Everyone involved with cable television knows that a la carte programming is coming, but it appears ESPN, the network most responsible for inflating sports cable bubble, isn’t going down without a fight.
Verizon FiOS, a new fiber optic television and internet offering from Verizon, made their cable packages available to the customers yesterday, which included pared down options that makes ESPN’s channels an option, rather than a necessary part of the pay television experience.
Their basic package includes major broadcasters and other basic cable channels like CNN and AMC, but makes ESPN and ESPN 2 part of a separate “sports” tier. The Walt Disney Company, who owns ESPN, made statement last Friday stating: “Media reports about Verizon’s new contemplated bundles describe packages that would not be authorized by our existing agreements. Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package.”
The reason why Disney is protesting Verizon’s new offering is because ESPN makes $6.5 billion, roughly two-thirds of their revenue, from cable and satellite affiliate fees. If ESPN begins to be relegated to optional tiers by cable companies, those fees would undoubtedly decrease the next time they meet at the negotiating table. This is a position ESPN can ill afford to end up in as they have billions of dollars in rights fees guaranteed to most of the major US pro sports leagues for years to come.
With cord-cutting slowly gaining steam and many Millennials not even buying into cable television at all, cable operators are grudgingly realizing that changing their business model is the only way to retain the next generation of television viewers, hence Dish Networks’s Sling TV and now Verizon FiOS.
However, the deflation of the sports bubble will probably take years to begin deflating, as ESPN has over 100 million subscribers via cable providers and cord-cutting isn’t increasing at the rates initially projected. Most likely, it will come, as Hemingway wrote in The Sun Also Rises, “Two ways, gradually and then suddenly.” Consider these new cable offerings the first shot across the bow.