ESPN’s Folly

OTT Holdouts are Now On Notice

For decades, ESPN was king of the cable hill. To see that, look no further than the network’s subscriber fee: around $7 a month. It’s the most expensive channel in your cable lineup, dwarfing the next 5 most expensive channels combined.

Simple economics tells us that when you have an in-demand product, you can charge more for it. And as a nation, America is addicted to professional sports.

Disney CEO Bob Iger

Yet the past few years have seen ESPN’s fortunes shift dramatically. The network’s position in the market, once the ‘best seat in the house’, is quickly becoming a hot seat.

Cord-cutting and other media industry headwinds are hitting the Disney-owned channel hard. Every few months seem to bring another round of layoffs or weak financial numbers.

Here are a few of their problems:

Blank Check Mentality

ESPN’s moneymaker isn’t its raft of talking heads on Sports Center or other programs, it’s the live games and big events they air.

Those rights don’t come cheap, with TV deals for professional and college sports leagues often costing in the tens of billions of dollars.

Traditionally, ESPN has locked down the lion’s share of these, which often means outbidding other networks or dealing for entire decades’ worth of broadcast rights.

Joe Nocera of Bloomberg illustrates the point well in a single line:

The $1.9 billion a year ESPN pays the NFL (for one game a week, and usually a lousy one at that) is twice what any other network pays to air pro football.

ESPN’s big spending comes from the assumption that it can always pass costs, no matter how high, on to subscribers. They can pay whatever they have to for rights to games, because they can charge whatever they want.

Which leads in to the next problem…

Taking Advantage

Under normal circumstances, these runaway costs on all fronts wouldn’t be possible. But like most cable networks, ESPN is insulated from the actual customers paying its bills by the cable and satellite companies.

Your average consumer knows when their cable bill goes up, and blames the cable company. They’d know if ESPN disappeared from their TVs, and they’d blame the cable company. ESPN parent company Disney knows that their sports network is, to many cable subscribers, a must-have, and they exploit it.

Not only do they charge an exorbitant amount for ESPN itself, but they tack on a littany of additional channels: ESPN 2, ESPNU, ESPN Deportes, ESPN Classic, just to name a few. ESPN is already priced high at around $7 a month, but add in all these other ESPN-branded networks, and consumers pay over $10 a month for them.

It doesn’t stop there. Disney also uses ESPN’s popularity as a bargaining chip for other networks that the company owns. From the Disney Channel (plus tag-alongs like Disney Jr., Disney XD, etc.) to ABC Family to the A&E Networks, Disney can command a higher price for all of these networks which have nothing to do with sports, simply by holding ESPN hostage.

Disney-owned Cable Networks

And as if that wasn’t enough, Disney has one more trick up its sleeve. It forces these high-priced channels into every package offered by cable and satellite companies. If you have standard cable, you have ESPN, ESPN 2, the Disney Channel, ABC Family, and others. Period. Even if you never watch a minute of sports, or don’t have any kids, you pay that same big chunk of your cable bill every month to finance ESPN’s overspending. No way to opt out.

In fact, when one bold TV provider, Verizon, tried to give customers an option that didn’t include ESPN, they were sued for doing so. ESPN fought to keep every subscriber paying for their network, and as it turns out, they had good reason to do so: they depend upon it.

Resisting Change

In a way, ESPN is symbolic of the entire cable TV business. Aside from skyrocketing prices, they’ve changed very little over the years.

That’s a problem.

A Bloomberg headline summed it up well:

ESPN Has Seen the Future of TV and They’re Not Really Into It

No network has benefited more from cable TV’s era of dominance. It’s natural that they’d prefer to see those conditions continue indefinitely, but that’s not going to happen.

As the media world enters a new era, ESPN appears woefully unprepared. While other networks respond to the disruption in the TV industry, jockeying for a place in the new order, ESPN has remained a notorious holdout.

We’re witnessing a consumer exodus from cable and satellite TV.

That business model is about as viable as the Titanic. Rather than scramble for the lifeboats, ESPN is clinging to the deck.

Times are changing, and ESPN is bearing the brunt of it.

While the network’s flagship Sports Center program was once a one-stop-shop for highlights, clips, and commentary from the dozens of different games that occur simultaneously across the country, today, those same must-see clips make the rounds on social media long before anyone sees them on Sports Center.

Making matters worse, consumers have reached the breaking point on the ever-increasing cable TV bills that ESPN had long counted on. Many are canceling their cable packages entirely, ditching ESPN whether they want to be rid of the network or not. As TV operators recognize consumers’ demand for lower prices, the high cost of ESPN and its associated channels are the most obvious to put on the chopping block for quick relief.