Marchand & Ourand and when ESPN will go direct to consumer

Sometime in September or October of 2021, Andrew Marchand predicted that ESPN would go direct to consumer with its flagship linear networks within 5 years. To buffer for my bad memory, let’s say the bet is that it happens before Halloween 2026.

Many agreed with Andrew. Some disagreed, including his podcast partner John Ourand. I disagreed and still do, and at least for now, it’s not just for the sake of spirited debate.

John Ourand, on the other hand, is a waffling flip-flopper! He’s gone from predicting it would happen after Halloween 2026, to agreeing with Andrew that it would happen before then, to basically being on the “maybe it happens by then, maybe it doesn’t” fence.

Who’s Kornheiser and Who’s Wilbon?

Given that their podcast pretty blatantly borrowed/stole* from ESPN’s “Pardon the Interruption” I guess I now have an answer to “Who’s Kornheiser and who’s Wilbon?”

Marchand is Kornheiser! Ourand is Wilbon! A decades-long theme during PTI’s “Toss Up!” segment is Wilbon answering the question with some variant of “it’s a tie” and Kornheiser mocking him for pushing and offering some kind of an exasperated “This is a debate show!”

*I’m not judging! I love PTI, and a topic-based, with occasional guest interviews format is a big reason I like the Marchand & Ourand podcast so much.

In the real world I think John’s current position, effectively: “who knows when it will happen?” is very reasonable. But for debate show purposes, c’mon!

Looking at the argument for ESPN going DTC sooner rather than later

Andrew’s arguments aren’t ridiculous, but I think they’re kind of weak and can be knocked down on their merits. To paraphrase Andrew his central arguments (at least on the most recent podcast) were:

1. When it happens, ESPN will still be on cable too, so it’s not like going DTC means the end of the cable carriage fee model for ESPN

2. Others, like the Bally and YES regional sports networks are already doing it or pursuing it, ESPN will have to do it, too.

Let’s take the second one first. Bally is already doing it and YES is already pursuing it for the same reason. For them, it’s a very good reason, but it doesn’t apply to ESPN. There are lots of distributors, from streaming distributors like YouTube TV and Hulu+ Live to DISH Network satellite and Sling TV services that don’t offer those RSNs.

Andrew offered up that (paraphrase) “The people at RSNs are smart and know what they are doing!” Despite how it’s played out, I agree they are smart folks and don’t think that they’re all idiots. But nor can I praise them effusively for scrambling to do direct to consumer streaming services AFTER they’ve collectively lost distribution in millions and millions of homes who still subscribe to a pay TV bundle.

ESPN doesn’t have that particular problem. Save for fringe services like Philo which offer no sports programming or broadcast networks, ESPN is still offered by all pay TV bundle distributors.

It’s true, though, that like everyone else without a direct to consumer service that ESPN has lost access to the millions of homes that no longer subscribe to any pay TV service for linear programming. In round numbers that amounts to around 25 million fewer homes than a decade ago. That’s a lot!

But collectively, and in round numbers, any service not carried by most streamers and DISH Network has lost access to around another 20 million to 25 million homes on top of that. That’s a lot more!

The difference between ESPN and the RSNs currently is that there are millions and millions of of homes subscribing to a pay TV bundle who can’t get Ballys/YES RSNs from those services but they can get ESPN from those same services.

Cord cutting has to push ESPN to DTC, though, right?

Yep! But the question is when.

The number of people who subscribe to a pay TV bundle continues to dwindle and the big unanswered question is where will it stabilize. It hasn’t stabilized yet, though there are some indications that cord cutting may be decelerating.

My thought has always been that ESPN wouldn’t launch a direct to consumer service until it’s in around 50 million homes. As of the December Nielsen estimates, ESPN was still in more than 74 million homes.

50 million homes is an arbitrary round number which for forecasting purposes might be too low or even too high. There’s a case to make that if cord cutting doesn’t stabilize soon, ESPN will freak out and launch a DTC well before it hits 50 million homes. But even at 50 million homes, just for ESPN, ESPN2, ESPNU and ESPN News, that’s (currently) a $6 billion/year of revenue business.

Why would ESPN do anything to reduce the tremendous leverage it has?

Currently, ESPN is still an 800 pound leverage-bullying gorilla. It’s pretty impressive. In carriage negotiations, ESPN has consistently been able to command the fee increases it has sought. Witness last October when ESPN’s existing deal with DISH/Sling ran out: DISH pulled ESPN from its DISH and Sling lineups…for two days before caving and giving ESPN what it asked for.

That’s the same DISH that said “See ya!” to Bally Sports Networks and YES!

As of the end of 2022, DISH and Sling combined for more than 10 million homes. 10 million homes that can’t get Bally or YES networks. Yes, not all 10 million of DISH’s homes are in Bally or YES territory, but the point here is DISH was willing to lose those networks but unwilling to lose ESPN.

Marchand’s first point, that whenever ESPN goes DTC it will still be available via existing pay TV bundles is almost certainly correct. It seems to be the case that in the current landscape that the distributors really do need ESPN as much as ESPN needs the distributors. Maybe even more.

But launching a DTC, at any price, reduces ESPN’s leverage in distribution negotiations. Separate from the “when”, Marchand has made some hay with the “how much will it cost?”angle, suggesting that an ESPN DTC would initially be priced very reasonably at around $20/mo. At that price there would be even more risk for ESPN with distribution than there would be at $30 or $40/mo.

It wouldn’t necessarily result in distributors no longer carrying ESPN, but it would likely result in ESPN sometimes being pulled from lineups for longer than two days, and would almost certainly result in ESPN not getting everything it asks for as it currently does.

Whatever replaces the current pay TV bundle is worse for the networks and that’s a fact!

The bundle where everyone subscribing pays for every network whether they watch it or not is, for the networks, the greatest business model of all time! It was great for the RSNs while it lasted, and it has been greater for ESPN than any other network.

Andrew Marchand may ultimately be proved correct, but the idea of ESPN milking the bundle for everything it’s worth, as long as it possibly can, is an idea that I think extends beyond Halloween 2026. Built-in to that idea is the thought that launching a DTC puts that milking at risk. That doesn’t necessarily mean distributors would drop ESPN or the end of the carriage fee revenue model, but it probably does mean those negotiations wouldn’t go nearly as well for ESPN as they currently do.