ESPN on Xbox 360 = Cancel Your Cable? Not So Fast

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The news that ESPN will stream some 3,500 live games per year to Xbox 360 consoles prompted a wave virtual cheers across the Web: I can finally cancel my cable TV! (see ESPN Strikes Deal With Microsoft For Xbox).

As TechCrunch’s MG Siegler wrote in a post yesterday (”Canceling My Cable In 5, 4, 3…”), live sports “was the only thing holding me back from completely canceling my cable subscription. As soon as this goes live, I’m done with cable forever.”

Dozens of Twitter posts echoed the belief that ESPN3.com on Microsoft’s gaming console would liberate them from Big Cable — see this, this and this.

The elation probably is unwarranted.

For two reasons: (1) ESPN3 doesn’t offer the programmer’s highest-profile events — such as Monday Night Football — which are still only available through a pay-TV subscription; and (2) to get ESPN3.com on Xbox 360, your ISP (i.e., your cable or phone company) needs to already have a deal to offer ESPN3.

On the first point, it’s not clear that cricket, Wimbledon matches and the occasional MLB and NBA game will satisfy the appetite of your average sports fan. ESPN3 in general is more of a long-tail play for less-popular sports.

Even when there is a game on ESPN3 you want to watch, note that geographic blackout restrictions apply: “Blackouts are implemented to protect the primary rights holder, as defined by the professional and college sports leagues or teams in a given market,” ESPN says in its FAQ for ESPN3. So, for example, even though tomorrow night’s Phillies-Yankees game is scheduled to be available on ESPN3, YES Network and CSN Philly have dibs on the broadcast.

On the second point, ESPN’s deal with Microsoft doesn’t actually increase the audience reach of ESPN3.com at all, which remains at around 50 million households.

In other words, 50 million people in the U.S. already had the ability to access ESPN3 on their HDTVs by simply hooking up a PC (although the Xbox 360 tie-in admittedly will make the process easier). Meanwhile the overall number of pay-TV households continues to grow — a net increase of 580,000 in Q1 2010, although cable is losing share to satellite and telcos, according to Leichtman Research Group.

ESPN’s goal with Xbox is to enhance the value of the ESPN3 subscription, to drive views and ad impressions, not to cut out its cable, satellite and telco partners: “This was a deal in which we were mindful of our existing relationships,” said Matt Murphy, senior vice president of digital video distribution for Disney and ESPN Media Networks.

Did anyone really believe ESPN would do anything to undercut its incredibly lucrative core TV business?

According to LRG, less than 1% of cable subscribers surveyed who are likely to “cut the cord” cited getting all the programs they want on the Internet or in other ways as a reason for potentially dropping cable. The convenience of getting ESPN3 on TV through Xbox won’t change that much.

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