As A Streaming Future Looms, ESPN Is Damned If It Does, Damned If It Doesn't
from the rock-and-a-hard-place dept
So for years we’ve examined how executives at ESPN completely whiffed at seeing the cord cutting revolution coming, and personified the industry’s denial that a massive market (r)evolution was taking place. As viewers were beginning to drift away from traditional cable and erode revenues, ESPN executives were busy doubling down on bloated sports contracts and expensive Sportscenter set redesigns. Only once ESPN lost 10 million viewers in just a few years did executives finally acknowledge that cord cutting was a problem, though they subsequently have tried to downplay the threat at every opportunity.
The question now is how to fix that problem. ESPN’s first step was to try and save costs by firing oodles of on-air talent, but not the executives that failed to navigate this sea change. That has since been followed by ESPN-owner Disney recently proclaiming it would be offering two direct to consumer streaming platforms — one stocked with Disney and Pixar fare, and the other being a direct to consumer ESPN product. During a recent earnings call, Disney CEO Bob Iger verbalized the company’s slow epiphany in the face of cord cutting:
“We?ve got this unbelievably passionate base of Disney consumers worldwide that we?ve never had the opportunity to connect with directly other than through the parks,? Iger said. ?It?s high time we got into the business to accomplish that.?
Iger acknowledged that the decision to act was spurred by the disruption in the traditional TV eco-system that has been rocking ESPN for the past few years. But Disney?s blue-chip brands give them a leg up in taking a radical new approach to reaching consumers.
?It?s not just a defensive movie, it?s an offensive move,? Iger said.
Granted it’s not really playing offense when you only react after worries about cord cutting and ratings slides causes a $22 billion valuation hit in just a few days, something Disney experienced last year. Still, it’s good to see Disney pull its head out of the sand and embrace the idea of giving consumers what they want, even if the move is painfully belated and under-cooked. The problem for ESPN specifically, as many have been quick to point out, is that the company is still stuck between a rock and a hard place in terms of navigating the transition to streaming — even if it does everything right (which it won’t).
There’s plenty of reasons for that, the biggest being that streaming simply can’t be as profitable as the long-standing practice of forcing cable TV customers on to bloated bundles filled with channels (like ESPN) that they may not want. ESPN currently makes $7.21 for each cable TV subscriber, many of which pay for ESPN begrudgingly. One survey found that 56% of ESPN viewers would ditch the channel if it meant saving that money off of their monthly bill. Fear of losing those customers was one of the reason ESPN sued Verizon when the company tried to take ESPN out of its core TV bundle.
And while ESPN may now be technically doing the right thing in finally offering a direct-to-consumer streaming product, such an offering will only aid to expedite viewer defections, while ESPN’s sports licensing costs remain the same:
“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.”
Traditionally, many cable and broadcast companies have tried to give the impression of adaptation by launching a streaming service, then saddling it with all manner of caveats to prevent existing, traditional cable TV customers from downgrading to the cheaper, more flexible streaming option. This really never works, but it looks like the path Iger and Disney are going to follow when it comes to ESPN’s latest streaming venture:
“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.”
In other words, ESPN’s epiphany and transition isn’t quite as profound as many are suggesting, and ESPN still somehow believes it can control the rate of evolution; a fool’s errand. Many industry insiders also have told me over the years that ESPN’s contracts with many cable providers state that should ESPN offer its own streaming services, cable providers will no longer be bound by restrictions forcing them to include ESPN in their core lineups, which will only accelerate the number of skinny bundle options without ESPN.
It’s a damned if you do and damned if you don’t scenario for ESPN, and even if ESPN does all the right things here and offers a truly compelling streaming platform customers really enjoy — there’s simply no getting around the fact that this transition is still going to really hurt.
Filed Under: cord cutting, streaming, television
Companies: disney, espn
Comments on “As A Streaming Future Looms, ESPN Is Damned If It Does, Damned If It Doesn't”
'Less money' is still vastly better than 'No money'
Just because you made X profits last year does not mean you are owed or can expect X profits this year. Markets change, and this can result in less profits for certain parts of it even if they do everything ‘right’.
The sooner they accept this the better off they will be. Yes ditching the current model is likely to result in less profits as people who no longer have to pay them ditch them as a result, and they’re stuck with only those that want what they are offering, but the alternative, sticking their heads in the sand and pretending nothing has changed is just going to result in more and more people deciding that what they’re being charged is more than what they’re willing to pay, going without entirely.
