What’s Up With ESPN?

Maryland TerrapinsI’ve been following ESPN for a few years in this blog for several reasons. First, I’m a sports fan and I generally like what they offer. But as an industry person they are also interesting because they are the most expensive network for cable operators other than premium movie channels. They also have the distinction of being one of the few domestic networks that has no appeal overseas – they are strictly an American channel showing American sports.

And it is the last two reasons that might make them the bellwether of what might happen to cable networks over time. ESPN peaked in 2011 with just over 100 million paid subscribers. But they have been losing subscribers since then and they are projected to be down to between 87 and 88 million customers by the end of 2016. They lost 1.5 million customers just between February and May alone.

This has to be very troubling to a network that gets about 60% of its revenues from subscription fees. Most of the rest of their revenues come from advertising which also depends upon the number of eyeballs watching content on the network.  I’ve found a few web sources that estimate that the full ESPN suite of channels now costs cable companies around $8 per month, meaning the 12 million lost subscribers represent a lost $1.1 billion per years in annual revenues.

What is probably most troubling for the network is a poll from January of this year that shows that 56% of households would drop ESPN if they could save $8 per month on their cable bill. The results surprisingly were not that different by sex with 49% of males and 60% of females saying they would ditch the network if they could.

You have to wonder how to account for all of the lost customers. The cable industry points out at every chance that cord cutting is as not a significant phenomenon, and they are right. Cord cutting has manifested by stopping the growth of total cable subscribers and overall cable subscribers are still currently around 100 million.

So if the cable industry is currently not shrinking much, why is ESPN losing so many customers? The only answer has to be cord shaving. This is something that none of the cable companies will talk about, but cord shaving is where customers are downsizing to smaller packages of channels. Since most of the cable companies include ESPN in their expanded basic line-up (the line-up that is usually between 50 and 80 channels), then there has to be a lot of people downsizing from that tier of service. And the only place for them to go from there is down to basic cable – the lineup of 15 to 20 channels that includes network TV, local government and a few other very inexpensive programs.

ESPN is looking for ways to get back some of the lost customers. They are now part of the online Sling TV line-up. But Sling has recently moved ESPN out of the $20 starting tier into the $30 tier. ESPN is also reported to be getting ready to launch a standalone ESPN product online. They reason that there are sports fans willing to pay for the network that don’t want other standard cable fare. They might be right because I would consider an online standalone ESPN product if it isn’t exorbitantly expensive.

The funny thing is that ESPN isn’t acting like a network in trouble. For example, they just recently bought new rights to Big 10 sports for $1.1 billion dollars over the next six years. They are actively engaged in discussions with other sports leagues, and are preparing to renew older sports content relationships.

So certainly ESPN is not yet in trouble, but they are starting to show us what can happen to networks in the future as customers cut the cord or downsize packages. ESPN is not the only network losing subscribers and cord cutting and cord shaving are going to impact a lot of them as those trends continue to grow. Cable networks with more generic content are making up for losses of American subscribers by booming sales of content overseas. But that is a luxury not available to sports networks, news programming and anything else that doesn’t have a worldwide appeal.

5 thoughts on “What’s Up With ESPN?

  1. I recently downgraded my package with DirecTV, to one that does not include ESPN. I have never found ESPN to have any value, as I am not a sports fan, and have always resented having to pay for an expensive channel that I have never watched.

    • Since half of all TV viewers seem to feel the same way that you do there will probably be a lot more people fleeing to the smaller bundles that don’t include a lot of what we’ve come to think of as basic TV. That’s going to be a lot of customers dropping ESPN and a host of other less-than-popular channels that people weren’t watching anyway.

  2. Dear Doug:
    ESPN has been owned by ABC (the broadcasting network) for a while, which has since been purchased by the Walt Disney Company. They have the resources to do whatever they want to do…

    • I’m not predicting any imminent end for ESPN. But any network that does not have international appeal is going to be stressed hard. ESPN has been one of the earnings gems in the Disney portfolio and Wall Street already punished the stock over news that ESPN has lost so many customers. If the folks, like Mac below, who don’t want ESPN and find a way to eventually ditch them, then ESPN and a whole lot more networks are going to be a lot different in the future. That’s not necessarily a bad thing, but I think we are starting to see the beginning of the slow unraveling of the power that the programmers have in the industry. That power is slowly shifting to viewers who will pick winners and losers by what they choose to watch or not watch.

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