ESPN Decides It's Better to Be in Than Out With Penny Pinchers

Sports Net Has Had Opportunity to Pull Out of Sling TV

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Credit: Sling TV

Talk about a change of heart. When Walt Disney Co. agreed to put ESPN on Dish Network's new internet TV service in 2014, it wanted guarantees the business wouldn't steal subscribers from other cable and satellite partners.

So the world's largest entertainment company demanded terms that would let ESPN pull out of Dish's $20-a-month Sling TV if the service grew too quickly or if too many regular cable customers dropped Disney's popular sports network, according to people with knowledge of the matter.

Since then, filings show, ESPN has lost more than 3 million subscribers via other pay-TV services -- enough to cancel the deal, said the people, who asked not to be identified discussing private contract terms. In addition, Sling's customers, now at more than 600,000 according to analysts, could rise to 2 million this year, which would also trigger the exit option.

Yet instead of raising red flags, Disney CEO Bob Iger has praised pay-TV's trend toward lower-cost "skinny" bundles and wants to be in more. The shift shows much has changed in two years. Dramatic growth at Netflix, and other online services is convincing big media companies they can't afford to just play defense. They have to help cable and satellite companies stay relevant by participating in lower-priced TV packages.

10 Million

"It's also important that ESPN be present in the skinny bundles, whether there are 2 million of them, 5 million of them, 10 million of them," Mr. Iger said on March 8 at an investor conference.

What Dish and Disney have found is that Sling is attracting consumers who previously canceled service, others who never paid for TV and some who want to supplement a Netflix, Amazon or Hulu account. Disney in recent months has allowed its flagship networks to be sold in lower-cost packages from Sony and Verizon Communications. And other deals are in the works. AT&T plans to have three web-based TV bundles by year end.

Officials with Dish and ESPN declined to comment.

What constitutes a skinny bundle varies. They range from packages with 23 channels to 251 channels, and cost between $20 and $63 a month, Todd Juenger, an analyst with Sanford C. Bernstein & Co., wrote in a note Wednesday. One common element is that some categories -- those that consumers may not watch or want to pay for -- get left out. Sling, for instance, doesn't have Viacom channels like MTV and Comedy Central or Discovery Communications' Discovery Channel and TLC.

Disney, with its embrace of skinny bundles, is demonstrating it wants in.

"Is there a fantastic or perfect skinny bundle out there? I actually don't know," Mr. Iger said at the conference. "I know that, while I can't give numbers, that the Sling bundle has actually done well."

-- Bloomberg News

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