Marcus Johnson (00:04):

Hey, gang, it's Friday, September 5th, Paul and listeners, welcome to Behind the Numbers, an EMARKETER video podcast. I'm Marcus, and joining me for today's conversation, we have VP of content, living in Maine, it's Mr. Paul Verna.

Paul Verna (00:18):

Hey, great to be here, Marcus, as always.

Marcus Johnson (00:21):

Yes, sir, yes, sir. Thank you so much for hanging out today, just me and you. We go straight to today's fact.

(00:29):

Sharks remember a time before Saturn had rings. So I knew sharks were old, I knew that they were older than trees in fact. I think I've mentioned that on the show before, but Saturn's rings are only about 100, only, about 100 million years old. Sharks have been around for 400 plus million years. Not the same ones, but sharks, the species.

Paul Verna (00:57):

Yeah. I remember when they started, and I remember every one of those rings on Saturn. I'm like, "Oh, wow, new ring today. How cool."

Marcus Johnson (01:09):

That's fun. Yeah, it's a nice change. I like what they've done with the planet. Sharks also remember a time before plants started to flower, and what a horrible place to be without a flowering plants.

Paul Verna (01:22):

I was going to say, what did they do before that?

Marcus Johnson (01:23):

Yeah, they were just miserable. Although I guess they're in the ocean, so maybe they didn't know. And they also... sharks saw dinosaurs come and go, so you can only imagine what they think of us, so you won't be here long.

Paul Verna (01:36):

Yeah, but question of the day: do sharks remember a time before ESPN? I'm not sure they do.

Marcus Johnson (01:46):

Nobody does, which is today's real topic, how the new ESPN app is about to change TV.

(01:53):

"So Disney's new ESPN app reaches for sports fans outside cable TV," writes Lisa Richwine of Reuters, "Designed to be a hub for live games and personalized news stats and highlights." The app will have NFL, NBA, WNBA, NHL, college football, tennis, golf, and other sports across two tiers, Paul. ESPN Select, that's 12 bucks a month for 32,000 live events a year, and ESPN Unlimited is $30 a month for 47,000 live events, whatever that means. Bundles with unsupported versions of Disney+ and Hulu start at 36 bucks a month, discounted to 30 in the first year. Paul, what do you think will be the initial impact of this new ESPN app hitting the market?

Paul Verna (02:45):

Well, I think it does give consumers more choice, because up until recently, they've had ESPN+, which is limited and didn't always overlap with ESPN. And then you've had ESPN through the legacy channels.

(03:01):

So the other thing that is interesting is that some of the big cable providers like Spectrum, Charter Spectrum have already made deals with Disney to facilitate access to people on those legacy platforms. So it seems like, to the best of its ability, Disney is trying to have it both ways where they're still hanging on to what's left of that traditional pay TV ecosystem, but obviously transitioning to a future time when everybody's going to access everything through an internet connection.

Marcus Johnson (03:35):

Yeah, yeah, still a very important piece for them. In 2020, ESPN was available in 100 million homes via cable. Now that's at 61 million, so down significantly, but still a lot of people.

(03:51):

You mentioned ESPN+, which had some ESPN content, but not really the live stuff that most people want to watch. They're hoping that this is going to reinvigorate the brand because that ESPN+ offering peaked two years ago in terms of viewers according to our forecasting team, 37 million viewers this year. The last two years, it's been a staircase downwards to get to that 37 million. And now Jeremy Goldman noting that there's a pool of 114 million American digital live sports viewers that ESPN could attract. So quite the market, and that app, the ESPN+, losing money as well. So time for a change.

(04:32):

Paul, I also thought something else that could be one of the initial impacts is this could take personalization to a new level because fans, they can enter their favorite teams and sports and get personalized versions of SportsCenter, the news recap show using AI-generated narration based on the voices of ESPN anchors. What would you make of this piece?

Paul Verna (04:55):

Personally, I think it's a little creepy to create these AI versions with these existing voices because it creates more opportunity for confusion as to is this a bot or is it a real person? If you're using the regular... Now, if you look at almost any YouTube how-to video, there's an AI-narrated version, and you can definitely tell. So it makes me a little bit uneasy, especially for the older customers who may not have as much familiarity with...

Marcus Johnson (05:26):

Great point.

