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

0:00I get so many headaches every month. It could be chronic migraine, 15 or more headache days a month, each lasting four hours or more. Botox, Autobotulinum Toxin A, prevents headaches in adults with chronic migraine. It's not for those who have 14 or fewer headache days a month. Prescription Botox is injected by your doctor. Effects of Botox may spread hours to weeks after injection, causing serious symptoms. Alert your doctor right away as difficulty swallowing, speaking, breathing, eye problems, or muscle weakness can be signs of a life-threatening condition. Patients with these conditions before injection are at highest risk.

0:31Side effects may include allergic reactions, neck and injection site pain, fatigue, and headache. Allergic reactions can include rash, welts, asthma symptoms, and dizziness. Don't receive Botox if there's a skin infection. Tell your doctor your medical history, muscle or nerve conditions, including ALS Lou Gehrig's disease, myasthenia gravis or Lambert-Eaton syndrome, and medications, including botulinum toxins, as these may increase the risk of serious side effects. Why wait? Ask your doctor. Visit BotoxChronicMigraine.com or call 1-800-44-BOTOX to learn more.

1:05From the Vox Media Podcast Network, this is Channels with Peter Kafka. That is me. I'm also the chief correspondent at Business Insider. And today I'm talking to Jimmy Pataro. He runs ESPN, which you've heard of. But just to spell it out, sports are the biggest thing on TV. ESPN is the biggest name in sports. So I'm doing my math right. Jimmy Pataro should be the biggest thing in TV, media, everything. But as you know, things have been changing in TV. It's been shrinking for at least a decade, probably more. On the one hand, that hasn't been a terrible thing for ESPN because sports are the one thing that hasn't been shrinking, or at least not as dramatically.

1:44On the other hand, ESPN needs to actually grow. So it's finally making a move it's been considering for a decade, Starting this week, you're now going to be able to buy ESPN and just ESPN on the internet without a cable subscription. How ESPN and its owner Disney got to that decision and how they're trying to balance selling on the internet while still selling to traditional cable TV is kind of the whole story of TV right now. It's the whole enchilada. So that's what we're going to talk about here. Plus more. We'll talk about politics and programming and, of course, football. Let's get right to it.

2:19Here's me talking to Jimmy Pataro.

2:24I have not talked to you in one of these settings for a while. The last one was 2019. I'm here today because you guys are, I think the news is you guys are launching an ESPN, what we used to call over-the-top service, where you can buy ESPN directly on the internet without getting a cable subscription. We've been talking about this for a decade. I was just at a press conference you guys had this morning where you're sort of positioning this as the launch of a new ESPN app. There's obviously two things at once, but explain the difference between selling ESPN directly to me over the internet versus launching a new app.

2:57Two things are happening. The first is, as you said, Peter, we will be making all of our networks available direct to consumer for the first time. 12 networks, over 47 ,000 live events available in the service. $29.99 standalone. and$29.99 also as a part of the Disney bundle with Disney Plus and Hulu. So that's part one. Part two is we are going to be significantly enhancing the ESPN app. So I do think it's important to call out that this will not be a new app. The app that you have on your phone, on your tablet, on your connected television will be updated with new features and functionality, but we're not looking at it as a new app.

3:50We're looking at it as an enhanced app. Sure, but in the old days, people would say, I've got a new app and I'm going to hold a launch event for that, and we kind of got all over that. But you guys spent a lot of time showing off. There's going to be customization. There's going to be the ability to buy different things, gamble. Would this have happened without going over the top if you weren't selling an internet direct service? uh great question no one's asked me that before uh yes because today we're launching thursday today's tuesday today there is a watch area within the espn app where you can authenticate uh enter your cable or satellite or digital mvpd credentials and and and stream our entire portfolio of content live and a lot of the features and functionality that we're launching on thursday are connected to the live game experience what's what's changed so the answer to your question is yes we we would have looked to enhance the app with fantasy integration with betting integration commerce integration stats integration whether we were making all of espn available direct to consumer or not.

