Since ESPN negotiated its last series of carriage agreements with cable and satellite TV providers, a lot has changed. Cord cutting has become prevalent, streaming services have emerged as a player for subscribers and over the top has also become a part of our vocabulary. With all this in mind, an industry analyst has found a couple of buttons ESPN can push to gain leverage with the pay TV providers.
MoffetNathanson says the upcoming ACC Network could have an impact on revenue growth just like the SEC Network did when it launched back in 2014. And there’s the planned ESPN over the top direct-to-consumer service that the Worldwide Leader is developing with BAMTech in which parent company Disney purchased a stake last year.
MoffetNathanson says the ACC Network can help ESPN in bringing in an increase in subscriber fees like the SEC Network did.
“The ACC is expecting as much revenue in its first year as the SEC generated per school in 2014. We forecast a haircut to the SEC Network’s success with an assumption that the ACC Network will only be carried in states where their schools are located, representing about 40% of the U.S. households on the Eastern coast of the U.S. This leads us to project total revenues of approximately $220 million in its first year and $80 million in EBIT,” the firm wrote.
EBIT meaning earnings before interest and taxes.
And with ESPN planning its over the top channel (no linear content from its TV networks willl appear on the service), there’s another potential revenue stream. MoffetNathanson says the OTT service could amass as many as four million subscribers in the first four years and with a $9.95/month fee, could bringing as much as $480 million in revenue.
“As long as there is little to no overlap of the existing linear ESPN content on the BAMTech ESPN OTT offering, we expect essentially no cannibalization of the existing ESPN Pay TV subscriber base,” the firm wrote. “However, if content begins to spill over from existing channels, this will be an area worth monitoring closely.”
In our story last year about ESPN’s planned OTT service, Andrew Bucholtz noted that it will provide content that isn’t seen on its channels and online:
As per ESPN’s standalone service, that will be a very interesting topic to watch as time goes on. It makes sense that they’re offering only a “WatchESPN lite,” as that’s what Disney executives’ public comments have suggested for some time, but will cord-cutters and cord-nevers actually buy in for something that only offers ESPN3 content? We’ll see as time goes on.
And could ESPN use that service as leverage with the pay TV providers? It could argue that if it doesn’t get the subscriber fees it wants, it could allow some events that are on TV to migrate to the OTT service. While it likely won’t happen, ESPN could lean hard on the providers to get what it wants.
So before you think ESPN might have trouble after suffering from falling subscriber numbers and recent layoffs, it does have a couple of cards it can play in order to increase its fees.