Today, Explained - ESPN 4 SALE

Episode Date: August 8, 2023

Disney CEO Bob Iger says the company is looking for a “strategic partner” to invest in the massive sports network, which has been struggling in an era of cord-cutting. Peter Kafka explains what it could mean for fans. This episode was produced by Hady Mawajdeh, edited by Matt Collette, fact-checked by Laura Bullard, engineered by Patrick Boyd, and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Mickey Mouse owns a lot of things. The Simpsons. The Mouse owns those guys. It's not easy being green. The Mouse owns these guys. The Mouse has this entire cinematic universe. And this one. And the one with that lamp that jumps around.

It'd probably be easier to talk about what Disney doesn't own, which is maybe fitting because Disney is now trying to at least kind of get rid of one of its darlings. Is ESPN for sale? Coming up on today's Explained. BetMGM, authorized gaming partner of the NBA, has your back all season long. From tip-off to the final buzzer, you're always taken care of with a sportsbook born in Vegas. That's a feeling you can only get with BetMGM. And no matter your team, your favorite player, or your style, there's something every NBA fan will love about BetMGM. Download the app today and discover why BetMGM is your basketball home for the season. Raise your game to the next level this year with BetMGM,

a sportsbook worth a slam dunk, an authorized gaming partner of the NBA. BetMGM.com for terms and conditions. Must be 19 years of age or older to wager. Ontario only. Please play responsibly. If you have any questions or concerns about your gambling or someone close to you,

please contact Connex Ontario at 1-866-531-2600 to speak to an advisor free of charge. BetMGM operates pursuant to an operating agreement with iGaming Ontario. Today Explained, Sean Ramos-Firm here with Peter Kafka, host of the Recode Media podcast. The perfect person to ask, is Disney really looking to sell, of all things, ESPN? No. Now add an asterisk. Add an asterisk to that, Sean. Because the person who says, no, we're not looking to sell ESPN is Bob Iger.

If you look at today's media landscape, sports stands very, very tall in terms of its ability to convene millions and millions of people all at once. And our position in that business is very unique. And we want to stay in that business. He is the CEO of Disney. He is one of the most admired people in media. But it also turns out that sometimes what he says out loud is not what actually happens. For instance, he famously couldn't find someone to replace him at Disney. I'm expecting my contract to expire at the end of 2021. And I'm going to say this time I mean it, but I've said that before. And then right before the pandemic said, I found the perfect guy, I'm leaving Disney.

In Bob Schapek, we have someone that not only knows the company very well, having run a few of our really important businesses, including parks and resorts, but he's also someone that we know very well. And we couldn't think of a better candidate to take over the company at this time. And then less than a couple years later, he said, actually, I'm back. I'm now running Disney again. I was not looking for a job, and I was not anticipating that I would be asked back. But this is a company that I worked for for almost 50 years. I have huge passion for the company, And I felt that I guess I had a sense of obligation. So Bob Iger's not always consistent, but he has said, this is a long-winded answer, he does not want to sell ESPN. What he'd like to do is find a strategic partner for ESPN,

which means he'd like someone to buy or invest in a portion of ESPN. So is Bob Iger consciously uncoupling with ESPN? Bob Iger is saying we think ESPN is great. We just think someone else should also think it's great and come on board with us. It's an advertiser's dream. There's a great demographic there. It lends itself to technology in many ways, both in terms of coverage, distribution, and consumption.

Meanwhile, Bob Iger has also said, a lot of things that Disney owns today, we are not going to own. Things like ABC, one of the three broadcast networks, things like some of our cable channels. A lot of stuff is now for sale. And one of those things is not ESPN, but we would like to maybe sell part of ESPN, which is a big deal. Meaning that they're not core to Disney?

That they may not be core to Disney, yeah. Now, there's clearly creativity and content that they create that is core to Disney. But the distribution model, the business model that forms the underpinning of that business and that has delivered great profits over the years is definitely broken. And we have to call it like it is. And that's part of the transformative work we're doing. What does it mean to want to find a strategic partner for the biggest sports network in America? So on the one hand, we don't exactly know.

He left it very open, very vague. There's a lot of guessing among analysts, among media about what he means. Does he actually want to sell a piece of it? If so, who would investor be? Is it a sports league? Is it a company that's a professional investment company? Is it a tech company or maybe a gambling company? You can imagine anything right now. So, we don't really know what it means. On the other hand, the fact that he's saying, hey, this thing that we used to keep for ourselves because it was the linchpin of the entire Disney business is now less so. Wow. That's a big deal for him to say out loud because you could see that if you were outside the company and paying attention. But

it's another thing for the person running the company to say, yeah, this thing is not what it used to be. Huh. Let's talk about what ESPN used to be. Peter, let's talk about where ESPN came from because it wasn't always big. It started small and not important, right? Hello, I'm Jim Simpson. And for the next few minutes, we're going to be telling you all about ESPN, its concept, its physical plant, and what it can mean for you.

