ESPN’s former chief John Skipper, now running a global streaming service focused on sports, remains bullish on the future of national cable services like those run by his former employer. But he is pessimistic about regional sports channels, those broadcasting local baseball and other sports, which he says face a “fierce battle” to stay in cable bundles in the future. Getting dropped would drastically reduce their revenue.
He argues that regional sports channels—such as the Fox channels recently acquired by Sinclair Broadcast Group for $9.6 billion—would be ideal to operate as streaming services. That might explain why Amazon invested in one such channel, the Yes network. But his view highlights the challenges facing traditional TV networks as the industry shifts to more of a streaming approach.
• DAZN needs to be in U.S. but focuses on international
• DAZN expects 1 million subs well before 2022
• Skipper says regional networks face battle staying in cable bundle
Not that Skipper and his new employer, DAZN, are pinning their hopes on regional sports channels turning into streaming services. Skipper says the U.S. sports television market is crowded when it comes to bidding for popular national sports and his focus is on areas where there are opportunities, such as boxing in the U.S. DAZN is also taking more of an international approach. Right now, it has exclusive rights for England’s Premier League soccer games in Spain, Canada and Japan and is also showing some NFL games in Canada.
Skipper thinks that DAZN, which is backed by billionaire investor Len Blavatnik, can get to more than one million subscribers in the U.S. well before 2022 (although he won’t say by when). In comparison, ESPN+ had more than two million subscribers as of June, while World Wide Wrestling Entertainment’s WWE Network streaming service had 1.7 million as of July. And both of those are cheaper: ESPN+ and WWE Network cost $4.99 and $9.99 per month respectively, while DAZN costs $19.99 per month or $100 per year in the U.S., with a similar price point around the world.
For 63-year-old Skipper, running DAZN is a comeback act for him. It follows his abrupt departure from ESPN in late 2017, after someone tried to extort him by going public with the fact that he had a drug abuse problem. He recently sat down with The Information at DAZN’s New York office on the 72nd floor of the World Trade Center. The excerpts that follow were edited for clarity and brevity.
The Information: Why boxing in the U.S.?
John Skipper: It’s what was available and it’s a good opportunity because no one controls the rights the way they do for most of the other sports in the U.S. And people are inclined to pay for boxing matches, so they will be inclined to get a subscription. Most of the rights in the United States are held by the traditional broadcast pay TV companies for the long term. We did do a deal with baseball to do a unique six-hour-a-night studio show which is a look-in show of the games. That was mostly a declaration of intent that we are not just a boxing channel. We want to be visible to the other leagues. And we have some other rights, like mixed martial arts.
What are your advantages over ESPN? How do you pitch DAZN to leagues?
I want to be careful because ESPN is the most successful sports media company in the world and has more rights and gets more distribution than anyone else in the world. We have the same advantage that the Visigoths had over the Romans or that David had over Goliath in that we have nimbleness and the luxury of a very sharp focus. And we are a first mover around the world.
The leagues all know they need over-the-top partners and they want to create new bidders who are over the top. I think they would like to see us well capitalized and in the mix. As new platforms emerge into the mix, they want to see those platforms succeed. Now, they aren’t going to sell their rights at a disadvantage to launch a new competitor. They want to receive appropriate compensation. So you have to figure out ways where there are going to be rights that the big media companies are going to decide what they don’t need. I don’t know what those rights will be yet. Or you need to get new packages. They are going to bifurcate the rights between linear television and over the top and make new games available in order to get us or ESPN+ to pay money for them.
So would you partner with a TV network on a package of rights where DAZN would get the streaming rights?
I am not suggesting that anything is active, but it would certainly be of interest.
How do you think about the future of the cable-based sports TV model?
