ESPN boss Jimmy Pitaro on streaming, the NFL and sports betting

Peter Kafka interviews ESPN's Jimmy Pitaro about ESPN's strategic shift to offer a direct-to-consumer streaming service, allowing subscribers to access ESPN content without a cable subscription. This move, in response to declining traditional TV viewership, aims to attract new customers while retaining existing cable subscribers. Pitaro discusses the challenges of managing churn, the importance of live sports rights, and ESPN's partnerships, including a sports betting collaboration with Penn Entertainment. The conversation also touches on ESPN's approach to content licensing with external creators and its efforts to engage younger audiences through social media and short-form content.

• ESPN is launching a direct-to-consumer service, allowing users to purchase ESPN separately from a cable bundle for the first time.
• This move is part of a broader strategy to adapt to changing TV consumption trends, where traditional TV is shrinking, but sports remain a stable interest.
• The service includes access to 12 networks and over 47,000 live events, priced at $29.99, both as a standalone service and as part of the Disney bundle with Disney+ and Hulu.

"Starting this week, you're now going to be able to buy ESPN and just ESPN on the Internet without a cable subscription."

• ESPN is making a significant strategic shift by offering its service directly to consumers, reflecting changes in how audiences access content.

• The existing ESPN app will be enhanced with new features and functionalities rather than launching a completely new app.
• Enhancements include customization options, fantasy integration, betting integration, commerce integration, and stats integration, aimed at improving the live game experience.

"The app that you have on your phone, on your tablet, on your connected television will be updated with new features and functionality."

• The focus is on enhancing the current app to provide a richer user experience, integrating various features to engage sports fans more deeply.

• ESPN aims to attract new customers without encouraging current cable subscribers to drop their bundles in favor of the new service.
• The traditional cable and satellite business model has been beneficial, and ESPN seeks to maintain its relationships with these providers.

"Ideally, we don't want our consumers to trade a cable bundle for an ESPN-only bundle."

• ESPN is navigating a delicate balance between expanding its direct-to-consumer offerings and maintaining its existing cable subscriber base.

• Churn is a major concern for direct-to-consumer services, as customers can easily cancel subscriptions.
• ESPN is working with partners like the NFL and WWE to provide continuous content throughout the year to minimize churn.

"The big challenge that we all have in this direct-to-consumer universe is churn."

• By strategically filling content gaps, ESPN aims to retain subscribers and reduce the likelihood of cancellations.

• ESPN is targeting the 60+ million households not subscribed to traditional cable services with its direct-to-consumer marketing efforts.
• Communication with distributors has been ongoing to ensure they understand the value added by the new service.

"We are going to be marketing the people on the sidelines. Those are the people that 60 plus million households that are not subscribed to the traditional ecosystem."

• ESPN's marketing strategy focuses on attracting new customers while working with distributors to highlight the additional benefits of maintaining a cable subscription.

• Discussions about launching a direct-to-consumer service have been ongoing for a decade, with internal and external considerations influencing the timing.
• The decision to launch now is a culmination of years of preparation and market analysis.

"We've been having these conversations for many years."

• The launch represents a strategic decision based on long-term planning and the evolving media landscape.

• ESPN anticipated a shift to direct consumer services years ago, aligning with technological and market trends.
• The decline in traditional cable viewership prompted ESPN to expedite this transition.
• ESPN's strategy involved ensuring robust technology and user experience before fully launching direct consumer services.

"We knew that the day would come where we would make all of ESPN available direct to consumer. In fact, ESPN was launched with that purpose in mind."

• ESPN's initial goal was to ensure they could handle live sports at scale, focusing on technology and user experience.

• ESPN took deliberate steps to protect the traditional cable ecosystem while transitioning to direct consumer services.
• They carefully selected which events to move to ESPN+ to maintain value in the traditional ecosystem.
• The strategy involved keeping major events on cable to retain advertising revenue and viewership.

"We actually take a lot of pride in what we've done in terms of protecting the traditional ecosystem."

• ESPN valued the traditional ecosystem and strategically managed content distribution to balance between cable and digital platforms.

• ESPN has been acquiring significant sports rights to strengthen its direct consumer offerings.
• Recent deals include NFL, WWE, and NBA rights, with strategic decisions on which sports to prioritize.
• ESPN acknowledges it cannot cover all sports but aims to have a robust portfolio of live games.

