Here Comes Fox Sports 1, Part 1 of 5: ESPN Has Long Been King


ESPN is the unchallenged dominant player in sports television.

This Saturday, August 17, 2013, Fox Sports 1 will launch and become the newest entrant in the sports network business. It is suspected that with their current rights to popular sports, along with its rich history of blowing up the status quo, Fox will become the biggest threat to ESPN’s unchallenged dominance. In the five days leading up to Fox Sports 1’s launch, Uzo Ometu will take a daily look at the sports network business, its players, the landscape and what this all means for the future of television, the media and the economy as a whole. In today’s piece, Uzo goes into the history of the biggest brand in sports media, ESPN.

It wasn’t that long ago that you relied on your nightly, local, news channel to bring you your daily fix on what happened in sports. Heck, I was born in 1984, and I still remember growing up waiting for those 180 seconds when the local sports anchor would talk about what happened to the Washington Redskins and give me the occasional scoop on what Michael Jordan’s Bulls did against the Bullets.

That was back in the early 90s. Believe it or not, ESPN had been around for almost two decades at that point but with very little in the way of regular, major, sporting events. And with the major broadcasters dominating both sports and eyeballs at the time, ESPN, while profitable, was not the machine it would soon become.

But from 1979, when ESPN first launched and only 20% of homes had cable television, to today, when more than 90% of households pay for TV (according to Nielsen), ESPN built up a wealth of content and programming that would make the rest of the television industry weep.

The turning point for ESPN came arguably in 1987, when ESPN gained rights to Sunday Night Football. It took a while before it caught fire, but as ESPN marketed the NFL Draft, introduced pre-game and post-game shows, as well as programming that was dedicated solely to football, the channel grew along with the nation’s love of the NFL.

The rest is history. ESPN would begin to benefit from its 24/7 programming by introducing new shows, personalities, television formats and sporting events. The NFL Draft obviously was something they took to a new level, but before ESPN, no channel was making money off college basketball tournaments in the Big Sky Conference. To put it simply, in the early days of ESPN, as long as they could buy cost-effective sporting events (those that the major broadcasters were not bidding on), they could turn marginal programming into big bucks because there was no competition for lower profile sports programming. But as time would tell, there was indeed an audience for it.

The no competition part is important here, because that is a significant factor in what has made ESPN valuable for so long. No broadcast network was competitively bidding on Sunday Night Football or Thursday Night football in the 90s. Back then, channels like ABC and NBC were thriving off sitcoms like Seinfeld, and dramas like “The Wonder Years,” “ER,” and even “Matlock.” Back then, a network’s top dramas got 15 million viewers easily, and they were better ratings draws and more cost efficient than a regular season game in almost any major sport. That made bidding on things like Sunday and Thursday Night football very opportune purchases for ESPN, as those games were considered second-tier programming by the major broadcasters, as the smaller audiences were not as profitable to them as they were to ESPN.

Of course, back then, the good old days of TV were alive and well. First, the broadcasters had no competition from cable. In the 90s, pay-TV penetration still wasn’t what it is today, and cable programmers did not invest in original programing. Thus, the broadcasters had the biggest and best shows, and therefore, had the biggest audiences, too. Ah, those were the good ole days for the likes of ABC, NBC and CBS.

Second, cable channels that took risks had it good too. Take MTV for example. While they still did not invest in serialized scripted programming like most cable channels do today, their music-based programming, along with being the first modern channel to venture into reality television with “The Real World,” yielded a niche audience for advertisers and a high per-subscriber premium from the cable companies.

Lastly, the 90s non-competitive television market also proved ripe for the taking for premium cable channels. HBO was able to invest both in movies and original scripted television that took it to new heights long before other basic and premium cable channels would begin to imitate their model.

So the obvious question here is, “why was the market so ripe for the taking, by so few, for so long?”

