In the season four premiere of Acquired, hosts Ben Gilbert and David Rosenthal discuss the complex history of ESPN, a sports broadcasting titan that has become a cultural icon. They trace ESPN's journey from its 1979 inception by Bill Rasmussen, through multiple acquisitions—first by ABC in 1984, then as part of Capital Cities Broadcasting Corporation's surprising purchase of ABC in 1985, and finally, its significant role in the $19 billion Disney-ABC deal in 1996. ESPN's value, driven by innovative 24-hour broadcasting, community building around sports, and a game-changing affiliate fee business model, was so substantial that by 2006, it was estimated to represent 40% of Disney's total value. The episode also touches on ESPN's potential market creation role, its digital era, and the importance of live sports content in the evolving media landscape.
"And David, I'm kind of sick of the old theme music, and to be completely honest, I never really liked it. Welcome to season four, episode one of acquired, the podcast about technology acquisitions and ipos."
This quote introduces the new season of the Acquired podcast and sets the stage for the discussion about ESPN.
"ESPN was acquired by ABC in 1984. Just one year later, in a surprising turn of events, the smaller Capital Cities Broadcasting Corporation incredibly bought ABC, took its name, and got ESPN along with it."
This quote outlines the sequence of acquisitions involving ESPN, demonstrating its increasing value and influence in the media industry.
"By 2006, a UBS estimate was that ESPN alone was worth 40% of Disney's total value."
The quote emphasizes the significant financial contribution of ESPN to Disney's overall value, highlighting the importance of ESPN to the company.
"Bill was a former air Force supply officer. He ends up getting into the television business, first as a weatherman at an NBC station in western Massachusetts."
This quote provides background on Bill Rasmussen, whose passion for sports led to the creation of ESPN.
"Cable is kind of like the Internet of the time, like where all the entrepreneurs are heading at this point in the late seventy s."
The quote draws a parallel between the cable industry in the 1970s and the later rise of the internet, both serving as new frontiers for media distribution and entrepreneurship.
"The town had this big open space, a bunch of acres that they were looking to lease out to a commercial business. And it's just a field, like a muddy field, but it's nearby."
This quote describes the humble beginnings of ESPN's headquarters, which was built on an open space in Bristol, Connecticut.
"So they find out that RCA, the big electronics company, they've just launched two satellites into space for video transmission."
The quote highlights the innovative step ESPN took by utilizing satellite technology to broadcast their content, which was a novel approach at the time.
"Because we just thought beer and sports just go together."
This quote illustrates the reasoning behind Anheuser Busch's decision to partner with ESP, emphasizing the cultural link between watching sports and consuming beer.
"They say, great, we're going to change the name of the company. We are now the entertainment and sports programming network. ESPN, the worldwide leader."
This quote marks the official decision to rebrand ESP as ESPN, aiming to present a more professional image and align with the naming conventions of other cable networks.
"The Rasmussens were amazing entrepreneurs... But they weren't really equipped to build out a media empire."
The quote acknowledges the Rasmussens' entrepreneurial skills in securing contracts such as the NCAA but questions their ability to scale the business into a larger media empire.
"They go live, and the first show that they have... they decided to drop the entertainment... It's the sports center."
This quote describes the strategic focus on sports content and the launch of SportsCenter, which would become a flagship program for ESPN.
"This was like super innovative because the only way to get sports scores was if your weatherman decided to read it on your local tv channel or to open up the paper the next morning."
The quote emphasizes the innovative aspect of SportsCenter in providing real-time sports scores and highlights, which was a significant departure from the existing ways audiences obtained this information.
"No, they created March Madness."
The quote asserts that ESPN was instrumental in creating the cultural phenomenon of March Madness, not just capturing an existing market trend.
"What if we flip the script on these cable operators and we say, yeah, I know we've been paying you, but now you got to pay us."
This quote captures the strategic pivot that transformed ESPN's business model and had a far-reaching impact on the cable industry by reversing the flow of money from networks to cable operators.
"They're getting pretty nervous, though. They don't like this."
The quote reflects the Getty family's concern over ESPN's financial losses and their decision to sell a stake to ABC as a means to mitigate these losses.
"So capital cities started with Tom Murphy in 1954 when he was recruited to run a struggling tv station called WTN in Albany, New York."
