ESPN, the giant of US sports television channels, has been losing subscribers by the millions while being clobbered by increasingly expensive broadcast rights.
The company must reinvent itself quickly to survive, but how?
Since its founding in 1979, in the town of Bristol, Connecticut, the world’s first broadcaster dedicated solely to sports has become a colossus, comprising multiple networks, platforms and 100 million subscribers.
However, the company — a subsidiary of Disney since 1996 — has faced headwinds since 2011.
ESPN on Wednesday announced a wave of layoffs, cutting about 100 positions, according to US media reports, including some on-camera personalities. The layoffs follow earlier cuts of 300 jobs in 2015 and 400 in 2013.
ESPN’s troubles are led by the continuing slump in subscriber numbers, down 9 million since 2011, even though the company still claims 90 million subscribers.
With each subscriber worth an average of US$9.17 per month, according to figures from analysts SNL Kagan, that equals a combined shortfall of nearly US$1 billion.
Many Americans subscribed to cable television out of habit for decades, paying for bundles of hundreds of channels, even though most only watched a few. Today’s TV viewers have options.
“Because of the maturation of streaming and the emergence of other sports channels, [ESPN is] in a much tougher situation,” said Andrew Zimbalist, a professor of economics at Smith College in Massachusetts.
He said ESPN is likely to lose 2 million or 3 million more subscribers each year for the next five years before the slide slows.
Fees for broadcasting rights have exploded at the same time, increasing by 54 percent in North America from 2010 to 2014, according to an October 2015 study published by PricewaterhouseCoopers.
It expected those fees to more than double between from 2010 to this year.
ESPN signed a 10-year contract for the rights to the National Football League’s Monday night games and several other events in 2011 for US$15.2 billion.
And a new contract with the NBA professional basketball league took effect this season, valued at US$12.6 billion over nine years.
However, “changing consumption habits” means trimming costs will not be enough to get the company through its rough patch, ESPN president John Skipper said.
He has negotiated agreements with most of the online streaming services to have launched in the US, including Sling, Hulu, YouTube TV and Playstation Vue. Those services offer selections of fewer channels, known as “skinny bundles,” for significantly lower prices than traditional cable-TV packages.
Disney in August also took a 33 percent stake in BAMTech, a subsidiary of Major League Baseball that has become a big player in online video streaming.
And ESPN is set to launch a fully online offering later this year, based on BAMTech technology, Disney CEO Bob Iger said.
Even with all those initiatives, “the best ESPN and Disney can hope for at this point is slowing the decline,” said Jan Dawson, chief analyst at Jackdaw Research, adding that the average income per subscriber will probably decrease as well.
Broadcasting rights remain extremely expensive and margins will continue to shrink, which is why ESPN must control its headcount, one of the cost factors it can still control.
“They’ll have to lay off more people, I’m sure, in the coming months,” Zimbalist said.
With the outlook bleak for the foreseeable future, some analysts and observers, including media mogul John Malone of the Liberty Media group, have called for Disney to sell ESPN.
That prompts the question of who would buy it, which has no obvious answer.
“There are fundamental issues here that any new owner would need to deal with, too,” Dawson said.
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