The answer is multi-faceted, but it has something to do with the fact that the media companies lived in a single platform world. Even as late as the late 1990’s, media companies were able to be profitable by living on one platform. The broadcasters were strictly broadcasters back then–not so much as a single full-episode of their primetime shows could be found digitally. Same thing goes for the cable channels. And in other platforms, like radio, newspaper and magazines, these content companies already had great margins, and the need to compete in other spaces outside of their domain was not only unnecessary, but perceived as foolishly risky.

Even though it took longer than it strategically should have, other entrants would enter the basic cable market. In the mid 1990s, as companies caught on to the rising profits, we saw new entrants into the cable network space, especially in light of improving cable technology and as the rise of direct-broadcast satellite television grew. As Mitchell Stephens mentions in his article, “History of Television,” “the number of broadcast networks increased also, with the success of the Fox network and then the arrival of the UPN and WB networks.”

But the new competition would take some time to get its footing, leaving ESPN to lead the way into the digital world of sports.

And unlike most media companies that incorrectly approached the changing media landscape of the early 2000’s, ESPN, with many years under its belt, was well-prepared. ESPN was multi-platform before being multi-platform was cool. With a website ahead of its time, a burgeoning radio network, a merger with a major broadcaster, a magazine and the creation of their own sporting event (X Games), ESPN was able to stay relevant in every medium and with every generation. That made the dot-com transition easy for them. And as television audiences began to spread out and dwindle, it put ESPN in a position of power, as they were still able to draw in large audiences due to their live-action programming, and they could attract, keep and grow their audiences with their multi-platform approach to sports entertainment.

With that power, ESPN began battling for sports rights to sporting events that we never thought would be left merely to cable television. NBA playoff games were being played on ESPN. NHL Playoff Games were there, too. And in 2006, ESPN scooped up Monday Night Football, a move that many in the industry never thought could happen with MNF being a major staple in the American television ecosystem.

With all that sports programming, and with viewers left with no other places to watch some of their favorite teams and events, ESPN can be somewhat credited for the rise in pay TV subscribers–people had to have cable to watch their sports! And as we sit here today (and we will go into this in greater detail later on in this series), ESPN perhaps deserves credit for keeping pay-TV subscribers on the cable companies’ teet.

That said, ESPN is no fool—or so I’m assuming. They probably know that they have benefited from a lack of a serious competitor for quite some time. And being the smart company that they are, they had to know that with their ability to spit out money like the media industry’s biggest ATM, new entrants would arise in the sports cable network space.

Most media analysts will tell you that there is no competitive advantage in being an entertainment company. Typically, the best events and entertainers go to whomever has the most money—so unless you control all the money in the world, you cannot prevent someone else from competing with you.

So, as of late, we have seen ESPN take measures that would suggest they know they are in for a long fight. But without the ability to build a real moat around their business, it appears as if the company is doing what most strategists would recommend: make this gravy train last for as long as possible. Thus, we have seen longer contracts with the major sports, including their latest $8.8 billion, 8-year deal with the NFL. We have also seen ESPN cut back on businesses that were lower-margin lines, like The ESPN Zone chain. ESPN has attempted to cut back on aggressive spending too, both in ceding to CBS/Turner on the most recent negotiations for the NCAA Men’s Basketball Tournament, and in the laying off of several hundred employees over the past couple of months.

Deadspin reported back in June that “ESPN started cutting jobs in late May…These layoffs are expected to continue throughout the summer, all in this drip-drip-drip manner. In all, ESPN will cut somewhere between 300 and 400 jobs.” Even The Schwab got the axe!

Are these the moves of a company simply doing their best to run more efficiently, or are they the tactics of an entity preparing for a shift in the monopolistic landscape they have long presided over? In a business where a company like Fox can simply declare that they are willing to spend the same amounts of money on programming and sporting events, does ESPN really have an advantage that can pass the test of time? Is the sports network business going to have to cooperate/collude to exists? And does America actually need sports programming to keep our economy going? We will explore all of this and more in our 5-part series this week.

Note: In full disclosure, I am a former employee of ESPN. 

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