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What ABC’s 30-Year-Old ESPN Purchase Teaches Us About Twitch

Stocks in this article: DIS AMZN CVX


NEW YORK (TheStreet) -- What does the 30-year-old purchase of ESPN by ABC teach us about the Twitch and (AMZN) deal earlier this week?

It might show us Amazon CEO Jeff Bezos is even smarter than we already knew and bought a major asset for a song.

We all know that ESPN is the crown jewel of not just ABC today but its parent company Walt Disney (DIS) .  Disney's entire market capitalization today is $154 billion.  Some believe that ESPN would be worth a third of that -- or $50.8 billion -- if it was to be spun out.

What most have forgotten is the deal that brought ESPN into the ABC fold 30 years ago, on May 1, 1984.  I would have forgotten, too, had I not seen this New York Times article.

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There are many interesting aspects of how people viewed ESPN back then, only five years after its founding.  Although the company showed a lot of promise back then, it certainly wasn't viewed as a sure thing.

Cable TV was relatively new. Back then there were two primary models for delivering content over television: Broadcast TV supported by advertising revenue and Pay TV (e.g., HBO) which cable subscribers had to pay extra for to get things like boxing fights and movies.

In the early 1980s, you also had the initial specialty cable channels like CNN, which had just started, and  ESPN.  Back then, of course, few people could imagine a channel dedicated 24 hours a day to news or sports.  In fact, back then ESPN wasn't even 24 hours a day of sports. It was on only 22 hours plus an extra 2 hours of business news.  

ESPN financed itself back then through selling ads and also collecting fees from cable companies rather than from subscribers.  It helped pioneer this format of making the cable companies pay.  Over time, it became the most popular of all the cable channels as measured by the fees that cable companies were willing to hand over.  These extra costs of course eventually got passed on to their subscribers.

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But back in 1984 it was not a sure thing that ESPN would grow to be so popular. At that moment, ESPN had incurred cumulative losses of $100 million since its inception.  Ad revenue in 1983 had been $40 million and was expected to reach $55 million in 1984. It had 30.2 million subscribers.

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