October 6, 2023
He believes that peak, especially since ESPN was on top of the world, generating millions of dollars a month in fees, which was used to secure media rights of billions over several years, for many of the most popular sports leagues in America. In the first year alone of 2023, ESPN and its sister channels generated close to $14 billion in revenue and had $3 billion in profit, according to Fortune's Paige Hagy (August 3, 2023). There was a 6% drop in revenue from the previous year and profit was down 29%. The article points out that revenue for the network continues to decrease in significant levels and streaming alternatives are the primary cause.
Over the years the company raised its monthly fee on cable platforms and continued to pay even large media rights packages along that timeline. Those television deals increased the revenue for the owners and players to split, thereby driving up the earning power for players through lucrative contracts, and increasing the valuations of the sports franchises themselves. It also put ESPN on the hook for televising games, without actually owning any of the content, as Mr. Travis stated. The network was just leasing or renting the product for those games and made money through advertising. Once the games ended, ESPN had no further use for, or "ownership" of it. Very few people would go back and watch a game again unless it was memorable, or if it was a championship game, and even then, the viewership numbers for those re-broadcasted games were minuscule.
During those boom years, the network was flying high, with solid viewership, and record-breaking profits during its highpoint of the aughts (2000-2010), but that would not last. If ESPN was an ocean liner, then no one seemed to notice that an iceberg was in its path, as was aptly described, and one which could lead to its demise. The 'iceberg" in this case was the process of cord-cutting, where cable subscribers would cancel the cable portion of their bundle because there was no need to pay such large monthly costs for channels they never watch. I would assume, based on my experience with cable company's customer service, that they would make it hard for people to quit, but they apparently did. Outkick's Travis writes that, by 2023, cable cord-cutting reduced ESPN subscriber list by 30%, an eye-catching number because it means that the network lost millions of households over a short time frame.
One revenue stream that was holding constant was the need for a modem and internet connection, including but not limited to broadband. Since most of us spend a lot of time on the internet, for business, keeping up with friends and family, and commerce, it is a must-have necessity. The large cable companies (Comcast, Charter/Spectrum) know this, and I believe in this case Charter/Spectrum had the upper hand in their fight with Disney. Why? Charter/Spectrum knew that Disney needed them more than they needed Disney's channels. I believe if you viewed reliable data collected for various reasons why subscribers canceled their cable, it most likely would show that while people don't need cable, they do need an internet connection. Americans are not going to cancel that. Charter/Spectrum called Disney's bluff, and they prevailed because the company made a large bet on access to and use of the internet that would be a steady flow of positive revenue.
Charter/Spectrum and other large cable companies are partially putting some of their capital into streaming and programming, but also betting that other streaming giants like Netflix, Disney (Disney+), and Amazon (Amazon Prime Video) will prove fruitful with their content. However, based on recent reporting, streaming is not proving to be the cash cow many had hoped it would be. Netflix, the "Original" of streaming, generates billions of dollars worldwide per month due to membership fees but continues to lose money in order to generate content. Recently, Reuters detailed that lackluster revenue in the most recent quarter, and caused share prices to drop (July 2023). The company has to repeatedly seek large loan amounts so creators can develop content for members to watch.
At some point, revenue must exceed investment costs. Disney+ and Amazon Prime are not riding high either (especially Disney+ or its Star Wars extended universe content, which doesn't appear to be gaining new fans or generating large enough revenue streams through viewership). ESPN has tried to get into the streaming game (ESPN+), but Travis believes that the majority of casual sports fans are not going to fork over monthly fees to watch games they could have for free. Additionally, they might end up losing media rights to tech behemoths like Apple (which already has the rights to Major League Soccer through Apple TV+) and Amazon Prime, which already shows the NFL on its Thursday night package.
Which brings us back to the next phase of the cable wars. Where does it lead? Mr. Travis thinks that cable will have to change its bundle model. If these companies don't adapt, the entire cable bundle business model will collapse, as he pointed out. People are more savvy now and will learn to push for options where they can choose which channels they want, and which they will not pay for. I don't see too many Americans paying for things they do not need or want but have to pay for regardless. Rosy projections from these cable channels about a desire to pay for quality content are I believe, bordering on delusional.
Garret Searight, of Barrett Sports Media (May 22, 2023), believes all the doomsday reports of ESPN's demise are overblown. He feels that because the network generates almost $775 million in cable subscriptions before advertising revenue is added, it will be fine. Mr. Searight also thinks that if ESPN moves to a direct-to-consumer model since it has agreements with the major sports networks, and the Southeastern Conference (SEC), the most popular college football conference, it will be protected from the cord-cutting bloodbath that is affecting other media companies. His premise is that most consumers who have cable have it primarily to watch sports, so if the network breaks away from cable, it should continue to be profitable. Additionally, Mr. Searight firmly believes that if ESPN forms its own streaming platform, sports fans will pledge their allegiance to it, and that will be the straw that breaks the cable bundle's proverbial back.
Per the Outkick article, the NFL, the most popular sports league in America, has only 3 million subscribers for its NFL Sunday Ticket package. If the country's most viewed sports league can only get a fraction of fans to pay for its comprehensive Sunday content, what makes these cable channels think that consumers will pay a premium for sports leagues they show only a casual interest in? I think ESPN knows this because one of their overt tells recently was to seek new investors for their channel, and had asked some of the richer American sports leagues (NBA, NFL) along with other entities, to become a shared partner in a new business model.
I do not share Garrett Searight's faith in ESPN's future revenue projections. While I do think that sports continue to be the most reliable viewing for consumers, I am not sold yet on the idea that a majority of Americans will want to pay to watch sports, especially casual fans. If the NFL cannot get more than 3 million people to pay for its aggregate Sunday viewership platform, what makes him believe that people will do that for the other major sports? ESPN can spend money buying media rights precisely because of its dependable monthly revenue from the cable bundle. If it didn't have that financial support for its business model, I don't see large enough numbers in paying consumers to improve upon what it generates currently. I foresee a decrease in ESPN's revenue regarding a potential move to sole streaming.
If cable companies are smart, they will have a system set up where consumers can pick up channels via a line item system (which will then show up on their monthly bill for them to see) and be able to pay for what they want. I believe subscribers to these cable companies will more likely keep their subscriptions overall if this comes to pass. I also agree with Travis in that the business model that has allowed ESPN and other large cable channels to obscenely prosper for many years, is now facing a reckoning which will be the end of the cable bundle. How these channels adapt, and try to become appealing to sophisticated consumers, will determine if they survive at all. As a sports fan, I thought I would never see the day when ESPN could become extinct. That is an extreme outcome, but could potentially come to pass. With the sands of time and new rivals to its business model, anything is possible now. Let's see if Disney (and ESPN especially) correctly determine which way the wind will blow next.