Re: 'Less money' is still vastly better than 'No money'
Changing their business model, or method of delivery, is not the only thing they need to change. They need to change the business model for sports, professional, collegiate, Olympic, etc. as well.
Many ignore the issue now, but I don’t think that will always be the case.
Re: Re: 'Less money' is still vastly better than 'No money'
It would help if they primarily went back to being a sports channel rather than a talk show channel
Sorry, Karl...
I stopped reading the article because use ESPN’s problem attracts neither interest nor sympathy. Perhaps it would help to shorten the article into a listicle.
Of course that might not work for ESPN, because a listicle requires options.
THE reason I cut the cord was ESPN
ESPN currently makes $7.21 for each cable TV subscriber, many of which pay for ESPN begrudgingly.
Not begrudgingly – I am -not- going to pay for it. I have zero interest in any of their programming. So why should I have to pay them money?
Ever rising costs lead me to cut the cord in 2006 and I’ve not looked back since. You want to jack up my bill? Fine, then get on the horn and make my boss give me a raise of exactly the same percentage you’re raising the bill.
Re: THE reason I cut the cord was ESPN
You have ESPN getting their $7.21, which is crazy, then you have Fox Sports and the others getting their money also. Don’t care about sports, why pay for all this crap?
Forcing everyone to pay for crap they don’t want is why people are cutting the cord. The problem is they now think people are going to pay for all these streaming services from them.
The problem is their own streaming solutions is not the answer. Why would anyone pay CBS $6 a month? Almost as much as Netflix for what? It’s just laughable. Everyone else wants the $6 or more to get their programming. This is not what people have been wanting.
How can you go from getting 100 channels for $40 or so, to 1 channel for average of say $8? We just wanted a-la-cart. Pick say 10 channels that we actually want, but are spread out in a way where to get them all you normally h ave to get their BIG channel bundle. But really only want to pay $10 for those 10 channels, which is still a higher cost per channel then the normal bundle.
So instead I look at it this way, what I don’t know or can’t get I won’t miss.
I head that only around 4% of Cable subscribers even wanted the Sports stuff. Which means everyone else was Subsidizing it. Which in this case looks to be $7.21 cents each. The People that want the sports should be the ones paying for it. The real costs. $25 or more per month. Oh no, is that to much? Oh well, so long as I’m not paying for it anymore. They of course are still trying to force themselves into these streaming bundles. I know their in DirectTVNow and SlingTV and I’m sure others. So they’re still trying to force everyone into paying for their service. Is it still around the same amount? I have no idea.
Re: Re: THE reason I cut the cord was ESPN
Late in the cassette and CD era there was usually one only song per album worth paying for. The rest was filler. iTunes gave an alternative, and the gravy train stopped.
Netflix became the video equivalent with a massive library of content from everyone, at least in the US. That’s what they’re attacking. They’re trying to destroy streaming video by forcing it into the "single hit plus filler" model. Removing content from Netflix and sending it to a dozen lesser services.
Re: Re: THE reason I cut the cord was ESPN
Does “$7.21” actually mean “$7.21/month”? It seems likely, but years or quarters are more often used in financial contexts. If monthly, that’s a huge amount of money to be wasting for something you don’t want.
Re: Re: Re: THE reason I cut the cord was ESPN
Yes. ESPN charges cable providers $7.21 PER MONTH. And ESPN2 and ESPNU and ESPNews and so on are all on top of that. Total is over $8.
Re: Re: THE reason I cut the cord was ESPN
I will likely pay CBS six bucks once the entire season of the new Star Trek is available. Then I will binge watch it and cancel. This is a key fact about streaming services. It is easy to sign up, watch whatever it was you wanted to watch, and cancel. Six dollars a month as an open ended commitment to whatever it is CBS is offering would be absurd. Six dollar–or even twelve, if I stretch it out–to see a season of a show I want to watch is entirely reasonable.
I member....
I’m reminded of the transition from CD albums to single song purchase on itunes. Many artists freaked out and went full denial because it showed them the real “value” of their entire discography and not the Walmart inflated dream. The truth was painful. Speaking of dreams: “… this unbelievably passionate base of Disney consumers…”
Re: I member....
