As the internet economy emerged, many companies zeroed in on niche groups of consumers to stay in business. ESPN, however, made big money bets on huge sports. Bob talks with the Atlantic's Derek Thompson about how that bet paid off handsomely and about Fox Sports 1 - a new competitor in the cable sports market.
The Who - Baba O'Riley
BOB GARFIELD: In dubbing itself, “The “Worldwide Leader in Sports,” ESPN made it clear it was shooting for big game But, but initially at least, it hunted the small stuff, like miniature golf and the World's Strongest Man competition.
ESPN REPORTER: The sixth event, the girl lift, and Reinhoudt responded to Wilhelm’s victory in the wheelbarrow race – 790 pounds…
[SOUND UP & UNDER]
BOB GARFIELD: Now, of course, ESPN has bagged the behemoths, football, baseball and basketball. And those have yielded huge audiences, huge ad revenue and huge fees from cable providers who charge you five bucks a month for ESPN, whether you watch sports or not. Today, ESPN is at least 20 times bigger than the New York Times Company and five times bigger than News Corp and the Wall Street Journal. You might have thought that media riches were driven by media niches. That's what Chris Anderson told us in his 2006 bestselling book, The Long Tail: Why the Future of Business is Selling Less of More. But, as Derek Thompson explained in this month's Atlantic, ESPN flipped Anderson's long tail approach on its, quote, “fat head.”
DEREK THOMPONSON: The long tail was basically Chris Anderson's idea that when you look at companies like Amazon they seem to make the majority of their money on this long tail of niche products that only a handful of consumers actually want but there are so many of these niche products that it ends up being the majority of their business.
But ESPN made the opposite bet, the fat head. They said, what we’re gonna do is we're going to spend a lot of our money to buy exclusive sports rights to the most popular sports. And it's paid off in the billions. Over the last decade, what we've seen, in addition to it paying off for ESPN, is that it appears to be paying off for all sorts of other industries, as well.
BOB GARFIELD: Yeah, in your piece you quote a Harvard business school professor, Anita Elberse, who did a study that kind of contradicts everything in Chris Anderson's hypothesis about at least how media would work.
DEREK THOMPONSON: Look at summer blockbusters. Think about the biggest movies of this summer and the past five summers. They are sequels, they are adaptations. I don’t know that John Skipper, who is the president of ESPN right now, thought about long tails or fat heads. He was just thinking, we went to maximize the odds that when someone turns on ESPN, that within two minutes, they’ll see a sport that they love.
BOB GARFIELD: Now, one of the reasons ESPN has become such a juggernaut is that, unlike most of everything else you find on TV, it is broadcasting a live event, in real time.
DEREK THOMPONSON: And if you don't have to watch it live, then it’s hard for the advertisers to know exactly where you are and when you're watching. Something between 90 and 96 percent of all ESPN is watched live, so advertisers trust it. And it makes about $3 billion a year on advertising.
BOB GARFIELD: And yet, almost miraculously, had the category almost all to itself. Nobody on cable, at least, has bid against ESPN for these major sports contracts, at least until now.
DEREK THOMPONSON: ESPN is a little bit like Apple. It’s making this extremely high-margin product, and eventually when people look at extremely profitable products they say, we should probably get in on that. And the most recent entry into that field, one that launches in August, is Fox Sports 1.
BOB GARFIELD: The “Samsung” of sports channels. [LAUGHS]
DEREK THOMPONSON: Right. The reason to think that they might be a real competitor to ESPN is that Fox Sports owns a lot of really valuable rights – baseball rights, football rights. And this is a company that’s shown that it can really build audiences in whatever sort of entertainment sector it touches.
BOB GARFIELD: I’ve got one more thing for you. It's true that ESPN, the mother ship, does serve up the fat head, the big sports, but there’s an ever-increasing number of spinoffs [LAUGHS] of ESPN, showing so many obscure sporting events that it's been the stuff of cultural parody.
ANNOUNCER: Live from Las Vegas, it's the Las Vegas
International Dodgeball Open, here on ESPN8 - the "Ocho" -
bringing you the finest in seldom-seen sports from around the globe since 1999….
BOB GARFIELD: Yeah, that was [LAUGHS] the movie, Dodgeball. Is ESPN really the fat head or is it also the long tail, the whole damn comet?
DEREK THOMPONSON: I think it’s fair to say this: In the process of becoming a fat head company, they have become so profitable that they can begin to invest in a long tail. And so, they have ESPN3, which shows all sorts of completely obscure sports. They can have ESPN Classic and ESPN News. But those investments are only made possible by the success of their fat head strategy.
BOB GARFIELD: Derek, thank you very much.
DEREK THOMPONSON: Thank you.
BOB GARFIELD: Derek Thompson wrote about ESPN, “The Worldwide Leader in Sports” for this month's The Atlantic Magazine.