Media Update: ESPN Launches its Own Direct-to-consumer Streaming App
What’s in store
- Featured story: ESPN Calls Its Own Number
- Our Take On the News
- Helpful Links & Resources
Featured Story: ESPN Calls Its Own Number
You may have missed it, but one of the epochal moments in the history of the television industry came to pass last Thursday – ESPN launched its direct-to-consumer streaming app, biting the bullet of directly cannibalizing its linear cash cow. Unsurprisingly, Disney (ESPN’s parent) is leaning into an aggressive bundling strategy for its streaming offerings:
Why might this be such a momentous turning point? It is because of ESPN’s special, indeed unique, place in the traditional cable bundle. One way to look at this is through the lens of affiliate fees, i.e. the amount of money cable operators pay to carry each network in a cable package; this price is a reflection of the network’s negotiating leverage, which is a function of how “must have” it is in consumers’ eyes. Here are approximate carriage fees for some notable TV networks:
| Network | Appx Affiliate Fee (/sub/month) |
| ESPN | $9.42 |
| TNT | $3.00 |
| USA Network | $1.71 |
| Fox News Channel | $1.67 |
| Disney Channel | $1.56 |
As these rates reflect, ESPN is many times more valuable than even the next-most valuable networks in the cable bundle, and it is dramatically more valuable than the median network on cable TV, which receives less than $1 in affiliate fees. In short, ESPN is what’s been holding the whole thing together. And now it’s not.
You may reasonably wonder, if ESPN is so desired, and if it’s extracting so much surplus from the cable operators, why compete with yourself? The reality is that its hand is being forced by consumers, and ultimately by technology (the internet) that is expanding consumer choices:
Source: MoffettNathanson estimates and analysis
From its peak in the 2009 – 2014 period, pay TV penetration is down 29%; excluding vMVPDs (YouTube TV and the like), penetration is down 45%. In a business where the majority of costs are fixed – and don’t forget about the exploding cost of sports broadcast rights – a significant reduction in the number of customers across whom one can amortize those costs is disastrous financial math. And so Disney bit the bullet early last year and announced ESPN would go direct-to-consumer.
We do not expect the remaining pay TV business to collapse overnight. There is a lot of consumer inertia, people are annoyed by the perceived high cost of streaming services, and the aforementioned vMVPDs have some ardent fans. But the implications are nevertheless profound:
- From must-carry to must-choose: ESPN’s value is no longer extracted via a universal cable tax; it must win every household, every season
- From carriage fees to customer files: Pricing power shifts from affiliate tables to bundles, upgrades, and churn science
- From distributors to aggregators: ISPs morph into streaming storefronts; tech platforms become the new guide
- From broad reach to smart reach: The biggest live sports still deliver mass attention, but now with targeting, attribution, and creative agility; advertisers’ and agencies’ job is to hone intelligent strategies for high-reach media in a post-broadcast world
For several years we’ve been telling loyal readers to keep an eye on the moment ESPN gets pulled from the Jenga tower of the cable bundle. That moment has now arrived, and we’re about to see where the pieces land.
What We’re Tracking
The news stories we’re tracking that are likely to impact advertisers in the month ahead.
U.S. Economy & Tariffs
- Inflation held relatively steady in July, with the CPI rising 2.7% YoY and core CPI, which excludes food and energy, rising 3.1%. The core CPI figure is a concern, as it represents the fastest rate of increase in five months; this correlates with a dramatic rise in the prices paid to producers, which rose at the fastest rate in three years. This creates a dilemma for the Federal Reserve, which is confronting persistently above-target inflation (which would suggest restrictive monetary policy) and a weakening labor market (which would suggest accommodative monetary policy). The prediction markets are currently pricing in an ~82% chance of a rate decrease at the Fed’s September meeting. | NYT, WSJ, Bloomberg, Bloomberg
- Against this backdrop, consumers are doing … so so. Consumer confidence fell slightly in August, though it’s been largely in a holding pattern for the past four months. People seem to be waiting for the other shoe to drop, whether that’s tariffs starting to noticeably raise the cost of living, or the tariffs to completely go away once more dealmaking happens, or interest rates to fall … meanwhile, they’re continuing to shop as life goes on, as evidenced by retail sales rising 0.5% MoM in July. The gains were broad-based, led by the biggest gain in automotive sales since March. | Bloomberg, Bloomberg
Tech Giants & Platforms
- Google released somewhat controversial claims about organic search click volume that appears contrary to the actual performance many brands and publishers are experiencing first hand. Google claimed total organic clicks are “relatively stable” YoY, and are spread out over a wider number of websites, meaning less traffic to some sites and more traffic to others. While the total click volume may be stable in aggregate, many individual websites and publishers are reporting declines in website visits due to the dilution of traffic across online sources. | Google Blog, Digital Content Next, Emarketer
- The Trade Desk and Walmart Connect reaffirmed their strong partnership following reports that Walmart renegotiated their agreement, removing the exclusivity clause that had limited Walmart data activation to The Trade Desk. Both companies emphasized continued collaboration and investment in Walmart’s DSP. For advertisers, the change offers greater flexibility and access to Walmart’s first-party data across multiple platforms, enhancing targeting and media buying opportunities. | The Information, ADWEEK, The Trade Desk
Media & Advertising
- Google shared some welcome news for advertisers, claiming Google’s invalid traffic (“IVT”) defense systems have significantly improved content review capabilities, “leading to a 40% reduction in IVT stemming from deceptive or disruptive ad serving practices.” | Google Ads & Commerce Blog
- Google has released official guidelines for advertising on YouTube TV, providing advertisers with a clear path to access inventory through both reservation and auction buys. Compliance now requires adherence to specific guidelines on ad formats, bidding strategies, and music rights, along with additional verification for political content. This update streamlines the process for advertisers to navigate policies and effectively utilize the platform. | Google Ads Help Center
Helpful Links & Resources
- Google’s push to AI hurts publisher traffic
- Google denies that AI Overviews harm referral traffic, but data says otherwise
- AI in Search is driving more queries and higher quality clicks
- How we’re using AI in new ways to fight invalid traffic
- About YouTube TV Eligibility
- Walmart Backing Away From Trade Desk, an Amazon Ad Tech Rival
- The Trade Desk and Walmart Connect Partnership Goes from Strength to Strength
- The Trade Desk Claps Back at Reports That Walmart Is Pulling Back: ‘We’re Fully Committed’
- Meta Shares Tips on How To Improve Ad Performance with AI
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