5:10To me, again, the news is that you are launching this thing. You've also said, we want people to be able to buy this if they want to buy it. We also would like them if they're continuing, if they have a cable subscription, Cox, Charter, Hulu, whomever, we'd also like them to keep that, right? Ideally, we don't want our consumers to trade a cable bundle for an ESPN-only bundle. How do you discourage them from trading down? What you want to do, right, is bring in people who aren't subscribing to anything at all, and they're new customers for you. But you would rather have the cable customers continue to get cable.

5:48So how do you navigate that? The NVPD ecosystem, a cable and satellite business, has been very good to us. It's been very good to the Walt Disney Company. And when we went into this and ultimately decided we were going to go direct to consumer a few years ago, we at the same time recognized internally that it would not serve us to incentivize people to cut the cord. Spell that out. Why not? Because it's a great business model. Do you make more money selling ESPN through a cable bundle than you would to me directly? Well, let me back up here. There are pros and cons to having a subscriber access ESPN through the traditional ecosystem and having a subscriber access ESPN directly.

6:46If you access us directly, the biggest problem we are going to have is churn. Okay. If you go back to the NVPD ecosystem, you don't have as much of a churn problem. It's really easy for me to churn a streaming service on or off. I do it all the time. It's much harder for me to do it. Correct. Correct. And so while we are charging$29.99 for a subscription to ESPN standalone direct-to-consumer, and that's a high price point, we still think there's value there, significant value. But like I said, the concern is the churn will be greater than what we're seeing in the traditional ecosystem. And so you look at it, you weigh the pros and cons.

7:33And so where we net out is we're actually somewhat agnostic in terms of how Peter Kafka is accessing ESPN, whether it's through DirecTV or Charter or through Hulu Live or YouTube TV or directly or as a part of a bundle. really the big challenge that we all have in this direct-to-consumer universe is churn. And so I know I'm now going off on a separate path here. This is the nerdy podcast for this. Yeah, yeah. So how do you minimize churn? And so just a couple of weeks ago, you saw we made some announcements, right? You know, several deals on the NFL side and also the WWE premium level events. And they've been very clear with us.

8:22The executives at TKO, starting with Nick Khan, have been very clear with us that they're going to work with us in terms of our calendar and helping us to minimize churn. And that was a huge selling point for us for that. So the NFL is the biggest driver for you guys. Football in general is the biggest driver for you. That ends basically at the end of the year, beginning of January. You're saying we intend to have a lot of wrestling and other stuff that comes beginning of the year to help you stick around, to encourage you to stick around. Correct. We are going to be looking to fill any gaps or voids in our schedule, not just with WWE premium level events, but in part with those events.

9:05And we've already started to have those conversations with Nick and team. If I'm getting you guys through Charter, if I have a bundle that I'm getting through Charter, any traditional cable operator, and I see on Thursday that you guys are selling ESPN standalone for$30, and I call up my cable system and say, I want out, I'm going to trade down to ESPN, will they do anything? Have you talked to them about ways to encourage me to not trade that? I mean, it seems like this is kind of a tricky thing for you. You want people to adopt the new streaming service, but not too many people. First off, we are, and I think you alluded to this earlier, Peter, we are going to be marketing the people on the sidelines.

9:42Those are the people, 60 plus million households that are not subscribed to the traditional ecosystem. Those are the folks that we're going after with the direct-to-consumer service. Back to your question on our relationship, our conversations with the distributors. The answer is yes, we are. First off, none of them is surprised. We've been having these conversations for many years. Number two, just as important, is the fact that they recognize the fact that we are providing their customers with more value by giving them access to the features and functionality and the content. And so we're now asking our distributor partners to make it clear to their customers the additional benefits that they're getting.

10:33So I would imagine these are my words, not not. But there's a call somewhere where someone's been straight. Correct. Hey, hold off. I would imagine that they if they get that call saying, hey, I'm going to trade down and go direct with ESPN. I would imagine that they would say, well, first off, do you realize that you are now getting access to the Disney direct-to-consumer services? You are also getting access to all of the enhanced functionality within the ESPN app with your charter credentials. You'll also be getting access to whatever content ESPN acquires that is specifically for direct-to-consumer.