Paul Verna (05:26):

... AI, and they are the ones who are in the crux of this transition from the old model to the new model. But I think, overall, it's the way things are going, and if it allows people to customize that content, that could be an important distinguishing characteristic, especially at a time when these sports rights are fragmenting across so many different entities. So if you're a fan of a league or a sport, chances are you have to triangulate to figure out on which channel do I get to watch my team tonight? Some exceptions to that, but for the most part, I think that the order of the day is fragmentation. So being able to personalize the experience helps a little bit because then you know that when you fire up that ESPN app, the starting point is going to be giving you what you want based on your preferences.

Marcus Johnson (06:22):

Yeah, it's a tough balance though, because I like that YouTube knows that I'm interested in Lakers content and it's going to give me a lot of that, but I also do want a healthy dose of regular league news.

(06:35):

And this reminds me of something called the Daily Me. So this was a term coined by MIT Media Lab founder, Nicholas Negroponte, in his 1995 book, Being Digital, describing personalized digital daily newspapers customized for a person's taste and interests, not the general public. Sounds nice, but the problem is that the concept was linked to concerns about, as you said, fragmentation and a fragmented public and a loss of a shared understanding, folks becoming increasingly isolated. Who do you talk to about your personal SportsCenter for you as sports is a very social experience?

Paul Verna (07:10):

It is.

Marcus Johnson (07:11):

So I don't know how this is going to land.

Paul Verna (07:14):

Yeah, I mean, it used to be about the water cooler, but now everybody has their own water bottles, so there is no water cooler anymore.

Marcus Johnson (07:22):

I like that.

Paul Verna (07:23):

So yeah, I mean, I think it's a slippery slope, personalization cuts both ways. On the one hand, it saves a few steps, it saves some clutter, but it does lead to these silos and these echo chambers where you kind of end up just with a very narrow scope and not necessarily looking across a wider spectrum.

(07:47):

So I think if you're a sports fan, you obviously want to track your team, that's your biggest interest, but if you don't have more visibility into what other teams are doing, then you don't have that perspective when it comes to the trade deadlines, just so many things about that experience where it really is all about the league, it's not just about, "Okay, what are my team scores from today?"

Marcus Johnson (08:18):

Because if your team's not doing well, then maybe you're more likely to check out. But if you're picking up on some of those other storylines from the league, then maybe you're more likely to tune in. So a lot of initial impacts here potentially.

(08:30):

The biggest takeaway, I think, for me was it's about time, because I think a lot of people felt that way when ESPN+ came along, they thought it was going to be more of that content that they used to watching on cable. It wasn't.

(08:42):

I was looking at this, the number of digital live sports viewers, digital overtook traditional pay TV live sports viewers back in 2023. There are now 30 million more of them. And so digital has been ahead in terms of sports for a while now. This is ESPN finally catching up.

(08:59):

Paul, our Jeremy Goldman writing that the economics of $30 a month subscriptions like the ESPN one only work if consumers perceive ESPN as a default home for sports. Can ESPN pull this off in your opinion?

Paul Verna (09:16):

Yes and no. I mean, ESPN is the most recognizable brand in sports, and I think everything that Disney has been doing around the ESPN is only going to cement that. So I don't have any fear for Disney that their brand is going to get diluted or that people will stop associating ESPN with sports.

(09:36):

But back to the point of fragmentation, if you look at some of the major US sports leagues and who has the licenses, it is a hodgepodge of different parties, some digital, some traditional. So in that sense, I think ESPN has to continue to work hard at keeping its association with certain leagues and not losing on opportunities.

(10:04):

So for example, Paramount just signed an exclusive deal with UFC, so that cuts... Maybe Disney didn't even want to be there or maybe they just didn't see the economics of it. But if you want to be synonymous with sports, you have to cut a pretty wide swath, and I think it gets a little bit harder to do that when the rights themselves are fragmented or when you have companies swooping in, like Apple did with MLS, for example, where Apple has the exclusive rights to MLS, not just in the US, but worldwide.

(10:41):

So if Disney wanted in on that, they're not going to have that. So I think they have to play a little bit of defense, to use a sports analogy, to make sure that as rights come up for renewal, that they're always in those conversations. Ultimately, they're going to make whatever business decision makes sense for them at the time, and there are going to be times, there have been times when clearly the bar was a little too high, even for a company with as deep pockets as Disney, but at least they need to be in that conversation if they want to be associated with sports writ large.