"Our rights portfolio now, Peter, is better than it has ever been. We're about to enter our 46th anniversary at ESPN, and I will say without any hesitation that our rights portfolio, our live games portfolio is better than it has ever been and it's the best in the industry."

• ESPN has strategically bolstered its portfolio to compete effectively in the direct consumer market.

• The sports media landscape is fragmented, with different sports available on various platforms.
• ESPN acknowledges that younger audiences are adept at navigating multiple apps, unlike older generations.
• ESPN has introduced bundles to offer consumers value, even as content remains distributed across platforms.

"Younger sports fans do not have any issue with having multiple apps. They know how to switch apps."

• ESPN's research indicates that younger audiences are comfortable with app-based content consumption, influencing their strategic approach.

• ESPN's partnership with the NFL has evolved, with strategic acquisitions of NFL media content.
• The partnership includes access to NFL games, NFL Films library, and preseason games, enhancing ESPN's content offerings.
• The negotiations for NFL content have been ongoing and align with ESPN's direct consumer strategy.

"The opportunity to get more NFL games through the NFL Network, to get the NFL Films library, to get the preseason games, that was all very, very interesting to us."

• ESPN's NFL deal is a crucial component of its strategy to offer comprehensive sports content to its audience.

These notes provide an exhaustive overview of the key themes and ideas discussed in the transcript, focusing on ESPN's strategic shift to direct consumer services, the protection of the traditional ecosystem, sports rights acquisition, consumer behavior, and NFL partnership.

• The strategy was to maintain seven games on the NFL Network to ensure the offering to traditional distributors remained strong.
• There was significant internal debate about whether to license games or move them over but ultimately decided to license three games.
• The decision aimed to eliminate overlapping broadcasts, known as "side by side games," to avoid forcing fans to choose between two games.

"We started to explore the idea of eliminating the side by side games and not requiring the fan to make that choice."

• This quote highlights the goal to simplify viewing choices for fans by removing overlapping game broadcasts.

"We will now have clean windows, right? So we'll have three additional games, but three games we're moving over will move from side by side games to having fresh windows."

• The strategy to create distinct viewing windows is expected to increase overall viewership and benefit both the network and the league.

• ESPN considered a joint venture with Fox and Warner Brothers Discovery called Venue, which was intended to offer a comprehensive sports portfolio.
• Venue was envisioned as an additional digital multi-channel video programming distributor (MVPD).
• The plan was adjusted due to legal challenges and meaningful conversations with existing distributors.

"We felt like there was an opportunity to present a compelling portfolio of games to the sports fan."

• The joint venture aimed to fill a gap in the market by offering a diverse range of sports content.

"We recognized the fact that a lot of what we were trying to accomplish with venue could be accomplished with existing distributors."

• Realizing existing partnerships could fulfill the goals of Venue led to a strategic pivot away from launching a new service.

• ESPN is launching ESPN Direct to Consumer Unlimited, bridging the gap between standalone ESPN and the broader cable/satellite universe.
• The company aims to provide a sports offering at an attractive price point without hedging its bets.
• The focus is on offering a product that appeals to sports fans, even if it doesn't cover all sports.

"Our mission is to serve the sports fan anytime, anywhere."

• ESPN's strategy revolves around accessibility and comprehensive sports content delivery.

"Instead of Venue, we decided to focus on the... sports and broadcast specific offering."

• ESPN opted to enhance existing offerings with partners like DirecTV instead of pursuing the Venue joint venture.

• The target customer for ESPN's streaming services is comfortable with using multiple apps to access a variety of sports content.
• ESPN evaluates success not just on standalone subscriptions but on overall subscriber engagement across platforms.
• The strategy includes driving users to the ESPN app for enhanced features and functionality.

"We're going to judge ourselves based on the totality of people subscribing to ESPN."

• ESPN's performance metrics include a holistic view of subscribers and their engagement levels.

"If you're a subscriber to DirecTV or Charter... you authenticate within the ESPN app, you're gonna have access to all these new features."

• Emphasizing app engagement underscores ESPN's focus on integrating content access across platforms.

