This is a significant development for the US pay TV business. While ESPN will not be the only premium network making its content over-the-top (OTT) direct to the TV - for instance, Starz titles are available via Netflix Watch Instantly which can be accessed across a range of connected devices - this is the first time top-tier sports will be available live, in-market to a living room device, outside of the traditional pay TV environment.

However, it is not as revolutionary as it might appear given that ESPN is collaborating with many of the same companies that carry its traditional channels on their pay TV platforms. By restricting access to ESPN3 to customers of affiliated ISPs, rather than offering it as a standalone subscription service, the network is less likely to antagonise its long-standing partners in the pay TV business. Many US consumers receive broadband and pay TV from a single provider, with telcos and cablecos attempting to encourage multi-play takeup through heavy discounting of services sold in bundles. Screen Digest research in 2009 indicates that over 80% of broadband subscribers to the top five US cable companies took pay TV in either dual or triple play packages. ESPN's strategy minimises the risk of 'cord-cutting' that pay TV operators in the US fear as a result of the proliferation of OTT content, especially in instances where consumers will be able to watch OTT content on the TV set.

It is this concern that has driven pay TV operators to launch their own OTT initiatives, based on the TV Everywhere blueprint, though these have been much more conservative in their initial implementation; such services from Comcast and Verizon - and Time Warner Cable (TWC), which is still in the trial phase - all tethered to the PC. Equally, the content owners that rely on lucrative pay TV revenues the MSOs provide have adopted a cautious approach online. MLB for instance, has been aggressively extending reach for its live streaming service MLB.tv - it is available via the PS3, the iPhone, the iPad, and the Roku set-top box - but respects the blackout restrictions in place that ensure exclusivity local pay TV operators and regional sports networks, only streaming out-of-market- games live. For live in-market streaming, MLB has started to collaborate with its traditional TV partners - this season TWC, Cablevision and Verizon are enabling their New York customers to watch Yankees games online.

ESPN3 is essentially another TV Everywhere service, enabling affiliated MSOs to offer their cable TV customers access to content online. However, not all pay TV operators are enthusiastic about it, objecting to the additional per-subscriber fees that ESPN demands from MSOs to carry the service. When Comcast signed up as an ESPN3 affiliate in September 2009, several other cable companies followed, but there are still some holdouts, including TWC and Cablevision.

For Microsoft, the deal is something of a coup - particularly as it is reported to be an exclusive for the Xbox in the console category - further expanding the appeal of the games console as a broader platform for premium content. It is evidence of ongoing efforts by Microsoft to aggregate online services - following similar deals with Netflix in the US, BSkyB in the UK and Canal Plus in France - which it leverages to up-sell its paid online layer, Xbox Live Gold. Screen Digest understands that currently just over half of its Xbox Live users are Gold subscribers.