Marcus Johnson (11:17):

Not everything is here. A lot is here, but not everything. And as you're saying and as Jeremy also points out, "the marquee events," he says, "like the NBA playoffs and the World Cup remain on rival platforms like Peacock and Prime Video." Deadline noting that even diehard ESPN subscribers might juggle multiple services to catch all the biggest games. I like the way he puts this; "The convenience of cable-era channel surfing has simply given way to app surfing."

(11:46):

And speaking of this, there was a Wall Street Journal article by Isabella Simonetti and Nate Rattner, and they had this really good graphic from Ampere Analysis showing the share of national US sports rights TV deals. Basically the NFL, where is it spread out across the NBA, NHL, et cetera. So the NBA, for example, Disney has about 38%; Comcast, 36%; and then Amazon has rights to the remaining 26%. And so he's done this for or they have done this for the NFL, NBA, NHL, et cetera, et cetera.

(12:22):

Looking at the share of national US sports rights TV deals, is this the world for the foreseeable future or will start to consolidate? Because we're basically looking at, there's seven pie charts here, each one is a league, and pretty much all of them, apart from one or two, are cut up amongst 3, 4, 5, 6, 7 different people. It's different networks or channel streaming services.

Paul Verna (12:49):

I think when it comes to what we perceive as the major US sports, so football, basketball, baseball, hockey, I don't see a scenario where those start to consolidate. I think they will continue to be fragmented.

(13:03):

When it comes to things like UFC or the Olympics, back to the conversation around ESPN and its reputation is like the venue for sports. They will never have the Olympics, at least in the foreseeable future. So there's that giant carve out that belongs to NBCU. So you have these pockets where a certain media company has managed to license the entirety of something as NBC has done, as Paramount has done with UFC, as Apple has done with MLS. But I think those are special cases, and those aren't like the day-to-day kind of sports leagues that Americans associate as the major sports.

(13:52):

So if anything, I see opportunities for maybe even more fragmentation because...

Marcus Johnson (13:58):

Oh, wow.

Paul Verna (13:59):

... Apple, for example, has just started licensing MLB, but if they decide to go a little bit deeper there, then that pie chart, which is now basically Fox has the biggest share, and then you've got Disney and Warner Bros. Discovery having roughly equal shares. So Apple right now has a small share, but theoretically, that could start increasing.

(14:23):

We know what happened with the MBA and the most recent renewal, so that's not going to change anytime soon. But over time, as rights come up or as certain things might get carved out like playoffs, it's easy to foresee a company other than Disney, Comcast, or Amazon wanting to get in on that action.

(14:48):

I mean, one thing that's interesting about this whole ecosystem is that sports rights are one of the only things in the media landscape that doesn't move at lightning speed. Some of these contracts are locked in for 10 years, so we're going to see more glacial-pace movement than sudden jolts. So none of the potential reshaping of how those rights are apportioned is going to happen. It's going to happen more like in a time that a shark can remember.

Marcus Johnson (15:19):

Yeah. So I zoomed us out for a second to look at sports rights across the board. I'm going to zoom us back in for a second because I think going back to this question of being the default home and how difficult that might be given that rights are all over the place. It is, I will say, to ESPN's credit, it is a hub of sorts already because it is bringing a lot of sports consumption into one place.

(15:45):

Steven Zeitchik of the Hollywood Reporter was pointing out, there is tailored vertical video highlights. You can shop on the platform, you can get betting information through ESPN BET, and you can scour fantasy updates because they have a fantasy portion as well right next to a broadcast. So it is a hub already to a certain extent.

Paul Verna (16:07):

Yes, very much so, yeah.

Marcus Johnson (16:09):

Final question, Paul, any unexpected consequences that you foresee regarding the new ESPN apps release?

Paul Verna (16:17):

$30 a month or whatever it ends up being with promotions or bundle deals, that doesn't seem like too far a reach, but consumers look at these subscriptions as a group. They don't look at them in isolation, and the more of them that they have to have, the more it becomes like, "Okay, what do I cut?" And realistically, ESPN is going to be one of the last things to get cut, so is Netflix. So I think ESPN is in a very solid place in that regard, but all of these prices, we've seen them go up right across the board. I think price points are a delicate subject, but I think Disney, they're a smart company, and I think they dialed it in where they needed to, just like they did when they launched ESPN+ back when.