I was working at a Wal-mart in the electronics department shortly before that transition really picked up steam. So many people would come in looking for a single for a song they wanted, only for us to have to tell them that they could only get it if they bought the whole CD. Very, very few of them opted to buy the CD. The general response was, "Well, I’ll just go pirate it then." The record labels may have kept profits up a bit longer with that strategy, but it was always going to fail. People knew they were being ripped off and were sick of it. Same thing is happening now with cable TV. People know they’re getting ripped off and they’re sick of it. It’s just a matter of when, not if, the current model collapses.
Great Story
Yet, it appears to be pretty much the same story over and over again.
ESPN (and many other cable network channels) were built for an eco-system that is somewhat faded but not yet dead. n part because you forget what they are, which is content aggregating channels.
Sports is often a very linear experience. The game starts at a certain time, and goes in a linear fashion until the final whistle, horn, or flag. This is the time when sports has it’s biggest value, when it’s happening. The result is that the delivery of live sports, via cable, steaming, or tweets for that matter is way more valuable to consumers than playback.
EPSN’s value generally is aggregating the most live sports possible. It is valuable enough that cable companies have paid over the top for ESPN because they know that for a significant part of their subscribers, live sports is important.
The move to streaming at this point isn’t surprising. The infrastructure is in place for most consumers to be able to receive a decent enough stream, and the costs related to streaming are such that it has become a valid business model. This has all happened only in the last 2 years or so. ESPN isn’t the first, but honestly they are very early in the game all considered.
The funny part here is that the losers aren’t ESPN, rather it’s the cable company. ESPN was the sale point for cable for many people. Offer it in another way (streaming), and those who were staying may cut the cord.
ESPN is going to be around for a long time. Their future may be more aggregating live sports from all over the world rather than specifically broadcasting it, but the song remains the same. People will pay for sports.
Re: Great Story
“The funny part here is that the losers aren’t ESPN, rather it’s the cable company”
The funny part is that both companies in this case are one and the same, and it appears that Disney are trying to stop ESPN subscribers from getting value for money on streaming so that they can save the cable division. While compromised like that, they’re both losers.
“People will pay for sports.”
Did you deliberately ignore the part where 56% of subscribers said they would happily not pay to save money, and that the existing business model depended on people who never watch sports paying for them? Because that seems to be a very important part of the issue.
People who want sports will pay for them, within reason. The issue is that they’re losing the ability to charge people who don’t, and that appears to be what their service depended upon.
Re: Re: Great Story
“Did you deliberately ignore the part where 56% of subscribers said they would happily not pay to save money,”
Nope. I look at it as a glass half full (rather than your glass almost empty). 44% of people are willing to pay for sports, and at this point, we still don’t know how much. We do know (by definition) that it’s at least as much as the cable companies were charging.
You also have to remember that the cable company was making a (healthy) profit on every customer – and have been paying for their distribution network. For ESPN, taking $10 a month direct (9.99 to be practical) might be way more profitable than selling to a cable company that pays them only 70% of that. It would also allow them to much more directly market to the consumers and push their own brand, and even to add “pay per view” and other streaming events to add to their income.
Net, $10 per customer over $7 per customer allows for a pretty healthy drop. 1000 customers = $10,000 so you need over 1400 customers at $7 to have the same income. That pretty much covers the “drop” you talk about right there.
Hmmm!
Re: Re: Re: Great Story
I am confused how you can look are hard facts as optimistically. If 56% of people said they were going to drop sports. Then you need to calculate that you will not have 56% of the income. Don’t assume you will have more because you may quickly go bankrupt. ESPN already made that mistake hence why they fired so many people. You are also assuming quite a bit on pricing. It has been 4-5 years and don’t remember the name of the study but it was about profit details on ebooks. The finding was that publishers sold 4x as many ebooks when priced at $3.99 rather then $9.99. Can’t assume it will work the same but potentially if have 1000 streamers at $10 a month. You might be able to have 4000 streamers at $4 a month.
Re: Re: Re: Great Story
The issue isn’t that no one will pay for sports it’s that the amount they are currently getting is artificially inflated..
You have to remember that 56% of people who would ditch ESPN but keep their cable package immediately if they could are only part of the problem since their are plenty who are considering (but not yet convinced) ditching the cable package altogether because it’s so expensive and switch to a less complete option (streaming, over-the-air, etc)
I used to pay for ESPN as part of my cable package, and I would have voted to keep it because I weighed it against the other channels I was getting from my cable, but once I decided to get rid of the cable package itself it’s a different story. My entire viewing entertainment cost is now 8$ a month. They have to compete with that bar now. Is ESPN worth doubling my entertainment cost? Not bloody likely.