It started so unimportant that there was literally nothing to watch other than obscure sports like strongmen contests, where dudes would, like, throw logs around. Jeff Capes getting up over 30 seconds. Better than a half minute, 31. logs around. Jeff Capes getting up over 30 seconds. Better than a half minute, 31 and... If you're old like me, you remember ESPN is the home of something called Australia Rules Football.

The people could care less about the rules and how you score. They just want to see people kill each other. Just random stuff that no one else would show and ESPN showed because they had nothing else to show. And then for a while, ESPN became important because it became the place where you could find out the sports scores from today. And amazingly, as it sounds, it wasn't easy to find that some other way. And eventually over time, they grew in dominance. They sort of became sports. It became where you watch sports. You learned

about sports. Anchors on ESPN became really important cultural figures. This is the late 80s, early to mid 90s, up to the late 90s. First quarter, it is Christmas come right on time for Sean Elliott. Back from nowhere, he hit six for six in the first quarter. The pet shop operator in San Antonio from everywhere on the court. Bang, bang, bang, bang, bang. That's all over and it's been over for some time. At like peak ESPN, how successful was the network? When exactly was peak ESPN? I would peg peak, peak ESPN actually at, there's two peaks.

One is sort of the cultural peak when it mattered, what someone like Stuart Scott said when he was announcing an NBA highlight. Pip to Mike, Michael, Michael, Michael, can't you see sometimes your threes just hypnotize me, despite being sick and not being able to walk, Mike, at 38 points. So that's mid to late 90s. And then throughout the 2010s, because even though the cable business was starting to be under real pressure, and we'll get to a discussion about that, ESPN was printing money. It used all that money to acquire sports rights from everything from the NFL, Major League Baseball, NBA. So ESPN now owned all of the big sports. It could afford to pay more than any other competitor. Usually, he was competing against Rupert Murdoch and Fox. And so, you kind of had to watch ESPN if you cared about sports at all. And it bought up all those rights, and it was basically unopposed.

And especially in the 2010s, as people started to talk about something called cord cutting, or just never getting the cord at all, i.e. people coming out of college and not paying for cable TV, and the entire TV ecosystem looked threatened, ESPN actually became more powerful. Because everyone said, sure, maybe the kids today aren't going to pay for certain cable networks, but they're always going to want to watch sports, they're always going to have to get ESPN. Even if you don't want to get ESPN, you are going to pay for cable and ESPN will be part of that package. And so ESPN will be sort of untouched by the technological changes that are starting to nip at the heels of the TV business. ESPN won't be touched by that. And people really thought that, people really believed that for many

years. And then in 2015, Bob Iger, who was then the CEO of Disney, said, actually, we're starting to lose some subscribers at ESPN. And that just set off alarms throughout the executive suites all over the country and all over the world. Because what he was saying is, this thing that has not affected us, actually, it turns out it affects us at all. The fact that people are not paying for TV anymore that now affects ESPN and that has snowballed since. And so we feel long-term ESPN will be just fine, but we refuse to have our head in the sand or be Pollyannish about what we're seeing in the marketplace. And others may be seeing things differently, but we believe that there's disruption going on and there's more disruption ahead. And Year after year, ESPN would mint money because it was a money printing machine because everyone

paid for cable. Whether or not you knew it or liked it, if you got cable, you were paying for ESPN. So everyone was paying for sports, whether or not they liked it, which meant ESPN was just a geyser of cash. And it was a great place to be during the 2010s. And what starts to change around 2015? It's the thing that we're seeing now where people just don't want cable anymore. Yep. Millennials kill it. I don't know, Sean, are you paying for cable TV? No, Peter, I'm not. Well, there you go. You're the problem. I still am. A lot of people pay for cable TV still today in 2023. 60 some million, 70 some million, depends how you count them. But at its peak, it was 100 million.

So any business that loses 30% of its subscriber base has a big problem. But for years, the thought was, all right, even if the TV universe is shrinking, that actually only increases ESPN's importance. But now we're getting to the point where people are saying, no, we really don't need ESPN. And we don't want to pay more for ESPN, whether it's a consumer or whether it's a cable company trying to sell that to a consumer. And now you have the real specter of people saying, maybe ESPN won't be part of the cable bundle anymore. Maybe it'll be something that if you love sports, you'll pay for, you'll pay a lot for, and everyone else won't. Is it just the cable cutting or are there other factors involved here?

I mean, it's kind of as simple as the cable cutting. I mean, the bigger story is it's just the way we've changed how we consume and pay for our entertainment. But the short version is, again, lots of people used to pay for cable. Their parents did. And when they got out of college, people like you, Sean, would pay for cable as well. And now you don't because now you probably got a subscription to Netflix, I'm guessing, and maybe HBO slash HBO Max slash Max. You tell me. And then you're probably getting a lot of free stuff from YouTube and TikTok.

