Should've posted the full article.
ESPN is not losing subcribers because they are a left leaning organization. People are canceling it because cable costs so much in general, or they are cutting back to just basic cable, which ESPN is not on.
The problem is the outdated business model of bundling channels together. There are so many channels that could not survive if you could pick and choose the ones you wanted to pay for.
ESPN benefits the most from the current model, because there are a lot of people who pay for expanded basic cable that never watch sports at all.
ESPN has been overpaying for sports TV rights for years.
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ESPN Loses 4 Million Subscribers In Past Year
By Clay Travis
Aug 4, 2016 at 10:45a ET
In the past five years ESPN has lost 11,346,000 subscribers according to Nielsen data.
If you combine that with ESPN2 and ESPNU subscriber losses this means that ESPN has lost over a billion dollars in cable and satellite revenue just in the past five years, an average of $200 million each year. That total of a billion dollars hits ESPN in the pocketbook not just on a yearly basis, but for every year going forward.
It's gone forever.
That's not just bad, this is downright cataclysmic.
And it's getting worse.
In the past year ESPN lost 4.159 million subscribers, that's another $350 million in lost revenue across the ESPN family of networks.
ESPN presently has 88,781,000 subscribers, down from 101,000,000 subscribers five years ago. Given that the rate of lost subscribers appears to be accelerating, if we're conservative and just project ESPN loses 3 million subscribers a year for the next five years, then the worldwide leader in sports will have just 73 million subscribers in 2021.
At that point in time ESPN would be roughly break even with the amount of money its paying for sports rights and the amount of money ESPN brings in via subscriber revenue.
So where are all these subscribers going? A good theory posited by SportsTVRatings is that the loss is happening three ways, 1. death, 2. cord nevers and 3. cord cutters. Let me unpack those three: first, older people are dying off and they're more likely to subscribe to cable than younger people, second, many younger people don't subscribe to cable at all, hence they're cord nevers and third, many of you are also cutting the cord to save money. Combine all three of these factors and all are working against the cable and satellite bundle.
So let's talk about the ESPN business model.
I've written a ton about this, but on its most basic level every channel has a cost in your cable bill. You don't realize it because your cable bill isn't broken down by individual channel cost, but ESPN is by far the most expensive channel on all our cable bills. (
ESPN is the most expensive channel costing $6.60 a month. The second most expensive? TNT, which costs just $1.65 a month).
Every single cable and satellite subscriber pays around $80 a year for ESPN. With 88.7 million subscribers, that means ESPN pockets around $7 billion a year just in cable and satellite subscription fees.
So what makes sports on cable TV a bubble? The fact that ESPN uses the money it receives from cable and satellite subscribers to buy sports rights. And the vast majority of those cable and satellite subscribers never watch ESPN. Your Aunt Gladys, who hasn't watched a sporting event in a decade, pays the same amount for ESPN as you do.
What does ESPN do with that money from you and Aunt Gladys and its other 88 million subscribers? It buys sports rights.
Presently ESPN is on the hook for the following yearly rights payments: $1.9 billion a year to the NFL for Monday Night Football, $1.47 billion to the NBA, $700 million to Major League Baseball, $608 million for the College Football Playoff, $225 million to the ACC, $190 million to the Big Ten, $120 million -- and potentially growing -- to the Big 12, $125 million a year to the PAC 12, and hundreds of millions more to the SEC.
At an absolute minimum it would appear that ESPN presently pays out nearly $6 billion a year to sports leagues just in rights fees.
At 73 million subscribers -- our projection for 2021 based on the past five years of subscriber losses -- ESPN would be bringing in just over $6 billion a year in yearly subscriber fees. Sure, advertising money and ESPN2 and ESPNU have to be factored in as well, but you'd also have to add in every other cost that ESPN has to run multiple networks, employee salaries, technology, everything that a major corporation with thousands of worldwide employees has to keep up. And, importantly, you also have to factor in this, ESPN's Monday Night Football contract expires at the end of 2021. Right when current projections would have them hitting just 73 million subscribers.
ESPN presently pays $1.9 billion a year for Monday Night Football. (This is a wild stat, but did you know that every cable and satellite subscriber who has ESPN is paying $21.50 a year for Monday Night Football games? That's whether you ever watch those games or not. That's the NFL tax that ESPN passes along to consumers.)
What will the NFL want from ESPN for Monday Night Football in 2021? More money, right? The NFL has gotten used to television revenue only going up. Will ESPN be able to afford to keep the NFL and pay more money despite having lost nearly 30% of its subscriber base in the ten years of the existing MNF contract? That seems highly unlikely doesn't it? But can ESPN exist as a network without NFL games? Remember, it's not just the NFL games, it's all the ancillary content that ESPN builds around the NFL games, think about the hours of studio programming that ESPN devotes to pro football. ESPN justifies its sky high cost per month to cable and satellite companies based on the games it provides, can ESPN extract an increase in revenue from cable and satellite subscribers when its deals expire without the NFL games? So how much more money will the NFL be able to extract from ESPN? Or will this be the moment in time when the entire sports industry finally realizes that the bubble has popped?
