Can ESPN survive while cable TV continues to lose subscribers?
LOS ANGELES — ESPN has long been called "The Worldwide Leader in Sports," and for decades no network had it better in the cable business.
When consumers pay their cable or satellite TV bills, networks get a cut, and the biggest portion is passed along to ESPN whether you watch it or not. It has long been the most expensive part of the pay-TV bundle, currently getting close to $9 per subscriber.
Live NFL, NBA and Major League Baseball contests and the authoritative highlight show "SportsCenter" made the Walt Disney Co. unit's package of channels a must-have for households with sports fans.
ESPN commanded fee increases every time it negotiated new deals with pay-TV providers. The dollars pulled in helped fund the growth of Disney over the years as it became an entertainment behemoth, acquiring Marvel, Pixar and Lucasfilm.
But the TV game has changed over the last decade — and now Disney is scrambling to come up with a new playbook.
Consumers moving to streaming video has led to the decline of the pay-TV business, which has lost 25 million customers in the last five years alone. And with ESPN being the biggest player, it's being disproportionately hurt. ESPN is now in 73 million homes, down from 98.5 million in 2013.
"The future of the pay-TV bundle is at a critical moment with ESPN playing the starring role," is how media analysts at MoffettNathanson described the situation in a report issued Friday.
It's not just cord-cutting. Young fans now turn to YouTube and other sites for sports highlights, making "SportsCenter" less of a must-see, and the network is more dependent than ever on exclusive live events, which are increasingly expensive as deep-pocketed tech giants such as Amazon, Apple and Google chase after them for their streaming businesses.
Wall Street investors are concerned about ESPN being in a vise-like squeeze, losing pay-TV customers while its costs for live sports programming are escalating. Some analysts have suggested spinning the unit off, as they see its uncertain future as a drag on Disney's stock price.
Consumers also are directly feeling the impact of the pressure Disney is under.
Disney pulled ESPN and its other channels off of Charter Communications' cable systems on Thursday, leaving millions of viewers in Los Angeles and New York without U.S. Open coverage and college football, as the company failed to reach an agreement on a new carriage deal.
While such disputes are not unusual, Charter executives held an investor call Friday where they said the standoff shows how the current pay-TV model is "broken." Prices for cable subscriptions are going up while providers have to compete with cheaper video streaming services that offer the same programming.
Meanwhile, Disney is looking at ways to mitigate rising programming costs for ESPN. Walt Disney Co. Chief Executive Bob Iger said he would consider taking on a partner in ESPN to help ease the burden and has tapped former top Disney executives Tom Staggs and Kevin Mayer to help analyze strategic options for the unit.
ESPN executives declined to comment publicly.
But executives inside the network maintain that they can navigate the shifting tides of the business.
Sports are the most valuable programming on TV, as viewers watch them live and sit through the commercials. ESPN still has the rights to many major properties locked up for years, including the NFL through 2032 (with two Super Bowl games), Major League Baseball through 2028, SEC college football and basketball through 2034 and the NHL through 2027.
As other networks saw their ratings swoon, ESPN's audience levels were up 12% in 2022, and they've increased 7% so far in 2023, according to Nielsen data, despite the decline in pay-TV households.
Iger told analysts that ad sales for ESPN are running 10% over last year in what has been a soft market for TV commercial time. The network's digital business continues to grow and its presence on social media is strong, with ESPN being the most popular sports brand on TikTok.
While consumers are cutting the cord, ESPN has still been able to extract fee increases from pay-TV services. According to S&P Global Market Intelligence data, ESPN is projected to take in $7.8 billion in pay-TV subscriber revenue in 2023. The figure is slightly more than in 2022, and is up 10% from $7.1 billion in 2016, even though ESPN reaches 20 million fewer homes, which speaks to the value of live sports in the cable bundle.
But the challenges ahead that threaten the company's prosperity are real. Based on conversations with several current and former executives at the company, here are the burning questions on ESPN's future.
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