Academic assignment: based on the text of the answer to the question between 250 and 300 words:

Text:

As the ESPN brand continued to grow, so did demand for sports programming. In 1983, ESPN ofered cable providers a radical proposition: They should pay ESPN $0.05 a month per subscriber for the right to carry the network. These rates increased consistently over the years to the point that in 2015, ESPN was charging a whopping $6.61 per subscriber (Exhibit 3 compares subscription rates for the top 10 cable channels in 2015). It was by far the most expensive cable network on television, charging four times more than the nearest competitor. That amount reflects both the demand by sports viewers as well as the market power of the ESPN brand in creating and delivering sports content. Exhibit 4 lists the top 15 sports networks, the estimated number of subscribers, and approximate amounts of revenue (in 2014) generated by each. By 2014, ESPN generated six times more revenue than its nearest competitor. This allowed for continued separation from other sports networks and, according to some, complete domination of certain markets.17 Expert reports estimated that ESPN spends roughly $1.9 billion per year for Monday Night Football, $1.47 billion for rights to NBA games, $700 million for Major League Baseball, and hundreds of millions for college football (SEC, ACC, Big 10, etc.). ESPNs broadcasting contracts put the company on the hook for $6 billion dollars annually to broadcast more than half the live sports shown on TV.18 In the 1990s, ESPN helped NASCAR move from a niche viewing audience to a national obsession. In the 2000s, ESPN did the same for college football.

College Football: ESPN as the Market Leader

Two things highlight ESPNs dominance of college football. First, ESPN has turned the college bowl season into a national event. By 1991, ESPN had purchased enough rights to bowl games that it created a Bowl Week promotion for the week between Christmas and New Years Day. In 2015, ESPN still broadcast all but two games of the bowl season, which has been retitled as Bowl Month.19 The 2015 bowl season featured a record 40 games, and in order to fill all the bowl slots, the NCAA had to relax the rule that no team with a losing record could play in a bowl. Second, ESPN and its afiliate networks televised around 450 games in the 2015 season alone, almost 35 games each week. The nearest competitor, Fox Sports, broadcast around 50. All other sports networks combined could not come close to competing with ESPNs total domination of college football. ESPN has transformed college football from games played almost exclusively on Saturdays to a full slate of games on Wednesday, Thursday, and Friday nights, and 1214 hours on Saturday, excluding its fabled College Game Day pre-show and post-game wrap-ups. ESPN worked to create what it considered ideal match-ups, and constantly brokered deals with schools and conferences to create games that would optimize viewership. ESPN also used the lure of viewers to change game days (for example, from a Saturday afernoon to a Monday night), or game times (some games on the West Coast begin in the morning to accommodate an East Coast audience). ESPN employed its long-term contracts with major conferences, as well as its promise of millions of eyeballs to set up a growing number of one-of match-ups. Athletic programs might feel beholden to ESPN and see their schedules dictated by the interests of the network. Some schools claimed that ESPN had been overly involved in conference realignments to create the most ideal potential games in the best television markets. This would be a violation of NCAA rules, and the network vehemently denied any involvement at that level, although it admits to playing an appropriate advisory role.20 Other stakeholders have cried foul about ESPNs market power. A spate of news reports signaled a growing discontent with ESPNs apparent control of college football. For example, one report proclaimed that ESPN has become both puppet-master and kingmaker, arranging games, setting schedules, and bestowing the gif of nationwide exposure on its chosen universities, players, and coaches.21 The shortened game preparation time for teams risked the quality of the on-field product, and increased time away from class by players seemed to run counter to the notion of student-athletes. In spite of these criticisms and realities, most collegiate programs would do nearly anything to be on ESPN because exposure proves vital for recruiting. Players love to be seen on ESPN, and fans love to watch their teams on ESPN. The combination of access to enormous amounts of revenue and an unflinching commitment to getting the best product on TV has led to more serious accusations as well. In the mid-2000s, the Justice Department responded to complaints of the anti-competitive practice of warehousing games. In an efort to have access to the best possible match-ups, ESPN bought the rights to as many teams and games as possiblesometimes more than it even had the capacity to broadcast. College Sports Television (CSTV) accused ESPN of purchasing rights to games and then not broadcasting them. CSTV claimed that ESPN refused to sell those rights to competitors and deprived teams of exposure and the networks of revenues. Although the Justice Department took no action, the case illustrated the extent of ESPNs distinctive advantage in the marketplace, an advantage some say borders on an anti-competitive monopoly.22 ESPN originally sought to complement and enhance the NCAA in its quest for exposure. As the twenty-first century rolls on, many wonder if ESPN dictates rather than complements college football.

