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Tag Archives: Cord cutting

How ESPN’s Rising Carriage Fees Offset Its Subscriber Losses

ESPN Bristol CampusWhen we last looked in on ESPN’s struggles with cord cutting in December of 2015, ESPN had lost seven million subscribers in a two-year span from 2013 to 2015. Fast forward 16 months later, and it’s clear that this trend has not abated.

As of March 2017, ESPN now has only 87,437,000 subscribers. That’s a loss of nearly 12.7 million homes from its peak of 100.13 million in July of 2011, and its lowest subscriber count in 11 years. The most recent bad news about ESPN involves a purging of expensive on-air talent between now and June — presumably a piece of what was previously reported as $250 million in budget cuts at the Worldwide Leader In Sports in 2017.

Fox Sports’ Clay Travis used the report of those layoffs as an excuse to push his ESPN-is-failing argument forward for another year, while insiders in Bristol claim that argument is a “false narrative” and that ESPN is doing just fine. So what’s really going on here?

Here’s where Clay Travis’ narrative falls a bit flat: while ESPN has lost 14.5% of its subscribers in six years, its monthly carriage fee has increased 58.4% in that same span.

According to SNL Kagan’s most recent published estimates (as of August 2016), ESPN charges cable companies $7.21 per subscriber per month. ESPN2, meanwhile, charges cable companies $0.90 per subscriber per month. Those numbers are expected to grow 6.5% every year, which means they could be as high as $7.68 and $0.96 by next August.

Let’s extrapolate some numbers. Let’s assume for a moment that ESPN’s carriage fee actually increases quarterly by 1.625%, rather than annually at 6.5%, and has done so since last August. Let’s also assume that ESPN will lose roughly 400,000 customers per month throughout the course of 2017 — not an unreasonable number, given pay TV’s recent trends.

Given those figures, here’s what ESPN’s flagship channel would earn in total carriage fees:

Estimated ESPN carriage fees income 2017

Now let’s throw in ESPN2’s carriage fees on top of that.

Estimated ESPN2 carriage fees income 2017

It is extremely difficult to suggest that ESPN is failing when its two biggest channels are expected to earn more than $8.8 billion in carriage fees alone in 2017 — an increase from an estimated $8.5 billion earned by those two channels in 2016. This doesn’t take into account advertising revenue, which is down a bit overall but still adds at least a couple billion to ESPN’s bottom line, thanks to ESPN consistently being the most-watched cable network in prime time, especially during big event games.

As a reminder, here’s what ESPN will pay out this year for its biggest broadcast rights properties:

League
Annual Rights Fee
National Football League
$1.9 billion
National Basketball Association
$1.466 billion
Major League Baseball
$700 million
College Football Playoff
$610 million
ACC Sports
$240 million
SEC Sports
$150 million*
Big 12 Sports
$110 million
Pac-12 Sports
$110 million
Big Ten Sports
$100 million
Major League Soccer
$45 million
NCAA Championships
$42 million
Wimbledon
$40 million
The Masters (Golf)
$25 million
U.S. Open (Tennis)
$23.3 million
American Athletic Sports
$18 million
Mountain West Sports
$9 million
Little League World Series
$7.5 million
TOTAL
$5.596 billion

* – SEC figure is for 2nd-tier rights deal only and does not include shared profit from SEC Network, which could be as much as $210 million for the 2016-17 season.

While that total is not the full total of every rights deal ESPN has, it does take up 63.3% of ESPN’s expected carriage fee income in 2017. Those same rights cost ESPN only 52.5% of its carriage fee income in 2015. Meanwhile, Big Ten rights will increase by $90 million next season, and both the NFL and MLB TV deals will be up in just five years, with several smaller deals coming up before then.

Those cost increases, combined with the growing loss of subscribers and the slight decline in ad revenue, are part of the reason both Wall Street and various pundits are casting an askew glance at ESPN’s financials these days. The appearance is that ESPN is no longer growing, and thus it’s unable to maintain the same level of profit it once did. That’s part of the reason ESPN parted ways with expensive personalities and cut staff where it could, and those cuts are still coming.