Marcus Johnson (17:13):

Yeah, yeah, interesting to see what this does to bundling, because you imagine this price, to what you're saying, is going to go up quite fast, quite quickly once they get people in the door and get established. I'm wondering how much of a boost this gives or a second wind this gives Disney properties like Disney+ and Hulu because they have, I think, a very compelling bundle actually. They're marketing this as, here's your sports, ESPN, your movies, Disney+, your shows, Hulu for 30 bucks a month as at limited time offer, I think that's very compelling for households. Also, wondering what kind of a boost this gives to Fox because they are launching their standalone app in conjunction or at the same time as ESPN. It's called Fox One, and there's going to be a $40 a month bundle in October for two of those. So maybe we see more bundling as a result.

Paul Verna (18:01):

Yeah, I think there's a strong possibility of that.

Marcus Johnson (18:03):

Yeah. A few other takes in terms of unexpected consequences, one is, I wonder if this pulls folks away from watching ESPN on cable even faster because subscribers to pay TV will get access to the new ESPN app, and so maybe this does transfer some people over a little quicker. So going from watching it on a linear platform to digital ones.

(18:25):

The other one, Paul, was about whether this will break the sports news model. And so Steven, as I check again, of the Hollywood Reporter was writing that ESPN, for 45 years, has, no matter the window dressing, basically employed the same model: buy rights to games, run clips from games, and have highly-paid and sharply-dressed personalities talk about games. Can something so one-directional, so expensively legacy media be combined with something this grassroots, this years-generated, this 2025? I was wondering, is this kind of going to break up that model of watching people behind a desk talk about the games that just happened?

Paul Verna (19:10):

That part of it is more likely to be disrupted than just simply the broadcast itself where you need high production values, you need the high-quality talent on air, and some of that talent obviously are the people who do end up doing the post-game analysis, so there's some crossover, but I would say, yeah, I think the way people consume media in general, and sports in particular, is changing to where there are more influencers, there's more, back to the earlier part of our conversation, more personalization and customization of the experience so that you don't necessarily need to tune in to a half-hour show that's going to dissect the week's games because you've already basically gotten so much information ahead of that. And there might even be some cannibalization with some of the ancillary content that ESPN produces that could negate some of the talk shows.

(20:14):

I don't see the model breaking tomorrow, but over time, I think the nature... Just like I know we did a podcast on late night TV not long ago, in the same way that that model is changing and has to change, I do see the possibility of the sports shows morphing into something a little different.

Marcus Johnson (20:35):

Yeah, it's interesting because my favorite sports show, First Things First, they just added an extra hour to their broadcast. It went from two to three hours, so they're getting longer. So maybe there is still a place for them, especially for, as you said, some of the older folks who remember and still like that model of consuming sports. And a lot of that content is still very snackable. You can cut it into videos that you can put on YouTube or wherever, so it's not three hours straight. You're watching 10, 15 minutes segments about your most interesting topics for you.

(21:07):

Final thing here real quick is I thought it's interesting to see how much this can boost merch sales. ESPN marketing lead, Tina Thornton, saying you'll be able to shop for merch after your team wins. She said, "You watch Ty Simpson, Alabama's quarterback, break a passing record, and then one tap, you can buy his jersey." I thought that was quite interesting. The England men can't seem to win anything when it comes to football, but the England woman just won the Euro again, the second time in a row.

Paul Verna (21:37):

Congratulations.

Marcus Johnson (21:38):

Thank you very much. And Chloe Kelly, the most clutch player in the history of sports, scored the winning penalty. She scored the winning goal last time as well. As soon as it finished, the game, I wanted to buy her jersey, and I'm going to buy her jersey. And if a prompt had come up saying, you can now buy her jersey, I would've got it already. So I thought this is quite compelling actually.

Paul Verna (21:59):

And it also goes to the fantasy aspect and the betting aspect. So all three of those things, merch, fantasy, betting, Disney is very good at leveraging those opportunities. So yeah, I think that becomes a much bigger part of the experience and obviously a lot more direct revenue for Disney. They're not the only company that's connecting those dots, but I think they do it particularly well.

Marcus Johnson (22:24):

Well, that is all we have time for unfortunately, a brilliant conversation. Thank you so much to Paul for joining us.

Paul Verna (22:31):

Hey, it's always a pleasure.

Marcus Johnson (22:32):

Yes, indeed. Thank you, of course, to the whole editing crew and to everyone for listening in to Behind the Numbers, an EMARKETER video podcast. Please subscribe, follow, rate, and review. If you feel like that's a lot, just pick one and do that. We'll be back on Monday. Happiest of weekends.

Paul Verna (22:46):

Can I go back to swimming with the sharks now?

Marcus Johnson (22:48):

You can.