YouTube TV blackout of Disney-owned channels drags on, with the darkened Walt Disney network properties ascribed more to one sacred cow than any other: ESPN’s cost. Subscribers were given a $20 credit in the meantime, with the ESPN family of networks, ABC-owned stations, FX and National Geographic channels and practically every other Disney channel still off the service — but it seems like this fight is really about how much YouTube TV will pay for the most expensive channel in its bundle.
ESPN’s Fee Is on Top of the Pay-TV Pyramid
For decades, ESPN has charged the highest affiliate fee on television. Analyst figures from S&P Global and Kagan consistently put the network’s wholesale rate at about $9 to $10 per month, per subscriber, multiple times higher than most entertainment channels. And that cost is being driven by over-the-top major sports rights like the NFL, college football, and the NBA or College Football Playoff; those continue to ramp. When you add in distribution costs on top of those rights — ESPN’s economic hit dominates any bundle it touches.
And carriage agreements typically contain penetration requirements, which would put ESPN in a base tier of service versus being an optional add-on. That set-up maximizes reach, and ad sales, but it also means that as sports gets ever more pricey — a typical cable bill is largely underwriting the lifestyle of people who never watch any games.
Why YouTube TV Is Pushing Back on ESPN Pricing Now
YouTube TV now has scale and leverage it didn’t have a few years ago. It now boasts more than eight million subscribers, and its base plan costs about $73. At that scale, a dollar of difference in the monthly fees paid by a flagship network would amount to tens of millions of dollars annually. The company also has a high-profile sports asset in NFL Sunday Ticket that provides it with unique visibility into sports engagement and churn dynamics.
That the pricing of ESPN is at issue in YouTube TV’s mind, and it won’t beat what the cable/television industry itself pays. From Puck. There’s a structural reason for the stalemate: many carriage contracts have most-favored-nation clauses. Concessions to one distributor by Disney can set off matching obligations among others, multiplying the revenue hit. Which makes any discount for YouTube TV far more significant than a one-time promotion.
There’s also a product philosophy built-in at work. Virtual MVPDs were billed as a leaner version of cable but constant price increases have undermined that promise. YouTube TV presumably views ESPN’s outsized fee as the pressure point forcing those hikes — and, by extension, subscriber churn. If the company is able to bend the ESPN cost curve, it will be able to slow overall price increases in future years and protect its long-term growth.
What Disney Risks When Its Channels Go Dark on YouTube TV
Disney loses out on both affiliate and ad revenue during a blackout, and timing is an issue. CPMs for sports inventory are high and missed games result in “make-goods,” pushing ad slots to later broadcasts and less valuable impressions. Long blackouts also teach viewers how to watch sports elsewhere, whether through rival bundles, antennas for local ABC games or direct-streaming alternatives.
The company also is readying to roll out a full direct-to-consumer version of ESPN. Keeping up the widest possible linear reach until that day comes is a priority tactic to both build and sell the new service, while keeping rights partners happy. Disney’s recent deal with a large cable operator set an industry template for mixing linear channels with streaming app access within the bundle. Similar hybrid ideas would not be at all surprising here, assuming their price was palatable enough to keep ESPN’s core economics intact.
Potential Paths to a Deal That Could Resolve the Blackout
The most likely compromise would be somewhere between a headline fee cut and the simple status quo. Options include:
- Pricing for tiers that adjust with level of subscriber engagement
- Ad revenue sharing on a bigger scale against a slightly lower rate card
- Longer-term contracts that provide certainty and a modest discount to the eventual per-contract fee
- Packaging marketing and placement for ESPN’s forthcoming streaming product
A third lever is packaging rights like ESPN2, SEC Network and FX into value-optimized tiers while keeping ESPN’s base-tier footprint, although penetration clauses restrict how much of that can be done.
One choice customers keep asking for — shoving ESPN into a sports add-on — is possible if you just think outside the box a bit with industry expectations. So long as league contracts continue to pay for reach and affiliates remain based on per-subscriber fees, ESPN has every incentive to stick in the core bundle.
The Stakes for Viewers and the TV Industry as Tensions Rise
It’s the intersection of two truths for viewers — that sports drive live TV viewing, and, increasingly, sports rights are expensive. Deprived of any change to the math, monthly bundle prices continue on their inexorable climb. For distributors as well, this is a test of scale economics in the streaming era: can a budding virtual MVPD hit the reset on TV’s most expensive piece of the linear pie without causing chilling effects across the industry?
In the meantime, subscribers are left holding credits and workarounds while two giants play a high-stakes game of chicken over one very expensive bundle of channels. If there is such movement, you can expect it to arrive packaged with broader experimentation (the hybrid linear-plus-streaming models that characterized the last big breakthrough and may—may—inform the next one).