The issue is not whether or not people will still pay for sports it’s when ESPN suddenly has a massive drop in revenue over the next few years, can they manage that drop against expenses and downsize quickly enough to stay afloat.
Re: Re: Re:2 Great Story
That will also depend on what contracts they have with the sports organizations, and also if ESPN downsizes, the sports will have to pay their stars less. All the popular sports in many countries have a wage bill that can only be supported by a large income from the TV and cable companies. It should be an interesting bubble to watch burst.
Re: Re: Re: Great Story
I think your math is wrong. 10/7 is a ~43% increase; (10/7)*0.44 is a ~37% decrease (vs. the original total revenue). That doesn’t sound like “pretty much covers” to me.
To look at some of the numbers here in a bit more detail:
100 customers at $7.21 per customer results in total revenue of $721.
If 56% of those customers stop paying, that leaves you with 44%, or 440 remaining customers.
To make $721 in revenue from 44 customers, you’d need to charge them each $16.39. That’s a price increase of over 2.25x.
How many of those 44 will decide that the increased price isn’t worth it, and drop the subscription?
Of course, for every one who does that, you need to increase the price on the remaining subscribers even more if you’re going to retain the same revenue.
Re: Re: Great Story
I would in fact pay for sports, to use your phrase, “within reason”. Thing is, I want to pick the games: I have a lot of interest in a non-local baseball team but none in ANY NBA team. So during the baseball season, I might watch 3 games/week – equating to about $12/month. Given that I also watch football and college basketball, I estimate $150/year…which is more than they make for me now.
But they have to give me my choice of events, and they have to let me time-shift it at will, and they have not shove endless ads at me.
Otherwise, well, there are plenty of pirate options. I often use those even when the game is on an ESPN channel that I’m paying for because they deliver a superior product.
Re: Great Story
“EPSN’s value generally is aggregating the most live sports possible. It is valuable enough that cable companies have paid over the top for ESPN because they know that for a significant part of their subscribers, live sports is important. “
Streaming can do it. And better. Just start your browser/app, select the game you want to watch and it will show. No need to look for the channel. And you can watch again anytime, anywhere.
“This has all happened only in the last 2 years or so. ESPN isn’t the first, but honestly they are very early in the game all considered.”
Erm. Nope. I have had connections that would handle at least 2 simultaneous Full HD streams for at least 10 years now (and I’m being conservative and also don’t live in a so-called developed nation). In lower qualities streaming has been around for ages. ESPN is very, very, very late but it may be somewhat early if compared to the rest of sports businesses.
“The funny part here is that the losers aren’t ESPN, rather it’s the cable company.”
Both are losers. Both are going through hard times in the next years. But I’d argue that cable companies have a bit of an advantage there considering the bandwidth they reserve for cable in their systems can be used for better stream offerings (without impacting NN since it’s a dedicated channel that doesn’t eat into the bw you use for the internet). So yes, ESPN is a loser and will actually suffer more than the cable companies.
“ESPN is going to be around for a long time. Their future may be more aggregating live sports from all over the world rather than specifically broadcasting it, but the song remains the same. People will pay for sports.”
Of course, the brand is valuable and may be bought and maintained (see Nokia) but if they want to remain where they are they will need to adapt faster. And they seem to be resisting because streaming won’t include the most important part of sports. People will not pay if it’s not attractive, valuable. People will stream from unauthorized sources.
Re: Re: Great Story
“Streaming can do it. And better. Just start your browser/app, select the game you want to watch and it will show. No need to look for the channel. And you can watch again anytime, anywhere.”
Provided you can find the stream legally. If you have to depend on pirate sites, you aren’t really comparing apples to apples, are you? Right now very few live sports are actively streamed legally.
“I have had connections that would handle at least 2 simultaneous Full HD streams for at least 10 years now “
You might have (which suggests better than 10Mbs continuous) but most people have not. The real turning point in streaming has only happened since Netflix really got into it. That was at the point where it could actually be done for a reasonable cost and return.
“ESPN is a loser and will actually suffer more than the cable companies.”
