Will ESPN Have the Same Fate as Newspapers?

It’s been five days, and if you’re a sports fan, you’re no doubt aware of the bloodletting at ESPN.  Reports are that approximately 100 folks either have been, or targeted to be, laid off.  James Miller, one of the foremost experts in all things ESPN, reports about half of these names will be recognizable to folks digesting ESPN content, either via TV, Magazine, or digital.  If you’re not sure who those folks have been so far, Deadspin has a running list.

Why the cuts?  Much like newspapers in the mid-90’s, which saw their classified advertising revenue dwindle and subscriber bases shrink, many are attributing ESPN layoffs in the fall of 2015 and last week to “cord cutters”, those who are getting rid of cable and dish TV and watching their television a la carte.  A simple HD setup will get your local stations for free, and subscriptions to Netflix, Hulu, and HBO GO are some of the ways in which you can watch other shows.  ESPN, like the broader cable industry, has been losing about 300,000 subscribers monthly and has lost 12 million subscribers since 2011, from a high of nearly 100 million homes.  That lost revenue equates to $7.21 per month per subscriber, coupled with some of the richest rights fees ever paid out to professional leagues (an estimated $7.3 billion annually).

To be sure, ESPN hasn’t been the most frugal of spenders.  They created new networks, hired writers to cover every team, built a glimmering new studio in Bristol, and potentially outbid only themselves for many of those live sports rights.  ESPN simply didn’t anticipate the impact that smart phones and social media would have on viewing habits.  You can now watch entire NFL games on Twitter these days!

Let’s take a step back, though, and get some perspective.  That’s certainly a substantial loss of revenue for the Disney-owned network (we’ll come back to how being a public company plays a role in this).  However, in 2011, ESPN was charging cable affiliates $4.69 per subscriber.  ESPN subscriber revenue is actually UP $195 million each month.  Also consider that while 88 million subscribers is not the number of people WATCHING ESPN, ratings for live sports continue to be strong since it’s not as much fun around the water cooler the morning after a big game when you haven’t caught up with your DVR yet.  ESPN isn’t going anywhere even as viewer consumption patterns change.

jayson-starkIf we follow ESPN’s logic, though – that the network is bleeding money from subscriber losses – did cutting 100 jobs really make a dent in that?  Did folks like Jayson Stark and Ed Werder really have garish enough salaries to make a difference.  As Tom Ley notes in a Deadspin commentary, if you added up all the salaries of those who’ve lost their jobs at ESPN, how much of a single Monday Night Football broadcast does it buy?  No, the layoffs had nothing to do with truly making the network “profitable”.  It was a message to Disney stakeholders that profits matter more than anything…welcome to quarterly corporate earnings calls and the dehumanizing of our culture (told you I’d get back to this concept!).

Ed-Werder
Ed Werder was one of the most respected NFL reporters at ESPN.

I’d add that some of the incredible reporters who lost their jobs – guys like Andy Katz, Stark, Werder, nearly the entire NHL writing team – will “cost” ESPN more in the long-run.  These are seasoned and connected journalists well-respected by front offices, coaches, and players in their respective sports.  To be sure, ESPN is losing quality content that can’t be easily replaced by the recent college grad just excited to be in sports (but the television “screamers” are still employed…tells us what shows get the ratings).

2013Katz
Andy Katz got ESPN into the White House, with the popular NCAA Hoops Presidential Bracket.

As for cable (and dish TV…let’s just use “cable” to describe all of these blanket television services), they’re going to have to figure out how to save subscribers.  Some, like Comcast, are supplementing by dipping a toe into the cellular business.  Many of these companies also offer internet, either bundled or by itself (cord cutters are still paying Comcast and AT&T U-Verse in the Chicago area), so there’s still some revenue as a result of cord cutters.

But I’ve been saying for years that cable has the ability to send, or block, whatever signals they’d like to your home.  Rather than allowing subscribers to simply use apps for their TV viewing, why aren’t cable operators and ESPN offering a buffet to the consumer?  My Mom wouldn’t pick ESPN, Fox Sports, or Spike TV so why does she have to pay for it?  If she can pay $20 for the 20 to 30 stations she’d watch, why can’t she choose that rather than pay for 400?  Isn’t salvaging customers by unbundling ESPN (and other similar stations) as opposed to watching them walk away worth changing the industry paradigm?

Getting back to my headline…is ESPN going the way of print?  Unlikely, especially if ESPN can continue to find ways to maximize live events and sell advertising.  Newspapers didn’t anticipate the impact of “immediacy” of the internet, and how to monetize it, in a model that delivered news to your doorstep once each morning.  ESPN needs to capitalize on the ways it can secure eyeballs…by continuing it’s live coverage and marketing that programming to those who REALLY want it rather than angering so many people who are purchasing a product they don’t use.

If you want to dive into additional opinions on the ESPN situation, Mathew Ingram has a good take at Fortune, Bryan Curtis from the Ringer weighed in, Richard Deitsch tackled the subject in his Podcast today, Isaac Chotiner interviewed James Miller for Slate, Ed Sherman writes about it for the Poynter Institute, and Alex Putterman spoke to Ed Werder about his take on the situation for Awful Announcing.

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