between ESPN and YouTube TV had nothing to do with ESPN trying to Purge itself from cable TV, but in relation to ESPN’s still considerable desire for it remain on the cable. The network was keeping an inconvenient secret about its business, and the showdown with YouTube TV provided a peek behind the curtain.
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More than any show or talking head, ESPN’s success can be traced to a single holy grail: for every viewer who tunes in, ESPN gets paid twice.
First, advertisers pay ESPN for the right to air commercials, and second, cable providers pay ESPN for the right to air the network. This second payment is called a “carriage fee” and amounts to about $10 per subscriber per month — a major coup responsible for much of ESPN’s profitability over the past three decades.
Carriage fees are operated on a contractual basis and must be renegotiated every few years, which led to the current impasse between YouTube and ESPN. According to on YouTube TVESPN is asking a lot from the next set of carrier rates, with YouTube TV wanting a better rate than any of its cable TV peers, according to ESPN.
As with most corporate disputes, the truth lies somewhere in the middle, and it’s overshadowed by a much larger reality: the cable television model is collapsing. Today, cord-cutting has made the cable business look like the newspaper business of 30 years ago: Still profitable, but steadily losing ground. The latest ratings set the standard pay TV packages 65 million housesup from more than 105 million in 2010.
For ESPN, the downside of this change is potentially cataclysmic. The network is backed into a corner: Either raise the cost of carriage fees in line with the decline in cable customers, or find a way to recoup that money directly from consumers.
That rocky and difficult place leads us to of today The tough, tough spot: Where ESPN has launched its direct-to-consumer app, allowing sports fans to pay $30 a month for an all-access pass to the network, and where a fight with YouTube TV over increased cart fees has spilled over.
If you find yourself thinking, Doesn’t this feud help ESPN launch its new product, hastening the possibility of cable TV’s demise? Well, you would be right. Except for one key point: ESPN doesn’t they want its customers who are fleeing cable TV for a $30-a-month app. In an interview about Peter Kafka’s brilliant Channels podcast last month, ESPN CEO Jimmy Pitaro made the issue clear.
“If you enter us directly, the biggest problem we’re going to have is dissolution,” Pitaro said. “If you go back to the (cable) ecosystem, you don’t have much of a holdup problem. It’s really easy for me to turn a streaming service on or off. I do it all the time. It’s a lot harder for me to do it on cable.”
Pitaro’s point? Every cable subscriber lost to the ESPN DTC app represents a high-risk churn. The goal is that slowly build the DTC audience, ultimately creating an ESPN app that provides value to customers 12 months out of the year, discouraging people from keeping their subscriptions only during, say, football season.
According to Pitaro, the goal of the new app is to appeal to the 60 million people who have left cable over the past two decades, not the remaining 65 million, because the remaining 65 million represent a low-risk path to billions in short-term revenue.
“We wanted to protect (traditional cable),” Pitaro said. “By the way, we still believe there’s a lot of value in the traditional ecosystem.”
The subtext of this point is hard to ignore. At least for now, ESPN needs cable providers at least as much as cable providers need the network. In the current battle for the latest set of carrier rates, that sense of leverage could give YouTube TV an edge.
Of course, that lead could show up after a few weeks without ESPN on YouTube TV — an ugly outcome that would hurt both sides of the cart battle. But with nearly eight weeks until the network’s next stretch of golf programming — TGL’s second season kicks off on Dec. 28 — golf fans have plenty of time.
Rest assured, a deal will be struck and a lot of money will be made. That’s the way the cable business has always worked for ESPN. But those times are changing … and in the long run, that might not be a bad thing for the paying people.