And it doesn't occur to you that you need to buy a bundle of dozens of channels, several of which are ESPN 1, 2, 3, 4. You know, I do love though, Peter is when I'm at home at my mom's house, she's got all the ESPNs and I love just sitting down on the couch and watching cable. There you go, Sean's mom. Perfect. Support for Today Explained comes from Aura. Aura believes that sharing pictures is a great way to keep up with family, and Aura says it's never been easier thanks to their digital picture frames. They were named the number one digital photo frame by Wirecutter. Aura frames make it easy to share unlimited photos and videos directly from your phone to the frame.

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What do you mean? It's like I have ESPN or something. Today Explained is back. We're still here with Peter Kafka, host of Recode Media, senior correspondent at Vox. Peter, if this is the end of the ESPN era, where if you want sports, you know where you're going. ESPN 1, 2, 3, 4, 7, whatever. What's coming next? Starting to see signs of it now where the people who own sports rights are saying, this stuff we have is really valuable still. And for some reason, we're able to extract even more money out of it. And we can talk about whether that's going to continue. But we're going to slice these rights up even more. So if you want to watch all the NFL games this year, you can't just watch broadcast TV. You can't just watch broadcast TV plus ESPN. You also have to have Amazon Prime Video. Prime Video isn't changing

the football just the way you watch it. This season, Thursday Night Football will be streaming exclusively on Prime Video. Eventually, they're going to slice those rights up some more, and you'll have to go to six or seven different places to watch the NFL games. I got into English Premier League soccer in the last year or so, and I am now paying, by my count, at least three streaming services to watch all my Liverpool games. Oh, my goodness. I hate it. You hate it?

I hate it. I don't hate Premier League. Heck, you could fill two internets with what I don't know about football. Here's my argument. I am happy to pay for the thing I want. Yes. Because that means I'm not paying for the stuff I don't want. And not everyone does this, and I don't do it as much as I should. But right now, there's no English Premier Soccer that's going to start up again in the near future. But I don't do it as much as I should. But, you know, right now there's no English Premier Soccer. It's going to start up again in the near future. But I didn't have to pay for Paramount and ESPN Plus and Hulu to watch that stuff because it wasn't running this summer. So I could have turned all that off if I wanted to.

And I didn't because I'm lazy and stupid. But you could have. But as much as we like all grew to hate AT&T and Spectrum and Verizon and all the other cable titans and how much money we had to give them because we had this sort of monopolistic tendency when it came to these cable packages. Yes. Now we got to shell out money to like 10 different telecommunications behemoths. Yep. And is it in some more money than we were paying before? No. I mean, yes, if you want to have everything that's made, but there's a lot more stuff that's being made, period, right? And there's a lot more stuff that's being broadcast. So I didn't have the

option to watch every English Premier League game back in the days because I had to hope that ESPN or some other network in my cable bundle had it. And if they didn't, that was it. I had no other choice. And this extends to everything you watch, not just sports. You don't have to pay for it all because you don't have to watch it all. If you do want to watch it all, yes, your bill could be more than the old cable days, but it's your choice about what you want to pick and choose. We all have short memories, so people won't remember. But in the days before you could get HBO Max or HBO Go, whatever it was called, the only way you could watch HBO is if you already had a cable TV subscription and then you had HBO on top of that. That was just to watch Game of Thrones and people found that intolerable and

they were right. So I'd argue that as consumers, we're much better off having an a la carte menu than having to do the prefix, if that's not too fancy a term to drop. But if you're like a person who wants to watch, you know, the Women's World Cup and like the NBA playoffs and like NBA Summer League and who knows, like the Olympics next year or whatever it is, like how much money are you going to be shelling out if you're just like a general sports enthusiast? If you have a subscription to something that used to be called cable TV or is now like I get Hulu live TV, which is just cable TV without an actual cable. Those prices keep going up. They were 50 bucks a couple of years ago. And basically every every year I get a note from Disney saying, Hey, it costs five bucks more. And you can just like it used to happen with cable TV. They would raise prices. You couldn't do anything about it. So now we're looking at, I don't know, 70, 80, a hundred bucks. You're getting back to sort of

where you were, what you were spending for cable TV back in the day. But again, there was no chance of you watching the NBA summer league back in the old days of cable TV because there was no space for it. There was no audience for it. Now you have these streaming services, these niches that people will pay for. I get ESPN+. I watch, again, Premier League Soccer on that. There's lots of other super obscure stuff on there that I don't care about, college lacrosse. But someone wants to watch college lacrosse, and some people are paying to watch college lacrosse or mixed martial arts, right?