I saw something the other day that 90% of avid sports fans in the country continue to have a pay TV bundle, while only 67% of people who are not avid sports fans have a pay TV bundle. So sports is holding the bundle together. Distributors know that without sports they will lose subscribers more rapidly. In the near and medium term, it means the people who benefit the most from the pay TV environment are going to need to renew their sports rights, keep lots of them on TV and they will manage to get a new round of deals to continue to pay them increases. If you don’t have sports, I don’t see how you get an increase unless you are called Fox News or CNN, maybe MSNBC. But if you are walking in with a bunch of entertainment channels or archival comedies and dramas or niche content, I don’t see it. The cable bundles understand those channels aren’t holding the bundle together. They are going to pay for what’s keeping the bundle together.
What’s your view on the regional sports networks?
I think the regional sports networks have challenges, and I do know from talking to people [that] as [regional sports networks] are out of contract they are encountering fierce resistance from those distributors. They do have the highest differential between the number of people who watch them and the number of people who the distributors have to pay them for. I know the people who own the RSNs will say they have the highest ratings in the market when they play games, but they play the games for around 5% of the hours they are getting paid for. I think they are challenged. I think they are the perfect over the top channel in the future, but the problem is there will be a fierce battle for keeping them in the bundle for the next round.
The people who have licenses to the RSNs are not going to voluntarily go over the top, but it’s the most natural over the top business there is.
All of my comments about the sports bundle pertained to national sports—the regional sports networks don’t hold the bundle together. They just don’t. The cable TV bundle was always intended to provide a broad population of channels that most of those people wanted to get. And by the way, I worked at ESPN of course for a number of years, and it was always specious when people suggested that people aren’t watching ESPN. The overwhelming number of households who ESPN gets paid for watch ESPN and a lot of ESPN. ESPN is programming 8,760 hours for nine, 10 or 11 channels. It’s a lot of programming and their ratings are always based on a 24-hour primetime. It’s very different when you are programming for basically 10% of the time at most if you are a multi-sport channel. You may be reaching a nice audience relative to other things in that window, but if you are averaging it over 24 hours, it’s not that impressive.
So what do you think of Sinclair buying up all of those RSNs?
They are smart guys. They are scooping them up at multiples in which they are just looking to get a return on the investment, and they are going to see a return on their investment. Remember when Warren Buffett was buying the community newspapers for low multiples because he was like, ‘wait, I paid a low multiple, so I am going to make all of my money back before they all decline.’”
Who else do you see as your competition?
The big U.S. media companies all have global ambitions. So there is Disney, NBCU, WarnerMedia and then, of course, the technology companies like Amazon, YouTube and Facebook. And then in each market you have local competitors.
You didn’t mention Fox.
Fox [the new Fox Corp] has a lot of capital because Disney paid a lot of money for [21st Century Fox’s] assets, so we do regard them as a potential competitor, but they haven’t been aggressive with over the top, and their stated intention for the short term is to be a live news and sports business, and they have emphasized how great that is for advertising. Clearly with Fox News, it will drive them through the 2020 elections. They are well able to withstand the pressures that media companies are going to get from the distributors in a way which almost no one else is, other than Disney with ESPN and broadcast networks as well as NBC with its collection of channels. Everybody else is going to face difficult negotiations with distributors who are not going to pay increases unless when they take your channels off the air significant people change distributors. To me leading up to the 2020 election, the broadcast networks, CNN and Fox News have the most leverage in those discussions. I don’t know who else has that leverage.
How is DAZN approaching original content?
When we are in established and big markets, it might make sense to create some complementary products. In the U.S., we are overwhelmingly doing original content as marketing. We have been doing the “Making of” documentaries, but they are not subscription drivers. We are using them on other channels, most prominently Telemundo and Univision to reach Hispanic audiences, get them to subscribe. We think overwhelmingly we will spend money on live events. There are very few occasions that original content is more valuable than buying sports rights.
What opportunities do you see as gambling becomes legal in the U.S.?
We are interested in exploring interactivity on our platform. We are in the process of building more capacity to do interactive. One of the things people want to do is bet. Then you have to decide how you are going to do it. Fox has signaled that they are going to actually take bets. We haven’t decided on that or if we are going to work with partners to take bets. But betting is a much more interesting proposition when it’s a single-screen execution, and I think Fox is relying on two screens. You watch on television then you use a second screen to make a bet. We are building the technology, but we haven’t done much yet.