11:13So WWE is a good example here. While we will have certain events air early on on linear platforms, the heart of the WWE deal is direct to consumer. Hey, you're a wrestling fan. Did you know you're going to get this stuff only exclusively through this service that you already have access to? Correct. And so, again, just going back to Charter, when they get that call, they will make that point. Like, if you keep your subscription, you will get all of this ESPN direct-to-consumer content. So like we've been talking about, this is something you have been talking about internally for years. You've been talking to the cable guys for years.

11:56Ten years ago, Bob Iger just freaked everyone out in media by saying, hey, ESPN is losing subscribers and the drumbeat really started really a decade ago. And you guys have always said, this is something we're considering doing one day. And eventually over time, you would say, well, if we want to do it, we're sort of building a dual track so we can do it. You built and built and built. What prompted you to do it now? Was there a particular sort of trigger you guys hit and said, all right, this is why we have to do it? It was really a few years ago when we saw the NVPD declines being in the neighborhood of 8 % or 9%.

12:35And not stopping. Yeah. Our research did not indicate that it was going to slow down anytime soon. uh and and so a couple years ago we decided we always knew we would go when we launched espn plus about eight years ago we were talking about when you came in last time yeah right exactly we knew that the day would come where we would make all of espn available direct to consumer in fact espn plus was launched with that purpose in mind let's make sure that we can handle live sports at scale from a technology perspective. Let's get the interface right. Let's get the purchasing flow right. All of those things, we wanted to make sure we were nailing with a subset of our content.

13:23Okay. So we knew we could handle at scale. We have around 25 million subscribers. The technology has worked well. The user experience has been very positive from my perspective. A few years ago, we got to the point where we're like, all right, we know we can do this. When we looked at the declines in the traditional ecosystem, we decided, okay, all hands on deck now, let's get this product ready. we're not going to just flip the switch, right? We're not going to just make our 40, whatever thousand live events available direct to consumer. We are also going to enhance the experience in the app around that launch.

14:05I couldn't remember when HBO went a la carte and that was 10 years ago. It was 2015. They announced it in 2014. They'd said for years prior to that, we're not going to do it. We're not seeing cable declines. Then they went ahead and did it in 2015. You guys took another 10 years. Is that because the product is that much more complicated or just you were making so much more money from cable that you wanted to stay in the cable only business as long as you could? It's more the latter. We wanted to protect that ecosystem. We actually take a lot of pride in what we've done in terms of protecting the traditional ecosystem.

14:42By the way, from a consumer or fan perspective, we still believe there's a ton of value in the traditional ecosystem. But yes, if you look at our competitors, for the most part, putting Fox aside, we believe that we've done more to protect that traditional ecosystem. We've been very careful, very selective in terms of what events we move over to ESPN, ESPN Plus. The stuff with the biggest reach that's going to attract the most eyeballs, bring in the most ad money you've kept on cable TV and broadcast TV. Correct. And because there's advantage to you and there's advantage to your cable partners.

15:19Correct. But you knew this day would come when you finally cut the cord a couple years ago. You have been bulking up recently on sports rights. I assume that is connected to this launch. You did an NFL deal. You just mentioned the WWE deal. You renewed your NBA deal. You're letting some other sports go, right? You're on a break with baseball for now. You have the F1 deal in the U.S., but Apple's going to buy that. You didn't want to match them. You certainly could have paid it if you wanted to. So all of which sort of makes me think about your pitch today at the press conference was, you know, everything is going to be in this app, right?

15:55But you guys, by definition, can't have all sports. So it means a consumer can't go to one app and get all sports. So how do you think about which sports you're going to pay up for, which ones you aren't, and how a consumer is supposed to navigate a world where some NFL games are on one app, some are on a different one, some sports are on a different app? How is a consumer supposed to make sense of that? You're hitting on a really important topic. First off, live games are the foundation at ESPN. We do a lot of things. We serve the sports fan in many different ways, but the foundation is live events, live games.

