Battling Titans: What The Fight Between ESPN and Disney Tells Us About Facebook and the News Industry
It’s fascinating to look at what’s happening between ESPN/Disney and Charter Spectrum and the ways in which represents the exact same dynamics that have played out between Facebook and the news industry (not to mention a host of other industries) but also some of the interesting ways in which it’s different.
To do a quick catch-up: Charter is one of the largest cable companies in the U.S. and along with other cable companies, has historically been the primary distributor of ESPN’s content.
From the beginning, ESPN/Disney forced Charter and other cable companies to pay a lot to carry their content in the form of “carriage fees”. In fact, not only did they charge for their content but the history of the cable industry is in part a history of ESPN and a few other content creators constantly raising their fees because of how much actual customer demand there was for their content.
As long as the cable companies were adding customers, that meant ESPN would be growing as well. But once cable had largely saturated the U.S. (let alone began declining due to cord-cutting), ESPN had nowhere to go except to get even more aggressive in increasing their prices. In fact, almost all of Hollywood has been trying to extract every last dollar they could out of the traditional bundle for years and the cable companies have been the ones who were caught in the middle. That’s why the relationship between cable companies and Hollywood has been such an adversarial one and it’s only gotten worse as the overall pie has started to shrink.
But by all accounts, it looks like ESPN finally pushed too far.
Charter is balking at ESPN’s latest demands for a rate increase and since last Thursday, has actually stopped carrying ESPN in a lot of the biggest cities in the U.S. Similar blackouts have happened in the past but the market dynamics have changed enough that there is a sense that this time might be different. Moreover, if they do end up actually negotiating at a *lower* rate, that exact same pricing will cascade to all the other cable companies.
This is a big deal for the future of cable. But where it gets even more interesting is that this is basically the same dynamic that has been playing out over the last 10 years in a lot of industries since the internet took off.
One of the many other industries that have seen similar dynamics is the news industry and in fact, like ESPN, they’re currently in the middle of their own blackout at the hands of one of their biggest distributors.
By the early 2010s, the news industry found that a new entity (Facebook) had inserted itself into its value chain as the single most dominant source of distribution for their content (and combined with other internet fundamentals, upended a business model that was largely predicated on various types of local monopolies). However, the news industry eventually came to believe that they weren’t being compensated at the level they thought they deserved from their new dominant distribution channel. In fact, Rupert Murdoch, making the comparison a literal one, explicitly said that Facebook should pay “carriage fees” to news outlets for their content.
Similarly, both industries (Hollywood and news) have tried to go direct-to-consumer through stand-alone apps in an attempt to bypass their respective dominant distributors but eventually came to very similar conclusions: that it’s incredibly hard (if not impossible) to compete with the huge tech companies for distribution, it’s very hard to be a content creator *and* a tech company and lastly, their content wasn’t as valuable as it used to be now that we’re in an age of infinite creators. Yes, there are some exceptions, e.g. the New York Times and the NFL, but they are few and far between.
Both industries also have a lot of powerful legacy companies that have been around for a long time, are used to a certain amount of profitability (not to mention status & power), and are sometimes run by long-serving executives who aren’t going to be around for the full digital transition (and so, therefore, pursued more short-term quick fixes versus addressing deep structural issues about their new position in a digital value chain).
And like ESPN, the news industry might have finally pushed their dominant distributor too far as well.
In the same way, Charter is blocking ESPN in some of the biggest cities in the U.S. and Facebook is blocking news in Canada (and very likely in California soon as well). It’s possible that we’re finally reaching a larger tipping point for a lot of fundamental business trends that have been developing for several decades.
But all that being said, I think there are a few important distinctions that are interesting to explore.
First, in the news industry, the history is actually reversed.
Instead of charging for their content out of the gate (through either carriage fees to cable companies or selling back catalogs to Netflix), news publishers gave away their content *for free* by publishing it openly on the web and in some cases, actively building up distribution channels through Facebook. It’s only been over the last few years that they’re trying to find ways to start charging Facebook for their content.
Second, is that the relative value of news content on Facebook is only marginal compared to sports content for the cable bundle. While live sports absolutely dominates linear TV, news content is only a small majority of content on Facebook. Despite their best wishes, their respective places in the value chain were dramatically different (especially given how quickly a lot of news became commodified).
Third, it’s much easier for the news industry to assert its broader value in society given how critical they are to our politics (a legitimate argument) and among other things, that means that regulators are much more willing to step in and get involved in helping establish a more reasonable value for the content beyond simply consumer demand (which they obviously are, hence Australia, Canada and California).
Lastly, and perhaps most importantly, the societal risks of a single platform being a dominant distributor of *news* is a much more problematic dynamic than cable companies playing an outsized role in the fortune of sports content.
Where is all this going to go?
I think the truth is that we’re actually likely to see a lot of similar solutions slowly develop across different creative industries but I think news will end up in the most unique position, in part because of the differences above. I’ll explore that in more depth in a future post and actually make some predictions (and some recommendations!).
Other random notes:
For a comprehensive and fascinating overview of ESPN’s history of negotiating with cable companies, read Ben Thompson’s terrific piece from this week.
Speaking of the future of the news industry, a handful of some of the largest philanthropies in the country have committed $500 million over the course of 5 years to support local news. This is a huge deal and I know how much work this has taken over the last several years, so kudos to everyone involved.
I’ve gotten to hang out with and get to know Rumman Chowdhury over the last year and was so excited to her on Time Inc.’s cover as one of the most influential leaders in AI right now. It’s well-deserved!
Thanks to Threads actually, I recently discovered Christina Kent, a Bay Area artist, and her work is stunning.
Basis Climate helped close a $100 million (!!) tax credit deal to help fund wind power projects in the U.S.! Go get’em!