• by David Goetzl  @dgoetzl, September 8, 2009

He might be called John Q. Future. He's not yet 25. Ask him the greatest fight ever and the answer is UFC, not Ali. Word association with Madden is more often a video game than a showboat with a telestrator.

Young Mr. Future and his Gen Y cohorts are the audience that ESPN will need to capture for the next 30 years. The group may wear retro high tops, but they want live college basketball, not replays of Clinton-era Final Fours. They have a seemingly unquenchable thirst for online video. Many are Hispanic.

ESPN executives believe they have the platforms to serve this next generation. They have concluded that the vehicle is not ESPN Classic, a network with programming roots in sports memories that Gen Y isn't old enough to possess.

"There's an acknowledgment that the Classic format has reached maturity," said Lee Berke, who advises sports broadcasters.

In the 12 years since it bought ESPN Classics' sprawling archives, programmers have made erratic efforts to contemporize it. Yet the network's continuing replays of boxing, bowling and bowls (college football) have failed to produce attractive ratings.

By one measure, Classic is averaging 8,000 viewers in prime time among adults 18 to 34, down 33% from a year ago. And that's for a network in 64 million homes.

Even in the 18-to-49 demo, ratings of 22,000 a night are lower than at least 70 other cable networks. Both the male-skewing and low-profile Military Channel and History International -- each in considerably fewer homes -- have at least double the ratings.

Some 60% of Classic's audience is an advertiser-unfriendly 50-plus. And ad revenues continue to steadily plummet -- estimated by SNL Kagan to drop this year to $34 million, down 38% since 2006. Classic is the only ESPN network to air infomercials. While potentially lucrative and not uncommon in off-hours for cable networks, they can create a down-market environment.

Late last year, the company made the decision that Classic, which is profitable, has a role. But below its two flagship networks, reaching Mr. Future is more likely to occur via college sports ESPNU; Hispanic-targeted ESPN Deportes; and online live-sports hub, ESPN360.com.

"They're new and emerging products and represent our best foot forward and best opportunity for future growth," said David Preschlack, ESPN's top distribution executive.

ESPN set forth a strategy to engage in some horse-trading with distributors. Provide greater reach for those offerings and it would accept Classic's distribution dropping down a tier or three.

"We are out in the marketplace willing to grant packing flexibility for ESPN Classic and in exchange for that, we're looking for incremental distribution of those three products and services," Preschlack said.

Two deals jump-started the maneuvering and may have established templates for coming negotiations with operators. In July, Comcast began carrying ESPNU for the first time and offering ESPN360 to its millions of broadband customers. And DirecTV shifted the 4-year-old ESPNU to a widely distributed tier.

The agreements netted ESPNU some 20 million subscribers and put it on an accelerated path to be in 46 million homes. In the process, ESPN Classic is moving to lower-distributed sports packs on both distributors; customers will pay a premium for it. The network's distribution could drop by some 16 million by the end of this year, according to SNL Kagan.

SNL Kagan's prediction, however, was issued before Dish Network sued ESPN last month, claiming that Comcast and DirecTV have received more favorable deals vis-à-vis ESPN Classic and ESPNU. The legal battle could result in Classic losing reach among Dish customers. ESPN has said it will defend the charges.

With the Comcast deal, ESPN360 -- which streams live events from European rugby to the NBA playoffs -- gains an added 15 million subscribers, driving its current reach to 42 million. A recent deal with Suddenlink helped marginally.

Driving ESPN's proposed three-for-one swap are the changing behaviors and demographics of John Q. Future. His hunger for live events on ESPNU should yield increasingly higher ad revenues, assuming the economy recovers. Plus, the desire to view sports on laptops should continue to propel ESPN360.com, if more operators pay to offer it. Meanwhile, ESPN Deportes, targeting the fast-growing Hispanic demo, offers upside in both ad sales and affiliate fees.

SNL Kagan estimates that cash flow, an indicator of profit, for ESPN Classic next year will be $25 million. It pegs ESPNU at $57 million, while projecting the 5-year-old Deportes to have positive cash flow for the first time ($1.2 million). SNL Kagan does not track ESPN360.com, but based on a reported TV-type affiliate fee of five cents, that product could bring in revenue of $25 million. ESPN does not discuss financials.