16:33Everything else is built off of that. And so, yes, we've been hard at work acquiring marquee rights, championship rights over the past several years, gearing up for this moment. Now, most of the rights cover both traditional platforms and direct-to-consumer. WWE is the exception to the rule. But our rights portfolio now, Peter, is better than it has ever been. We're about to hit 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. And I do believe that that sets us up well in a direct-to-consumer world.

17:25I would also say that we can't have everything. We know that. It just doesn't pencil for us. And so in some cases, the rights holders don't want you to have everything anyway, right? Like the NFL wants this to be distributed. The NFL has never had more, has never made more games available and they've never had more partners than they do today. And from our perspective, that's great. I've actually said this many, many times. I look at it as rising tide. One of the questions that I get often is, well, how do you feel about Amazon coming in and getting Thursday nights? Well, the data that I've seen is that it's a younger audience.

18:02Okay, how is that bad for Monday Night Football? If more young people are watching Thursday Night Football or watching the game of football, doesn't that mean that more people are going to watch Monday Night Football? Again, rising tide. So look, this is a challenging environment. Rights acquisition, it's never been more competitive than it is today. At the same time, there's another argument to be made, which is that the more enterprises that are behind these individual sports or individual leagues, the better it is for all of us because they're creating more awareness and more affinity for these sports and these leagues.

18:44And we're going to benefit from that. I would also add on to that as an extension sports betting. right the more people are betting on sports the more likely it is and i know this is not what you're asking about the more likely it is that people are going to be watching the games um from the viewer's perspective though right and i i can see it both ways on the one hand i have more choice than ever it's easy for me to i'm gonna i'm subscribed to to peacock so i can watch premier league games i think it's a great deal at the end of the season i'll turn it off right that's peacock's problem to deal with but i think as a consumer it's a great it's a great idea um On the other hand, you guys have some of those, you guys have some of the Liverpool games I want to watch.

19:23Liverpool's in the Champions League, Champions League. That will be a, I've got to pay Paramount for that. And I'm okay picking and choosing. A lot of folks say it's too complicated. I'm confused. It's frustrating. Whether they mean it or not, they say, I like the old days where we all just got cable TV and we all watched one package and we had the whole thing. Do you have - This is my point on value. Like there's a lot of value in the traditional ecosystem. But we're out of that. Now it's all distributed and split up. Okay, so this is fascinating. We have a really talented research department.

19:55And one of the things that we've seen is that younger sports fans do not have any issue with having multiple apps. They know how to switch apps. They don't just know how. They actually, that's how they grew up, bouncing from app to app. So the issues that you and I might have, Peter, I don't know. They don't seem to be present with my teenagers, for example. And so you really have to take that to heart. Now, as you saw earlier today, we announced the launch date for our NFL Plus Premium Bundle. Earlier, I guess last week, we announced the bundle with Fox One. Both will be at$39.99. And so to be clear, this is not us ingesting NFL Plus Premium content.

20:46is not us ingesting Fox One content into the ESPN app. These are bundles. And so there's a discount. You pay one person, but you go in between two apps. There's one price with a discount, but they're two different apps. And again, our research is showing us that younger fans don't have a problem with this. We'll be right back with ESPN's Jimmy Pataro, but first, a word from a sponsor.

21:14I get so many headaches every month. It could be chronic migraine, 15 or more headache days a month, each lasting four hours or more. Botox, on a botulinum toxin A, prevents headaches in adults with chronic migraine. It's not for those who have 14 or fewer headache days a month. Prescription Botox is injected by your doctor. Effects of Botox may spread hours to weeks after injection, causing serious symptoms. Alert your doctor right away as difficulty swallowing, speaking, breathing, eye problems, or muscle weakness can be signs of a life-threatening condition. Patients with these conditions before injection are at highest risk.

