Dennis Grombkowski /Getty Images

The 9 Bullet Points of Doom for ESPN

A company nears a tipping point…

In trying to explain why ESPN would cut ties with Keith Olbermann (and, previously, Bill Simmons — and soon, perhaps many other high-profile personalities), The Wall Street Journal dug up some fascinating numbers. Standing alone, such numbers are perhaps easy to gloss over. But together, they point to a very real, very fundamental shift occurring within ESPN’s business.

Said numbers (emphasis mine):

The company, majority owned by Walt Disney Co., has lost 3.2 million subscribers in a little over a year , according to Nielsen data, as people have “cut the cord” by dropping their cable-TV subscriptions or downgraded to cheaper, slimmed-down TV packages devoid of expensive sports channels like ESPN.

, according to Nielsen data, as people have “cut the cord” by dropping their cable-TV subscriptions or downgraded to cheaper, slimmed-down TV packages devoid of expensive sports channels like ESPN. The stakes are high for Disney. ESPN will contribute roughly 25% of the company’s operating profit this year , according to Nomura Securities. ESPN’s fortunes are being closely watched in the media world as cord-cutting picks up and consumers gravitate to streaming services.

, according to Nomura Securities. ESPN’s fortunes are being closely watched in the media world as cord-cutting picks up and consumers gravitate to streaming services. 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.

, 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.

, due in part to the fact that younger consumers are increasingly finding sports news at their fingertips on smartphone apps. The financial stakes are especially high for ESPN because it earns the most carriage fees of any TV channel, about $6.61 a month per subscriber , according to SNL Kagan.

, according to SNL Kagan. When Disney struck a deal to put channels on Dish Network Corp.’s Sling TV service, it negotiated the right to terminate the deal if ESPN lost three million Nielsen households after May 2014 — a threshold that has now been crossed , according to people familiar with the matter.

, according to people familiar with the matter. Other factors could play into Disney exercising that right, including if Sling TV attracts more than two million subscribers , though that benchmark is still a ways off, the people said.

, though that benchmark is still a ways off, the people said. 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.

, 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.

Again, in the flow of a story, none of those nuggets seem particularly damning. But when called out one after another, things don’t seem nearly as rosy as they may appear on the surface for ESPN. And, by extension, Disney.

Everyone, including me, talks a lot about the keys that will break the cable industry’s hold on American television. The first such key has already happened: HBO broke away and launched its own, stand-alone service, HBO Now. It’s fantastic. And apparently doing very well for parent Time Warner.

The second key will be if and when ESPN breaks away from the pack and offers the same type of service, without a cable subscription required.

As many people have noted, they sort of did this by partnering with Dish on the Sling TV service, which includes ESPN in their small bundle. But as a couple of the data points above makes clear, this is very much just a test. A test which Disney/ESPN reserve the right to stop at any point now. Whether or not they’ll do that, we’ll see. But it’s certainly quite possible.

To get to the real issue here, you have to look at it from the other side. Yes, ESPN is a huge portion of the glue holding the cable industry together. But, no other network has benefitted more from said industry. See also: $6.61 per month, per subscriber. That’s absolutely insane. No other channel is close.

So does ESPN really want the world of big cable to go away? No. But they’re not dumb. They see the same numbers pointed out above, and they see them much sooner and with much better clarity than WSJ or you or I do. They know the writing is on the wall. Cable’s time is ending.

It’s not necessarily the “cord-cutters,” but it’s the “cord-nevers” who are key. It’s the kids who have never and will never subscribe to cable television. The cable companies aren’t freaking out about this because they’re transitioning everyone over to their internet services. And they may even prefer that world because guess what? There, they don’t have to pay Disney/ESPN $6.61 per month per subscriber. They pay them $0.

It puts the onus on Disney/ESPN to figure out their cable-less model. And because they’re making so much from the cable status quo, the numbers ain’t pretty. Needing to charge $30/month may be an understatement. Remember, it’s not the norm for these stand-alone services to have the same level of advertising that television does. The kids may not stand for it.

To add to the complexity here. If ESPN does break away and pull an HBO, the cable partners have the right to move ESPN from the basic cable bundle that has given the sports network such strength in numbers, to an a-la-carte package like…HBO.

So it becomes a math equation. At what point does cable’s dwindling subscriber number cross the threshold where it makes sense for ESPN to start going it alone? And I mean really go it alone, not wrapped in the warm embrace of Sling TV’s bundle. I’m not sure.

But looking over these numbers, I am sure that it’s sooner than many people think. And that must scare the piss out of ESPN and the shit out of Disney. Because when you find that 25 percent of your seemingly unassailable profit center is suddenly under attack, you tune in.