• ESPN has embraced sports betting as part of the fan experience, partnering with Penn Entertainment for ESPN Bet.
• The network integrates betting content into its programming, though it does not operate as a betting book itself.
• While acknowledging potential issues, ESPN has not received significant negative feedback on its betting offerings.

"Sports fans today see sports betting as a part of the fan experience."

• The integration of sports betting is seen as essential to fulfilling ESPN's mission to serve sports fans.

"We have not really received any negative feedback on our offering."

• ESPN's betting partnerships and content have been positively received, aligning with modern fan expectations.

• Despite the widespread presence of sports betting, especially on college campuses, ESPN acknowledges the need for responsible practices.
• The company is aware of problem cases but believes the current system is improving in addressing issues.

"It's everywhere. You're surrounded by it on college campuses."

• The prevalence of sports betting among young adults is noted, with an understanding of associated risks.

"From what I can see, it's doing a better job at identifying the problems."

• ESPN believes that while not perfect, the current regulatory and self-regulatory systems are making progress.

• ESPN chose Penn as their partner for sports betting due to Penn's focus on responsible betting practices and technology to identify and assist problem bettors.
• ESPN has a mutual opt-out clause with Penn, set for next summer, allowing both parties to reassess their partnership based on market penetration.
• ESPN is launching an enhanced app with significant betting integration, aiming to improve market share.

"An enterprise that is making this a priority, is offering thoughtful PSAs, has the technology to identify problem betters and cut them off, make help available to them."

• ESPN values responsible betting practices and chose Penn for their commitment to these values.

"The opt-out that you mentioned is mutual. So they have it, we have it, it's next summer."

• Both ESPN and Penn have the option to end their partnership next summer, indicating a flexible agreement based on performance.

• ESPN is adopting a hybrid approach by licensing content from outside sources while continuing to produce its own programming.
• This strategy includes high-profile deals such as the Pat McAfee Show and broadcasting Inside the NBA.
• ESPN prioritizes audience expansion and creative content licensing as a means to reach broader demographics.

"We're being creative, right? That doesn't mean that we're actually producing less programming. It doesn't mean that we are deprioritizing us producing our own programming."

• ESPN is expanding its content strategy to include licensed programming while maintaining its production capabilities.

"He is the visionary. He has creative control over the show."

• ESPN grants creative control to Pat McAfee, acknowledging the importance of his vision in their licensing agreement.

• ESPN focuses on audience expansion as a key priority, aiming to resonate with younger audiences, casual sports fans, and women.
• The company aims to have a workforce that reflects the diversity of its target audiences.
• The term "diversity" is being framed as "audience expansion" in light of changing political climates.

"How do we make ESPN resonate with, for example, younger people, with the casual sports fan, with women?"

• ESPN sees expanding its audience as a critical opportunity for growth, particularly among diverse demographics.

"The words that we're using are audience expansion."

• ESPN is strategically rephrasing diversity initiatives as audience expansion to align with broader business goals.

• ESPN views its competition as not only traditional sports media but also digital platforms like TikTok and video games.
• The introduction of the "Verts" tab in the ESPN app aims to cater to the consumption habits of younger audiences through vertical short-form video content.
• ESPN is leveraging social media to drive engagement and brand affinity, with a focus on creating native content for these platforms.

"One of the new features is a tab in the ESPN app that we're labeling verts."

• ESPN is innovating with vertical short-form video to capture the attention of younger audiences.

"If someone is engaging with ESPN on Instagram or TikTok or on Facebook on X, they are significantly more likely to engage with, with an ESPN owned and operated channel or experience."

• Engagement on social media platforms increases the likelihood of users interacting with ESPN's other channels, enhancing brand affinity.

• ESPN is in the early stages of rolling out new features and enhancements to its app, with ongoing updates planned.
• The company anticipates evaluating the success of these initiatives post-football season to determine their impact on the direct-to-consumer business.
• Continuous assessment and updates are part of ESPN's strategy to adapt to market needs and technological advancements.

"This is just the first inning and we are not launching with every feature that we have on our product, product roadmap."

• ESPN is taking a phased approach to app enhancements, indicating a long-term commitment to product development.

"I would say post football season, college and pro will have a really good sense of, of what our direct to consumer business could be."

• ESPN plans to evaluate the success of its new features and consumer engagement strategies after the football season.