March 30, 2017

MAY AS WELL INVEST IN COAL:

ESPN Has Seen the Future of TV and They're Not Really Into It (Ira Boudway  and Max Chafkin, March 30, 2017, Bloomberg/Businessweek)

Five years later the network's profits are shrinking, and the 10,000-square-foot SportsCenter studio has already begun to look like a relic. The show's formula, in which well-fed men in suits present highlights from the day's games with Middle-American charm, is less of a draw now that the same highlights are readily available on social media. Viewership for the 6 p.m. edition of SportsCenter, a bellwether for the franchise, fell almost 12 percent from 2015 to last year, according to Nielsen. Keith Olbermann, the SportsCenter-host-turned-political-commentator, put it bluntly on a podcast last year: "There's just no future in it."

SportsCenter is only part of the problem. ESPN has lost more than 12 million subscribers since 2011, according to Nielsen, and the viewership erosion seems to be accelerating. Last fall, ESPN lost 621,000 subscribers in a single month, the most in the company's history. The losses have helped depress Disney's stock price--down 7 percent since August 2015, despite a big jump in the company's film revenue thanks to a string of hits, including the latest Star Wars film, Rogue One. John Malone, the cable entrepreneur and chairman of Liberty Media Corp., has publicly suggested that Disney would be better off selling ESPN.

As subscribers leave the network, and often cable altogether, ESPN is stuck with rising costs for the rights to broadcast games. Programming costs will top $8 billion in 2017, according to media researcher Kagan. Most of that money goes to rights fees through deals that extend into the next decade. Last year profits from Disney's cable networks, of which ESPN is the largest, fell for the first time in 14 years. The dip was small, about half a percent, but nonetheless alarming. Rich Greenfield, a media analyst at BTIG Research, says ESPN has been "over-earning," with cable customers paying for the channel as part of their subscription bundle, whether they watch it or not. "It's pretty clear that the years of over-earning are going to end," says Greenfield, who's made a name for himself as an ESPN naysayer. "The question is does it end slowly or fast." [...]

Short of criminal enterprise, few business models in the world have been as lucrative. A typical cable (or satellite) bundle costs about $100 per household. In simplified form, when a customer sends in a monthly payment, the cable company sends a cut to each channel included in this bundle. Some channels get paid more than others, and ESPN gets the most. Carriers pay an average of $7.21 per month for every customer who gets ESPN as part of a bundle, according to Kagan. Fox News, by comparison, gets $1.41; Bravo, 30ยข.

With almost 90 million homes still getting ESPN, that adds up to $7.8 billion per year. Sister channel ESPN2 chips in an additional billion, and that's all before ad revenue (roughly $2.6 billion a year, according to Kagan) and revenue from the print magazine and website, which is the most trafficked in sports. Last year, Disney's cable networks brought in $16.6 billion in revenue and $6.7 billion in operating profit--43 percent of Disney's total and more than its theme parks and movie studios combined.

In some respects, the challenges facing ESPN are the same that confront every other media company: Young people simply aren't consuming cable TV, newspapers, or magazines in the numbers they once did, and digital outlets still aren't lucrative enough to make up the deficit.

But while most of ESPN's TV peers have courted cord cutters--CBS and Turner Broadcasting, for instance, are allowing anyone to watch some of their March Madness games online for free--ESPN's view cuts against the conventional wisdom in new media. "Everything we do supports the pay television business," says John Kosner, the network's head of digital and print media. The strategy, simply put: Defend the cable-TV bundle at all costs.

Information wants to be free.

Posted by at March 30, 2017 8:07 AM

  

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