Alana Davis, a spokesperson for Comcast, said the distributor opted to begin offering ESPNU because "we find that our customers like more live sports."

ESPN is offering a slew of college football games this fall, including some SEC match-ups on Saturday nights. Economically, ESPNU was destined to become an increased focus as ESPN has invested heavily in multiplatform rights deals with both the SEC and Big Ten. ESPNU is not yet rated by Nielsen. "There's a lot of upside," said David Berson, ESPN's executive vice president of programming planning and strategy. "College fans are extremely rabid."

ESPN360.com will offer even more college games in the coming months -- more than a dozen on an average Saturday, while new content includes loads of European soccer. ESPN has had difficulty persuading Time Warner Cable and Cablevision to pay to offer ESPN360.com, but bills it as a way for operators to distinguish their broadband services.

Looking to expand reach of ESPN Deportes dovetails with the growing Hispanic population -- the fastest-growing demo, projected by Nielsen to be up 2.4% to 44 million over the next year. Deportes is in some 4.5 million Hispanic homes, out of an estimated total of 13 million. A high concentration of U.S. Hispanics are in the 18- to-34-year-old demo.

But what will happen to ESPN Classic? Can it find a niche among an older audience? How far down the list of company priorities will it fall? Will it develop a programming lineup that seems less meandering?

If sheer profitability is the goal, it should continue for some time. The network was purchased in 1997 for an estimated $200 million -- with low programming costs. It effectively produces no original programming, while airing decade-old episodes of "American Gladiators;" PBA Tour events from the 1970s; and a Denise Austin exercise show on weekday mornings that was launched in 1987.

It does re-air momentous games and events -- sometimes billed as "Instant Classics" -- just after they ran on other ESPN networks, again at little cost. There are stunts, such as a marathon of Duke vs. North Carolina basketball games, or noteworthy U.S. Open matches, in the run-up to the next live versions coming on ESPN.

And once in a while, it plays a spillover role when other ESPN outlets' dance cards are filled, such as offering World Cup qualifiers for the U.S. soccer team this month. The network does have a significant boxing library with fights by Mike Tyson, Evander Holyfield and Ali.

Over the past decade, cable networks have moved aggressively to establish appointment viewing, including Classic, with originals such as a comedy series that poked fun at the superannuated events the network carried and a game show where contestants attempted to stump an ESPN statistician. Both aired from 2004-06.

"We weren't seeing the benefit of the original series as much as we thought we might," Berson said.

Under Berson, ESPN says it is now adopting a "Back to Classic" approach. It says there will be a renewed emphasis on celebrated games in prime time and tapping into the boxing archives. Notably, the network says repurposed programming from other ESPN outlets, such as the "World Series of Poker" and bull riding, will be largely phased out -- although both remain on the schedule.

Berson said Classic has a "passionate" audience, and "we're very excited about sticking to the mission" of the network. He said ESPN is not satisfied with the low ratings, but "those fans that want it are extremely happy with it. We're going to continue to provide that service for them."

ESPN Classic was originally known as the Classic Sports Network when launched in 1995 by entrepreneurs Brian Bedol and Steve Greenberg. A hub of sports nostalgia, it had program-licensing agreements with the NFL, NBA and the Masters, and ran interview programs with Joe Namath. Namath became sort of a frontman and was enlisted to meet with cable operators to plead for carriage. Its trophy-top logo of an athlete raising his arms triumphantly remains.

The network struggled to gain distribution, but offered an appealing enough opportunity that when the owners wouldn't give Cablevision a stake, the operator threatened to launch a competing network. Distribution had grow to about 10 million when ESPN purchased it -- in part, to keep the channel away from Fox, which was close to a deal to sync it with its portfolio of regional sports networks.

Some of Classic's recent slowdown can be attributed to the differing environment it operates compared to a decade ago, when there was little archived footage on the air. Now, the networks owned by the major sports leagues, college conferences and teams, such as the New York Yankees, fill hours with older games. Even ESPNU re-airs of classic games in prime time.

But Berke, the media consultant, said keeping Classic in the game could lead to unexpected value down the road. "Somebody might come up with a great programming idea that emphasizes older players." He noted that Tiger Woods becomes eligible for the senior PGA Tour in 17 years.