21:45Side effects may include allergic reactions, neck and injection site pain, fatigue, and headache. Allergic reactions can include rash, welts, asthma symptoms, and dizziness. Don't receive Botox if there's a skin infection. Tell your doctor your medical history, muscle or nerve conditions, including ALS Lou Gehrig's disease, myasthenia gravis, or Lambert-Eaton syndrome, and medications, including botulinum toxins, as these may increase the risk of serious side effects. Why wait? Ask your doctor. Visit BotoxChronicMigraine.com or call 1-800-44-BOTOX to learn more.

22:18That NFL deal you did, the NFL was trying to find a partner or a buyer for NFL media for at least four years. They were out there trying to bundle up with other deals. Didn't happen. What changed? Did they have to change what they were offering? Did you guys become more interested in buying it because you were launching this new service, a new app? Look, the conversations with the NFL predate me. This is my eighth year at ESPN. The conversations with the NFL predate me in this job. So we've been looking at this for some time. A few years ago, things heated up. we went right around the time where we started to consider going all in on direct to consumer.

23:07We started to think about what content could be a part of that service, whether a part of the base tier or as an upsell. And we had been having conversations with them around the NFL network. And of course, I think everyone knows the most valuable content are NFL games. And so 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. The NFL used to show seven games on the NFL network. You guys essentially have three of those and you're sort of swapping back and forth. Did you want to pick up their entire roster of games?

23:51Was that on the table or were they always saying, we're going to keep some of these for ourselves so we can then resell them to a Netflix or whomever. Here's what we wanted from day one to keep the seven, to keep seven games in the NFL network for, for obvious reasons, as you're, um, offering the NFL network to distributors, traditional distributors, that's, that's an important element, probably the most important element. So we went into this, uh, feeling like we needed to maintain seven games. There was a lot of internal discussion around whether we should license or how many of those games we should license versus move over.

24:36And what I will tell you, Peter, is that we've been very focused on these side-by-side games over the past few years, games that on Monday nights are overlapping between ESPN and ABC. So we call them the side-by-side games, but a chunk of— I have a choice between watching two NFL games that are both running at the same time on different networks, both of which you own. Correct. And so we started to explore the idea of eliminating the side-by-side games and not requiring the fan to make that choice that you just mentioned. In parallel, we were having these conversations around NFL media and the NFL network.

25:16we ultimately decided that what was best for us was to license in three games and solve this problem on the side-by-side games so that was your call it wasn't the nfl saying we're keeping some of these games no matter what so we can resell them i i don't i wouldn't cry i would say it was mutual like we were we were both aligned um brian rolap and i and then hans and i had many conversations around what's best for the sports fan. And this is where we knit it out. I also want to make an important point, and I think you got this. 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.

26:05And then one game that's on ESPN Plus will move over to NFL Network and we believe will generate significantly more viewership for us and for the league. Initially, I guess a year ago or more, you were going to be launching a second service at the same time. You guys were part of this JV with Fox and Warner Brothers Discovery called Venue. Then there was a lawsuit. You guys felt like you were going to be able to go ahead anyway. And then basically that all fell apart over a couple days in January to have the timing right. Close enough. walk us through sort of what you were why you wanted to be part of that joint venture and then why it broke yeah look we felt like there was an opportunity uh to present a compelling portfolio of games to the to the sports fan we looked at venue as an additional digital nvpd because it because it kind of seemed i mean a little confusing on the outside right it seems like you're launching your own streaming service.

27:06And at the same time, you're going to be part of another streaming service with your competitors. Our mission is to serve the sports fan anytime, anywhere. And if you look at ESPN at$29.99, we have a subset of the universe of sports rights. Then when you look at the other extreme, which is, well, one extreme is ESPN Plus, right? Then you go to ESPN, Direct to Consumer Unlimited, which we're launching this Thursday. The other end of the spectrum is the cable and satellite universe. We felt like there was opportunity between ESPN standalone and the NVPD universe and opportunity in terms of content offering and price point.