I think you have it backwards. Cable companies are not in the position to charge that much more for the bandwidth. So no matter how much more they can move, if they aren’t getting paid for it, they lose. ESPN won’t have to ask or pay the cable company a percentage for carriage, they just go direct to the consumer. The cable company sells connection as an ISP, not content as a cable company at that point. Since most people already have internet, it’s not like it’s a market that will double overnight to make up for lost cable subscribers.
“People will stream from unauthorized sources.”
What is the unauthorized source? Hint, it’s often ESPN or similar networks. If they drop, what are people streaming? NOTHING. In the end, cable supported sports channels are the golden goose. If you aren’t careful, you will have a lovely Goose dinner one night and nothing in the cupboard in the morning.
Re: Re: Re: Great Story
“Right now very few live sports are actively streamed legally.”
By jove Holmes, I think he’s finally got the problem people are talking about!
“The real turning point in streaming has only happened since Netflix really got into it.”
…which was in 2007. It is a problem when others haven’t adjusted to the modern era after a full decade.
“Cable companies are not in the position to charge that much more for the bandwidth.”
Hmmm… I recall in other threads you supporting ever more creative ways to rip the consumer off.
“ESPN won’t have to ask or pay the cable company a percentage for carriage, they just go direct to the consumer.”
Are you feigning ignorance again, or did you deliberately miss the part of the story about them openly not doing that to help save their cable division?
Stretch 'Til It Snaps
"ESPN’s first step was to try and save costs by firing oodles of on-air talent, but not the executives that failed to navigate this sea change."
At some point, we can hope more reasoned changes will be made, and actual profit drops will be large enough that executives will finally suffer their just deserts.
Re: Stretch 'Til It Snaps
Hold executives accountable for their failures? That’s crazy talk.
I’m not exactly going to cry about this. Most of their money came from people who didn’t want what they offered anyway.
I equate Disney with greed, and, wait for it, Nazi Germany. The players can all sit out the national anthem, I haven’t been watching since the mid nineties. But when they start cleaning their rectum with, defecating on the American flag, or pulling their pants down after the rendition of the national anthem they can expect trouble from me. Hell, I don’t even mind if they burn the flag, they have the right. Just be careful not to play with fire, it can be a marvelous thing, but a toy it is not.
Lots of armchair quarterbacks here, lots of advise, lots of talking about bad leadership, but its all bullshit. Hindsight is 20/20.
Why was ESPN popular in the past? I think it was because if you wanted sports, no matter the time of day or night, it was the only place that you could get it.
Sunday night you could watch highlights of each and every game, you could rumble, stumble and bumble through the touchdowns.
ESPN was gold. It was the only place where you could get that.
Then the Internet. Social Media. Mobile devices. Now you can get updates on Twitter, you can talk with people around the world about sports, you can watch YouTube. Sports teams and leagues realized what they had and took control of their product. The networks used to tell what the NFL to do, now the NFL tells the networks what to do.
Things change, ESPN was destined to fade and maybe to eventually die. It won’t be because executives didn’t see it coming, its just that things change, things evolve, and their time will be up.
Saying they need to do this or that won’t help. They are what they are, and in their time, they ruled, but things go extinct while others rise up.
That is just the way things are.
Re: Re:
You completely fail to factor in the aspect that this article’s topic is based on: that your golden era was built on the money of people who don’t give a flying rat’s ass about sports. Now that money is drying up, and the suits are very slowly realizing that, while popular, they’ve built up their monster way past the point of stability when it comes to real demand.
No one’s saying sports are dead and always have been. Rather, sports fans and execs have lived in a dream world of other’s money, and reality is crashing in.
Oh no! You say if we lose tens of millions of customers who are FORCED to buy our product but never use it, and would never buy it otherwise, will cost us money?!?
But we’re ESPN! We’re entitled to that money we did nothing to earn!
I’m going to go back to sticking my head in the sand while swimming in that shrinking pool of free money we did nothing to earn!
Re: Re:
Corporate entitlement culture is very very real.
“Losing $7.21 from each non-watcher is going to be a revenue killer.”
Aww, how sad. Who could have possibly known that basing your business model on people being forced to give you money for a non-essential service was a bad idea outside of pesky internet commentators and community college economics instructors?
Eisner's original motive
The worst irony for loads of ex-ABC “lifers”: Michael Eisner stated his reason for originally buying ABC, was that he wanted Disney to own ESPN. Meanwhile ABC radio & TV are destroyed in the process.
The Ocho
“…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…”
They might as well call their new ESPN streaming service “The Ocho”.
You say that like it’s a bad thing…