ESPN's 360-Degree Leap5/23/2009 2:00 AM Eastern
ESPN struck a blow last week for programmers eager to get paid for online enjoyment of their content. The ripple effects remain to be seen.
Top U.S. cable provider Comcast agreed to pay a fee for each of its 15.3 million broadband customers so they can access ESPN360.com, the online service that shows some 3,500 live sports events yearly.
Begun in 2001 as ESPN Broadband, it's thus far signed up mostly smaller cable affiliates; telcos Verizon Communications and AT&T; and Insight Communications. This deal vaults 360 to 66% broadband penetration, ESPN says.
To say cable operators are reluctant to cut into broadband's hefty profit margins by paying for exclusive content would be putting it mildly.
Last summer, in Orlando, Fla., at a panel breakfast sponsored by this magazine, ESPN distribution executive David Preschlack got caught in a verbal squeeze between two cable operators on the issue.
They said they couldn't afford ESPN360. Or they didn't like that it would cost them bandwidth and a fee for every broadband customer, even the ones who don't care about sports.
“I remember that well,” Preschlack said on Friday. “There've been panels, there've been calls with reporters. I've been read a lot of things that certainly questioned what we were doing or have been trying to do over the last [eight] years. But obviously we couldn't be happier that we stayed the course. Absolutely the right decision for us.”
Preschlack said, “At the end of the day, it's the product.” ESPN feels 360 programming helps distributors add broadband customers.
Comcast has focused on driving online video traffic at its portal; ESPN360 fits that approach. Sources say Comcast's per-subscriber fee for ESPN360 is below 10 cents. The Comcast agreement also includes positioning of cable networks ESPNU and ESPN Classic as well as other aspects. It's always the deal as much as the product.
Might other programmers try this approach? Pali Capital's Rich Greenfield said last week Hulu and CBS.com should try to get paid — after all, high-quality video is really what's driving profitable cable-modem sales.
Might they succeed? Leverage will make all the difference. But ESPN and Comcast have certainly made a significant step in that direction.