If the NFL isn't making the same money it always made in the past, everyone in sports is screwed.
I've been writing about the sports rights bubble for years. Most recently doing the math to point out that the NBA's insane new television deal from Turner and ESPN means that every single cable and satellite subscriber in the entire country is paying a jawdropping $30 a year for NBA games. I beleive the NBA's TV contract represented the actual peak of the market.
I'm not against ESPN -- or certainly FS1 or NBCSN or CBSSN or any other sports cable channel -- I just see the collapse of the cable and satellite bundle as a major story that most in the sports industry are ignoring. When the bubble officially pops -- and it may well have already popped without most realizing it -- it's going to change everything about sports -- team revenue and player salaries will plummet and the way that average fans consume sports will change rapidly.
ESPN isn't going to be the only company hit by the popping of the sports bubble either, but it will be the most significantly impacted by far. Let me explain. Let's use FS1 as an example. FS1 brings in around $1 a month in cable and subscriber revenue. This past year FS1, like virtually all cable channels, lost subscribers. FS1 lost 1.6 million subscribers last year, roughly a third of ESPN's losses. That's not ideal, but that loss cost FS1 $19.2 million in overall revenue compared to ESPN's loss of $350 million. NBCSN and CBSSN lose much less money because they're much smaller businesses and, quite frankly, don't make that much off their cable networks.
And it's not just sports, ESPN's in infinitely worse shape than any other cable network out there too because it makes more than any other channel off the current business model and because those channels don't have the billions in fixed costs that ESPN does. If CNN makes less money on subscriber revenue, they can spend less on news gathering. If AMC makes less money in subscriber fees they'll pay for fewer shows, but ESPN's entire business is predicated on the billions they owe for sports rights every year into the foreseeable future. ESPN made a bet that exclusive live sports rights would be the moat that protected its castle from all attackers. The problem is this, that moat flooded the castle instead.
Moreover, the sports businesses of Fox, NBC, and CBS are more protected because the vast majority of their best games are all on network TV, which may well return to primacy when it comes to sports. Look at the roster of games that Fox, NBC, and CBS have -- virtually all of the top draws air on the main broadcast networks. The NFL, the World Series, the Super Bowl, the SEC game of the week, the best college football games, Sunday Night Football, the big Olympic events. ESPN -- and Turner -- are the only two networks that put massive sporting events on cable. (The college football playoff, Monday Night Football, and most of the NBA's Eastern Conference playoffs air on ESPN, which is how ESPN justifies its massive cable and satellite subscription fees. Turner carries the majority of the NCAA Tournament games on cable as well.)
In theory it would make more sense for ESPN to just rely on ABC and switch its biggest games to that network, but the problem is, it can't. Not under the existing television contracts which promise cable and satellite companies exclusive big events on ESPN to justify the enormous cable and satellite fees.
So what happens if I'm right and the cable and satellite bundle is collapsing?
Couldn't ESPN go over the top to consumers?
Nope, that violates their currently existing cable and satellite contracts -- ESPN promised it wouldn't do this in order to get the companies to pay them so much money, Plus, it begs the larger question, if ESPN is going over the top to consumers, why wouldn't the leagues just try this directly themselves? Why do you need ESPN to be the middleman if you can handle distribution as well as they can? What's more, an over the top ESPN would need to be insanely expensive to justify their fixed costs, $20, $30 or $40 a month just for ESPN along. As if that weren't enough, ESPN would be caught in an intractable business problem, one that looks awfully familiar to print newspapers as the Internet rose online. You'd have to run two different businesses -- the cable and satellite ESPN, which would continue to lose subscribers, but still bring in most of your money -- and the over the top ESPN model, which cost much more and had infinitely fewer subscribers. As you promoted the over the top model then the cable and satellite companies would rebel and ask, "Why are we paying you so much to carry your network as part of our packages, we're cutting your channel so we can lower consumer costs."
So ESPN would lose all the Aunt Gladys's giving it money to buy sports rights who never watch sports. At the same time that the vast majority of people were not subscribing to its over the top offering.
Goodbye, business franchise.
I'm not trying to be alarmist here, but the simple fact is this -- I don't see how ESPN's business model makes sense at all by 2021.
The "Worldwide Leader in Sports" is a dead channel walking.
http://www.outkickthecoverage.com/espn-loses-4-million-subscribers-in-past-year-080416