Cord Cutting Is About To Punch ESPN Squarely In The Face

from the dying-cash-cows dept

If there's a primary reason for ridiculously-high cable TV prices, it's sports content generally, and ESPN specifically. On one hand, sports programming is one of the biggest reasons that people continue to pay for traditional TV. But with the slow but steady rise in cord cutting and an increase in so-called "skinny bundle" streaming services, it's pretty clear that the "worldwide leader in sports" is starting to get a little bit nervous. Cord cutting has hit segments like kids broadcasting harder than other areas, but it's increasingly clear the death of the traditional cable cash cow is headed in ESPN's direction at a pretty reasonable clip.

According to a recent Wall Street Journal report, the channel is tightening its belt after starting to feel the cord cutting (and more accurately, the cord trimming) pinch. ESPN has lost 7.2 million viewers in the last four years, and a little more than three million in the last year:
Since July 2011, ESPN’s reach into American homes has dropped 7.2%, from more than 100 million households—roughly the size of the total U.S. pay-TV market—to 92.9 million households, according to Nielsen data. Viewership of SportsCenter, its marquee and high-margin sports-news show, has sagged since September, due in part to the fact that younger consumers are increasingly finding sports news at their fingertips on smartphone apps.
There's a cable and broadcast industry narrative that consumers just can't live without sports, and the blathering talking heads on ESPN somehow get included in this argument. But a recent survey by DigitalSmiths suggested that only 35.7% of consumers would include ESPN in their cable lineup if they were able to pick and choose their channels (a la carte TV). In fact, the channel came in at 20th place in terms of the most desired channels among those surveyed. So according to SNL Kagan data, there are about 94.5 million homes each paying $6.41 per month ($7.5 billion annually) for a channel they're not really all that interested in.

That's pretty clearly not sustainable, and ESPN could be served by getting ahead of the curve and launching its own direct-to-consumer streaming service. But the Journal points out that the company's current contracts with pay TV providers state that if ESPN goes that route, the cable operators have the right to boot ESPN out of their core channel lineups:
If ESPN offers its channel as a direct-to-consumer streaming service, some pay-TV operators have the contractual right to boot ESPN out of their most widely-sold channel packages and sell it a la carte, according to people familiar with the matter. ESPN would have to charge about $30 a month per customer in an over-the-top offering to make the same money using that model, analysts say. But those distributors would have the right to undercut ESPN in their retail pricing, the people said.
And you might recall that ESPN sued Verizon when the company decided to pull ESPN out of the core channel lineup, arguing at the time that this was necessary to protect "innovation":
ESPN is at the forefront of embracing innovative ways to deliver high-quality content and value to consumers on multiple platforms, but that must be done in compliance with our agreements. We simply ask that Verizon abide by the terms of our contracts.
In other words, if ESPN actually decides to get out ahead of cord cutting and cord trimming by focusing on a direct-to-consumer effort, they'll open the door to more cord cutting and cord trimming, since they'll no longer be able to force people to pay an arm and a leg for a product many of them don't actually watch. Isn't the Internet video revolution kind of beautiful?

Filed Under: bundles, cable, cable tv, cord cutting, espn, internet, streaming

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  1. identicon
    Andrew D. Todd, 15 Jul 2015 @ 11:39pm

    Again, Let's Work This Out In Network Terms And See Why Broadcast Is Obsolete.

    Let's say, notionally, that there are twenty houses on your street. The cable company has a copper coaxial cable running down your street, with a capacity of, say, 600 MHz. This is divided into a hundred standard television channels, of 6 MHz, or 12 Mbits each. Each house's pro-rata share is five channels (30 MHz or 60 Mbits). There are only about twenty broadcast channels with sufficient viewership that two or more people on the block are likely to be watching them at the same time. If only one person on the block (5%) is watching a channel, broadcast does not offer any technical efficiency over having that person watch the program on the internet. If you allot twenty channels to the most popular broadcast programs, that still leaves 48 Mbits for each house. At the head of the street, you have a switch/server. Upstream of the switch/server, economies of scale cut in, and it is not too expensive to feed the switch/server with an optical fiber from the central office. The scarcity is the subscriber loop, either individual or shared, as in the case of cable. The cable companies have been desperately denying this logic, and broadcasting shows along the length of coaxial cable, which no one on the block watches. What is the sound of one hand clapping?

    If we go by traditional Nielson Ratings, that is, how many people are actually watching the program, we might find that there is only room for about five broadcast channels. Given the way your street is built, a program would have to get a Nielson rating somewhere up in the 30-40% range before it caused significant congestion on the internet portion of your joint subscriber loop. The last time people got Nielson ratings in that range was before cable television, when there were only three or four channels to chose from. Organizing enough football fans in the neighborhood to watch the game at home on television to justify a dedicated channel would be as difficult as organizing a neighborhood picnic, at which the young men all actually play a football game while the women are preparing supper.

    In the year 1998, before the advent of the internet, TV Guide had a circulation of thirteen million, and Sports Illustrated had a circulation of three million. TV Guide's circulation probably reflected the number of people who were willing to minimally inconvenience themselves to program VCR's to capture particular programs, not the rather smaller number who were willing to actually watch the television at a stipulated time. Sports Illustrated had to pad out its circulation with a conspicuously advertised "Swimsuit Issue," for men whose wives would not allow them to simply subscribe to Playboy or Penthouse. At the time, daily newspaper circulation in the United States ran about 237 per thousand, or 63 million. Unlike, say, woodworking hobbyists, sports fans are noisy, and they tend to make themselves visible, but there aren't really all that many of them.

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