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Digital streaming is a game changer for sports

If you want to see the impact that digital technology is having on traditional media, look no further than sports. Live sporting events are seen as the glue holding together the TV bundle, as they're considered the only real must-see live viewing. But while sports may be key to keeping subscribers hooked into traditional TV, some bolder sports and media companies are looking to new sorts of services to keep fans — especially younger ones — interested.

Exhibit A: Major League Baseball.

"The reason why baseball is skewing so young today and getting so big today is our fans are enjoying their game on a phone, on a mobile device," said MLB's president of business and media, Bob Bowman. "That's where all the eyeballs are. That's what advertisers know."

Watching sports on mobile phone
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In order to cater to that digitally savvy, millennial audience, MLB has offered a streaming video app that's totally separate from the TV bundle. Now, for about $85 annually, fans can pay to watch all their team's games, or can pay $110 a year for a leaguewide package. Subscribers can watch through Roku on their giant flat-screen TV, or on their smartphone. No cable or satellite TV package required — just a broadband connection.

The league's app has been so successful that it is planning to spin off its digital unit, MLB Advanced Media. It's already providing the infrastructure for a range of new "over-the-top," direct-to-consumer apps. MLB Advanced Media took over streaming and app development for the National Hockey League, creating its new lower-cost subscription package. Its other clients include HBO, the WWE, the PGA Tour and it even handled the live streaming of the Super Bowl.

Now MLB's Bowman is applying his digital expertise to an ambitious new venture: He's bidding on a range of sports rights to build a new kind of digital version of ESPN, and he's hoping to launch within a few months.

"We've been trying to cobble together rights with an eye towards building an app, a first-class app, streaming high quality and putting it on the device (consumers) want best," said Bowman. Unlike ESPN (owned by Disney), NBC Sports or Fox Sports 1, he doesn't want his consumers to have to sign into a pay TV service to access the content. This is designed for cord cutters or cord nevers. "Direct to consumer. I think it's going to be a fast- and deep-growing business, and that's why we're in it," said Bowman. "Whether or not we'll win it, time will tell."

In contrast, ESPN says it does not have plans to launch a stand-alone streaming service anytime soon, but it is making its content available to subscribers on any device. "We have authenticated television. All of our content is available on any device," said ESPN President John Skipper.

John Skipper
Source: Asa Mathat for Vox Media
John Skipper

But ESPN won't just be competing against the service MLB has in the works. Sports fans already have other places to find highlights from sporting events, for free. Skipper, at the Re/code media conference, argued that no one can compete with the ESPN brand or the depth of its coverage. "We drive a good business with highlights, and don't believe people will abandon ESPN to watch highlights elsewhere."

In the meantime ESPN is experimenting outside the traditional TV bundle, in ways that don't threaten it, by offering up content it doesn't show on TV.

"We are certainly interested in pursuing opportunities in over-the-top, and have already. We sold World Cup of cricket last year over-the-top, we generated 100K subscriptions at $100 apiece. So, we know how to do it, we will continue to look for other opportunities for content that do not exist on our current linear networks, to put over-the-top," said Skipper.

Watching sports on TV
Robert Daly | Getty Images

The idea is that ESPN could keep acquiring rights, perhaps even to something like e-sports video game competitions, to offer a whole assortment of digital subscriptions on top of its traditional TV bundle. The question is how soon ESPN will be pushed to offer a direct-to-consumer service with its mainstream programming, outside its TV deals.

Sports costs continue to rise, putting pressure on ESPN's bottom line. And now that Yahoo is a buyer — it aired its first NFL game last fall — and Google has expressed interest, those costs could continue to push higher. But Skipper said he has no problem with how much more he's been paying for sports, because he's locked in the most desirable rights, such as the NBA deal he closed last year, at triple the cost of ESPN's last NBA deal. From where Skipper is sitting, those deep-pocketed digital rivals circling don't have a lot to snap up. For now at least.

Disclosure: NBC Sports is owned by NBCUniversal, the parent company of CNBC.