ESPN is wary of cord-cutters, says protecting pay-TV is first priority

ESPN(s dis) is the leader of TV sports in the U.S., and plays a direct role in the ongoing rising pay TV packages. That’s why it’s interesting to hear the perspective of its senior executives on the future of cord-cutting and sports viewing.

In a lengthy feature on Monday, the Wall Street Journal explores how ESPN is in a delicate balancing act: trying to accommodate growing demand from sports fans who want to see games online, while also assuring the cable and satellite companies, which are its bread-and-butter, that it won’t let new forms of online viewing eat into their market share.

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According to ESPN President, John Skipper, the TV companies, which pay ESPN around $5.50 a month for the channel are its first priority:

As for what ESPN’s endgame is, Mr. Skipper said the company plans a lot of online experimentation, but its priority is to protect pay-TV profits: “Our calculation right now is we’re going to ride this. We’re going to ride it as long as it makes sense.”

This strategy explains why the sports channel’s flagship app, WatchESPN, only shows big games to those with pay-TV subscriptions, while offering everyone else a separate stream of lower-profile fare like rugby or polo for free.

ESPN, however, may be hard-pressed to maintain this strategy in the long term as pay-TV viewers decline. As the Journal notes, the “company is careful not to market it as a product for cord cutters,” — though, it is perhaps telling that both ESPN and the mainstream press are finally starting to refer to “cord cutters” and “cord-nevers” in the first place, which are terms they have avoided in the past.

For now, ESPN claims it still has over 98 million pay-TV subscribers so it’s unlikely it will change course anytime soon. But as sports costs continue to climb as a result of deals like the recent $5.6 billion agreement between ESPN and Major League Baseball, it’s hard to envision the existing pay TV model lasting forever — especially as the cost of all those deals is passed on to consumers. Meanwhile, as last week’s NFL Championship games revealed, sports fans access to games is being determined by a bewildering array of choices based on everything from where they live to which phone carrier they use.

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If ESPN ever does get around to selling its channel as a stand-alone internet offering, it will be interesting to see how the offering will compare to other popular online brands like HBO GO and Netflix(s nflx) — and how ESPN will respond to the growing popularity of shared passwords.

Finally, the Journal story notes that the ESPN’s online evolution may speed up once the company improves its ability to sell and package ads for its apps:

ESPN is working on perfecting sales of ads for the app. It says it sold app ads to some 200 brands in 2013. But these haven’t been enough to fill every available ad break.

Partly that is because the technology to serve up ads into the app isn’t yet very advanced and can’t always find spots of the proper length to insert. When TV viewers see commercials, app users are sometimes shown filler material.