It is the future of sports content - fun, entertainment-style-journalism that is commentary and snark - and one-half of the reason why ESPN is beginning to be disrupted.
Outkick the Coverage covered Yahoo! Sports' ascent in the online sports content world, which started to validate something that I've been thinking for a long time: If ESPN didn't air live sports, would it still be relevant?
I think the answer, sadly, is no. This is the second reason ESPN is starting to get disrupted.
This pains me because in the 90s, as ESPN became dominant, and I was in college and then a bachelor, many of my Saturdays and Sundays were spent hungover watching the same exact episode of SportsCenter over and over, for like four hours in a row. It makes me nostalgic for my 20s.
But the "content owners" - the sports leagues - have forward integrated into distributing their own product. The dual revenue model of The Worldwide Leader in Sports is hard to ignore and it has enticed professional leagues to make this move.
ESPN currently dominates the cable subscriber fee market - cable operators reportedly pay $4 per subscriber to carry its programming. They also drive significant revenue through advertising. This hasn't gone unnoticed by the major sports leagues....the NFL, MLB, the NBA, the Big Ten, even the NHL all have their own networks.
Beyond the subscriber fees, ESPN's live sports content in particular is extremely valuable to advertisers as well because (1) it is DVR-proof since it is primarily consumed live and (2) its audience skews male and young, a demo that is very difficult to efficiently reach in an advertising media buy.
Cutting out the middleman and taking more of that money for themselves is becoming too hard to ignore for the sports leagues. ESPN seems to be attempting to counter this move by "white labeling" its service to collegiate sports conferences and teams - see the SEC Network and the Longhorn Network of the University of Texas - where it basically runs the tv property on behalf of the partner.
So it seems inevitable that the Leagues will eventually just fully distribute the content themselves given the money on the table and the digital technology that enables them to do so. Case in point: MLB's At Bat is one of the highest selling apps of all time and they are connecting directly to the consumer with that relationship with no network and cable provider interfering.
Can the leagues generate enough content in their respective off-seasons to capture enough audience to command subscriber fees and ad revenue? Fantasy league advice, Draft coverage, archive games, minor league or D-league coverage, sport-related movies...there is a treasure trove of content which the leagues own or can access cheaply....and believe me, men will watch (see: ESPN Classic).
So technology will inevitably kill one of ESPN's key assets - exclusive rights to air live sports content.
Without exclusive content arrangements, what does ESPN have left?
1 - Recap content - highlights and recaps of live games
2 - High-end or investigative journalism
3 - Commentary or "entertainment journalism" (my totally made up term) that relies on audience interaction and "personalities" which riff their opinion on the sports happenings on a given day
Here's the problem: A lot of their content is in category #1 (careful* analysis suggests this is about 50-60% of their content (*not careful at all, but based totally on what I observe when I watch ESPN)). The thing is, recap content is a commodity. Everyone has it and many decent sports outlets have been able to adopt ESPN's snarky commentary in airing highlights. They do it well, but anyone can do it.
About 20% of their content is investigative content and 20% is Commentary (again, based on careful* analysis). But today, they're not winning in these areas online.
Here is sports.yahoo.com versus espn.go.com:
Not on the graph but at 20MM uniques / month (per their media kit) is sbnation.com. They've raised $23M in VC funding (also in the mix is Bleacher Report, with $18.5M in funding). SB Nation is already syndicating their content USA Today and CBS Sports.
Investigative and Commentary are differentiated content that is not a commodity and takes editorial talent to do well. Sure, ESPN can build up in this area quickly given its financial resources - and it's not like the newspaper business doesn't have a stockpile of experienced editorial talent from which to recruit. But for a growing number of sports fans, they are not the worldwide leader online for "entertainment journalism" that sports fans seem to crave.
So is ESPN doomed? No. But they suffer from a growing "Microsoft"-like sentiment from the audience that limits how loyal they will be if they lose live content. For example, their extension of the current BCS Bowl system by buying the rights through 2014, was met with a lot of backlash as the contract is perceived to be a roadblock towards a true college football playoff. Fans perceive their coverage of college football to be biased based on the contracts it has with certain conferences, like the SEC (home of the Florida Gators, who are awesome).
I look for parallels in the video game industry, in particular Zynga and EA. Video Game studios have unique creative talent. It is difficult to create content as a unique asset and scale it and develop it. Distribution - as a process - is commoditized. Anyone can publish (see this very horribly written blog you're reading). Aggregating an audience,however, is very hard to do. It requires technical competency as well as creative competency. Zynga and EA face these same challenges and they are making acquisitions to bring in creative talent. Both Zynga (primarily through Facebook but beginning to in other direct-to-consumer online channels) and EA (primarily through CPG-style retail relationships but beginning to build in online / direct-to-consumer) are good at distribution and aggregation, but have been acquiring to fill the gaps with creative acquisitions.
And so similarly, if it loses the live content, look for ESPN to do just that, with SB Nation in particular being an attractive asset for them to bring in.
But...realistically, they probably have at least another 10 years of being able to competitively bid for live content. In that time, SB Nation and others will get bigger, get more audience...and may not easily be purchased. And, if ESPN chooses to go big anyway and make an expensive acquisition then (rather than relatively cheaply now), audiences and creative talent are fickle. Just like how the Engadget team left AOL, there's nothing to say that even after an acquisition ESPN could retain the editorial talent it expensively purchased.
So ESPN is facing the classic disruption. Will it act now or pay a lot more later and still potentially lose?
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