UFC, that's a big driver there. Live from Las Vegas, it's the Las Vegas International Dodgeball, opened here on ESPN8. The Ocho, bringing you the finest in seldom-seen sports from around the globe since 1999. If it's almost a sport, we've got it here. Again, I don't care about that stuff at all, but some people do. And so you can buy into it if you want. And yes, I sound like I'm shilling for big TV, but it really is a better world for us, the consumer, than it used to be. Well, so if ESPN and Disney are losing here, Peter, who is winning right now?

The leagues are winning in the near term because they keep raising the prices that they are charging the people like ESPN and now Apple and Amazon. Okay, so the NFL is getting $2.6 billion allegedly from ESPN per year. For seven years, the NHL is getting $2-some billion from the same company. Obviously, this is good for the NHL. Seems like this is going to be good for ESPN per year. For seven years, the NHL is getting two-some billion from the same company. Obviously, this is good for the NHL. Seems like this is going to be good for ESPN. One example is the NBA. Right now, NBA rights are owned by two companies. One is Disney slash ESPN. The other is Warner Brothers Discovery slash Turner. They pay collectively around $3 billion a year to show NBA games. That deal is coming up for renegotiation, and the NBA is floating a price of like $7 to $8 billion.

Wow. NBCUniversal, our parent company, of course, preparing to make a, quote, aggressive offer to win back NBA broadcasting rights after more than a 20-year hiatus. The Apple-Amazon have also expressed interest in buying rights. It's still unclear what the ultimate price tag would be. So if you are an NBA team owner or a player, that's great. For everybody else, maybe not so great. And for companies like Disney and Warner Brothers, they're saying, wait, we're going to go from paying three to eight. We're under pressure.

Are we actually even going to be able to pay that? No. How is that? Can we afford to give it up? That's where the sports leagues think they have. The TV networks are saying, yeah, we're raising the prices. And if you don't like it, see how you like life as a television network without sports. So they're kind of playing a game of chicken right now. So do you think ESPN and Bob Iger and some strategic partner that remains to be seen could somehow salvage what they have, which is still the strongest position? Or do you think this is just the gradual end of this glorious cable era that was a cash cow and universal and gave us our monoculture?

Managed decline, right? ESPN in its weakened position still throws off $4 billion in profit a year. There are very few companies, let alone media companies, that can do that. You can do a lot with $4 billion in profit every year. If that number continues to shrink, that's a problem for them, but it's a problem many people would like to have, right? They're still throwing off money. You can debate, and no one really knows what Bob Iger is thinking about when he's talking about investors and partners, whether he wants a sports league. There's some logic to that. There's some other problems with that idea. And we don't really know whether he's saying, I need some money, or I want some sort of partnership that's going to help me beyond cash,

that's going to help me structurally somehow. So that's why there's just a ton of speculation about what he's actually trying to pull off there. If they come to the table with value, whether it's content value, whether it's distribution value, whether it's capital, whether it just helps de-risk a business to some extent, but that's not, wouldn't be the primary driver. But he is saying, look, I've got this thing. It's not as shiny and powerful as it used to be. Otherwise I would have kept it for myself. It's less, it's a used car. It's got miles on it, but there's still some value.

Would you like to be a partial owner of this used car, which will go down in value over the years, but it's still a, still a functioning car. You know, who's really like the biggest loser here though, Peter? You? My uncle in Toronto. He's a diehard footy fan. Yeah. And he's just like not tech savvy. And he doesn't have any streaming services. He's just an old school cable guy. And one by one, Apple and all the rest are taking all his leagues away, and

he can't watch footy. Sean, what kind of nephew are you? Can't you go help the guy? He's got internet, right? He's all the way in Canada. They have planes. I have been to Canada the last couple of years. You get on a plane, you bring a Roku box, you plug it in, you walk him through this

stuff. In my days, it was teaching your parents how to program the clock on the VCR. These things are doable. But I will say that leagues think about your uncle when they do these deals, which is why none of the leagues, none of the big leagues, none of NFL, NBA, MLB have gone all in on digital because they do want your uncle. They want to have as large a reach as possible, which is why so many games are still on broadcast TV or cable TV, because that is where the most people are and where it's still easiest for them to reach them. So you're not going to see Apple or Amazon just hoover up an entire major league entirely.

And all the major league soccer people are going to complain that that's what Apple did with them, but that's not a major league. No offense. Alright, you've guilted me. I'm heading to Toronto at my earliest convenience. Peter of House Kafka. Every week he does a show about the media. It's called Recode Media.

Are you listening? Why wouldn't you? Find it wherever you find Today Explained, except on the radio. I don't think his show's on the radio yet. Hadi Mawagdi made our show today. He had help from Matthew Collette, Flora Bullard, and Patrick Boyd. Sports! you