That said, the key factor here is that carriage fee increases are still outpacing subscriber losses. Millions of people have abandoned the cable bundle, but that hasn’t prevented the cable bundle from pouring billions into ESPN. What’s more, as ESPN and ESPN2 become crucial channels in a growing number of online TV services, the Worldwide Leader in Sports is positioning itself to continue earning those billions from people who hate their cable company but still want live sports.

Only through the Wall Street prism of growth über alles could ESPN be viewed as a failing enterprise in 2017. ESPN is merely struggling to adjust to a TV market where only sports fans are willing to pay for sports — which is exactly how it’s supposed to be. The days of ESPN getting fat and happy off the cable bundle aren’t entirely done yet, but you can see the horizon from here. And so can they.

Hulu’s Endgame: Eliminate The Middle Man And Become Cable TV

In 2013, Netflix Chief Content Officer Ted Sarandos told GQ writer Nancy Hass exactly what the plan was for the DVD-mailing company-turned-streaming giant: “The goal is to become HBO faster than HBO can become us.” Three years after that statement, Netflix has nearly 47 million subscribers in the U.S. and an original content budget of $5 billion for this… Continue Reading

Playstation Vue Is Yet Another Sign That Cable TV Is Moving Online

CBS and Turner are paying roughly $771 million this year for the rights to the NCAA Men’s Basketball Tournament. Reports such as this and this suggest that advertising revenue for March Madness will easily surpass last year’s $1.19 billion haul. If you’ve been watching any of the games this year, you’ve probably seen some cable company-bashing ads for something… Continue Reading

Cable Companies Will Fight Dirty Against FCC To Preserve Set-Top Box Boondoggle

The cable bundle itself is far from the only ripoff in cable television. The average American household spends about $230 a year on cable set-top box rental fees, according to an analysis by Congress released in July. Senators Edward Markey of Massachusetts and Richard Blumenthal of Connecticut, along with the Commerce, Science and Transportation Committee,… Continue Reading

Do Comcast Data Caps Violate the Sherman Act?

Let me preface this article by stating that I am not a lawyer, and this is not a full legal analysis. However, given that nearly every article published about Comcast’s data caps only discusses the net neutrality aspects, I felt it necessary to look at them from a different perspective. First, the back story: In addition to quietly announcing hefty… Continue Reading

Why Time Warner’s New NBA Deal Will Keep It From Joining Hulu (For Now)

A few weeks ago, the joint owners of online streaming service Hulu — Disney, Fox, and NBCUniversal — looked to add another big media player to its ranks. Hulu LLC, the streaming service owned by three media companies, is in talks to add Time Warner Inc. as a fourth investor, according to people with knowledge… Continue Reading

How Much Is ESPN Suffering From Losing 7 Million Subscribers In Two Years?

The Walt Disney Company dropped a bomb last month when they admitted in their 10-K filing that ESPN lost 7 million subscribers over the last two years. Everyone from Clay Travis to Ken Fang to Karl Bode has chimed in on the topic, with many pundits suggesting that this is not only clear evidence of… Continue Reading

Is Big Media Letting Broadcast TV Die On The Vine?

A couple weeks ago, while I was off cavorting in New Orleans with my new wife, Morgan Wick wrote this piece taking note of the fact that some broadcast TV stations might decide to surrender their spectrum to wireless companies rather than continue operations, and those stations that do stay in business might end up… Continue Reading

Steve Ballmer Seeks A Million True Clippers Fans

Say this much for Los Angeles Clippers owner Steve Ballmer: he’s never been afraid to look silly. The former Microsoft CEO probably looked very silly to a lot of other NBA team owners when he reportedly turned down a $60 million-per-year offer from Fox Sports to keep Clippers games on Prime Ticket, one of Fox’s… Continue Reading

Bob Iger Didn’t Say Much About ESPN That We Didn’t Already Know

On Monday, Disney CEO Bob Iger told some Comcast-employed blowhards that ESPN could, at some point down the road, be sold directly to customers outside of the cable bundle. Here’s the bulk of what Iger actually said: “I have very bullish feelings about ESPN [in the] long term, but I’m a realist in terms of… Continue Reading


     

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