This quote provides background on Capital Cities and Tom Murphy, setting the stage for their eventual acquisition of ESPN and the influence they would have on its management and growth.
"think about sort of the Berkshire Hathaway style of management, we're not going to have a big central staff. We trust the managers, everybody."
The quote highlights the management philosophy similar to Berkshire Hathaway, where a small central staff is maintained and a high level of trust is placed in individual managers to run operations effectively.
"So Murphy and Burke were a fantastic duo over the next several years with Murphy who became CEO as kind of the master strategist and the capital allocator and Burke who was the COO, the lean mean operator, sort of this dream team of executives."
This quote describes the successful partnership between Murphy and Burke, highlighting Murphy's strategic and capital allocation skills and Burke's operational prowess.
"Capital cities. Their playbook was extremely simple. They would buy a station, they would operate it leanly and profitably so they would get some great cash flow from it."
The quote summarizes the business strategy of Capital Cities, which involved purchasing stations, running them efficiently for cash flow, and using that cash flow to fund further expansion.
"ABC. They already have this 10% stake that they owned in ESPN, an option for more. So the first thing they do, they buy 5% more from Getty and Texco."
This quote explains ABC's initial stake in ESPN and their actions to increase ownership, which eventually led to full acquisition.
"So in January of 86, they made a series of very conventional, small acquisitions that were, in total, something to write home about, but individually, nothing to write home about."
The quote refers to the strategic acquisitions by Capital Cities leading up to the major purchase of ABC, which was unconventional and significant in scale.
"1986 was a huge year for ESPN on the business side. Together now with ABC all under one house, they get NFL rights for the first time."
The quote marks a pivotal year for ESPN, noting the acquisition of NFL rights as a major milestone that contributed to its business growth.
"Hearst still to this day, owns 20% of ESPN and have been repaid on their investment, which could many hundreds of times over."
The quote emphasizes the enduring ownership stake that Hearst holds in ESPN and the substantial return on their investment over time.
"Disney buys ABC, which contains capital cities or is capital cities and contains ESPN for $19 billion, which represents 13 x cash flow and 28 x net income."
This quote details the financial terms of Disney's acquisition of Capital Cities/ABC, highlighting the valuation metrics and the scale of the transaction.
"Yeah, I think it's something like of that 19 billion, I think it was something like 4 billion alone is attributable to ESPN. It may have even been more than that." "The cable network division within Disney, which does include the Disney Channel and some other things. But ESPN is 90 plus percent of it or whatever that is driving over half, over 50% of all the operating profit for the Walt Disney company."
These quotes highlight ESPN's financial importance to Disney, emphasizing its contribution to the company's operating profit and its high valuation.
"If you had invested a dollar with Tom Murphy when he became CEO in 1966, that dollar would be worth $204 at the time he sold to Disney. That's a remarkable 19.9% IRR over the 29 years, which significantly outpaced the S&P 5 10.1%."
The quote demonstrates the exceptional performance of Capital Cities under Tom Murphy's leadership and its ability to outperform market averages significantly.
"It's not like they're integrating a product into their sales channel. ESPN just had an insane amount of talent, one of their differentiators, where they were an amazing sort of magnet and talent development."
This quote explains that ESPN's acquisition was more about adding a business line with its own strengths rather than merging products or services into Disney's existing operations.
"Often really what it was was amazing management under questionable ownership. Fortunately, a lot of the time that ownership was minority, so they could sort of continue to run the, or at least acted like minority even when they were majority."
The quote reflects on the dynamic between ESPN's consistently strong management and the fluctuating quality of its ownership throughout its history.
"This combination of like, you have to both ride a huge technology wave. In this case, the technology wave was cable. But if you can marry that with a business model innovation, that's how you can become just so incredibly dominant."
The quote underscores the importance of combining technological advancements with innovative business models to achieve market dominance, as ESPN did with cable television and its business strategies.
"You can almost think of them as a platform company in the way that sort of Microsoft created a platform on which other people could make more money than Microsoft itself made in total."
The quote draws a parallel between ESPN's role in the sports industry and how platform companies like Microsoft create ecosystems where others can thrive and generate value.
"I think we should grade the Disney acquisition of capital cities, but it's worth talking about the others, too. So I think the Disney acquisition of Capital Cities was an a or an a plus or something."
This quote suggests a high grade for the acquisition, recognizing the immense value ESPN brought to Disney and the strategic success of the deal.