August 12, 2017

DRAINING MONEY IS THE BEST THING THAT COULD HAPPEN TO SPORTS:

ESPN's Surrender to Grim New Reality : With cable TV subscribers fleeing, the sports giant has to look for customers online. That's not where the money is. (Joe Nocera, 8/11/17, bLOOMBERG)

The core economic issue is this: Cable companies pay the Walt Disney Co. an average of $7.21 per subscriber for ESPN, according to the media-news service SNL Kagan, triple that of other popular cable channels. And because of the way the cable bundle works, the operators end up passing the cost along to many customers who don't watch sports and don't want ESPN. That's why so many people hate the cable bundle, and why cable bills are so high.

So it is hardly a surprise that as people began to have more options, including bundles without sports channels, they've been abandoning ESPN. Even many sports fans have concluded they can live without ESPN. "ESPN is in secular decline," says Rich Greenfield of the investment firm BTIG, who has had a "sell" on Disney's stock since 2015.

At the same time, ESPN is paying staggering sums for professional sports rights, more than $7 billion in total, again according to SNL Kagan. Fewer subscribers plus higher rights fees equals profit squeeze. Which is exactly ESPN's dilemma.

But a streaming service, while it might attract sports fans who have cut the cord, won't solve ESPN's profit problems. Instead it will exacerbate them. Why? Because ESPN will continue to lose the millions upon millions of cable subscribers who pay for it but never watch it. Losing $7.21 from each non-watcher is going to be a revenue killer. There is no possible way the universe of sports fans who want ESPN can make up that revenue, even if they're charged more for a streaming service.

To make matters worse, Disney appears to be planning a streaming service that even the most rabid sports fan will be reluctant to pay for. All the good stuff -- big-time college football, professional basketball, the Monday night National Football League game -- will remain exclusively on ESPN's cable channels. The streaming service will get, well, other things. It's pretty clear that Iger is still trying to protect Disney's legacy cable business, and that his move to the internet is not exactly a wholehearted embrace.

The reality is that the glory days are over for ESPN. Instead of making the $6.4 billion it earned in 2014, it'll soon be earning $2 billion or less. Iger, or his successor, will have to decide whether to invest in it or to let it hobble along in its diminished shape. Disney will have to decide whether to keep paying megabucks for professional sports rights -- thinking of them as loss leaders like the Olympics for NBC -- or whether to give up those rights to save money. If it does the former, ESPN's profits will dwindle even more. If it does the latter, fewer sports fans will want to subscribe.

Posted by at August 12, 2017 8:08 AM

  

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