Looming Challenges

Given ESPNs overwhelming brand power, revenue structure, and the magnitude of its broadcast contracts, its market position seemed insurmountable. According to Forbes, in 2015, the network possessed the 32nd most valuable brand in the world.23 ESPN appeared to be in a solid position to continue as the runaway market leader in sports entertainment. Yet, a closer look at the future revealed uncertainties that could seriously challenge ESPNs position. Since 2004, ESPN had seen the rise of potential disruptive competitors in the form of social media (e.g., Facebook in 2004, Twitter in 2006, Instagram in 2010) and streaming video services .Social media allowed sports fanatics to get breaking stories about their favorite teams and players from the teams and players themselves. One no longer had to wait until the evenings SportsCenter to catch all the latest news. Streaming video, whether legal or pirated, threatened ESPNs ability to drive viewership. By 2013, the rise of smartphone technology and mobile viewing options allowed fans to catch games, or highlights, anytime and anywhere on their phones. Exhibit 5 (A,B) details changes in viewing patterns between 2013 and 2014. With so many options for entertainment, a growing number individuals opted out of their cable packages, or cut the cord and relied solely on over-the-air or streaming content to meet their entertainment needs. No one could count the cord nevers, or young people who never signed up for cable and opted for streaming video instead. The number of ESPN subscribers peaked in 2010 at 99.8 million. As a result of the constantly shifing options for sports programming consumption, ESPN lost between 5 million and 7 million subscribers between 2011 and 2015.24 The loss of 57 percent of its viewer base reduces both revenue sources. With fewer viewers, ESPN loses clout with advertisers and receives lower rates. The network also loses subscription fees for all its network oferings (ESPN, ESPN2, ESPNU, and ESPN Classic, for example). And all indications are that this trend will continue in the near term. In 1983 ESPN flipped the standard network revenue model by charging cable providers for access rights to ESPNs programming. This contributed to the practice of bundling that has become the basic sales platform of cable and satellite providers. Bundling created a package of over-the-air networks; basic programming such as CNN, TNT, and TBS; and specialty channels such as ESPN, HBO, HGTV, and many others. By purchasing the bundle, viewers saved money and had a wider range of viewing options. While some premium channels can be ordered individually (i.e., HBO), networks such as ESPN represented a critical part of a basic bundle. Anyone purchasing a cable or satellite package pays for ESPNwhether they want it or not.

The implications of bundling matter for all networks, but for ESPN bundling played an outsized role. A recent report by Fox Sports did some back-of-the-envelope math and drew the following conclusions: (A)round 48 million cable and satellite subscribers watch ESPN every month. Thats a very big number. But it also means that 44 million cable and satellite subscribers pay $6.60 a month for ESPN and dont watch it in an average month. That means every month ESPN is pocketing $290 million of cable and satellite subscribers who dont watch the channel. Over the course of a year ESPN makes over $3 billion a year of consumers who dont watch ESPN.25 In another report, the same author asked, Think about how crazy this is. Does any other businessbesides insurancemake 75 percent of its money of people who wouldnt choose to consume the product?26 With the advent of streaming video and the move to mobile devices, the historical practice of bundling packages for subscription exhibited signs of vulnerability. Federal legislation had been introduced to break up bundles and force providers to ofer a la carte packaging; a 2013 survey of cable subscribers found 92 percent of subscribers willing to purchase cable channels a la carte.27 The legislation did not pass, but significant support still existed for some sort of legislation, and analysts sensed continued and growing animosity with the practice of bundling in both the public and private sector.

Question to be answered:

1. Of the challenges facing ESPN in 2015, which one do you think is the most significant? The biggest opportunity? Biggest threat?