Traditional Sports Media Is Dying A Slow Death

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Friends,

This week, Disney reported their first quarterly loss since 2001, nearly $5 billion, as the majority of their business segments suffered from the coronavirus shutdown. Even with Disney theme parks closed, an elimination of movie distribution, and live sports non-existent, Disney stock was still up more than 8% after hours (Source).

Why? Because the impact of the global shutdown caused more consumers to stay home helping secure over 60 million Disney+ users in nearly nine months, a mark that took Netflix eight years to achieve (Source).

ESPN, which saw their subscriber base decline 6%, wasn’t as fortunate. The “Cord Cutting” phenomenon, which has been going on for years, is clearly showing increased signs of acceleration and greater impact to the sports media sector.

There is a common misconception that because linear television consumption is down within Millennial and Get-Z demographics, that sports fandom is decreasing among younger generations. In reality, sports fandom is actually higher than ever, it has just shifted media channels. For context, over 60% of Americans age 18-34 don’t even have a cable subscription, and maybe even more surprising, almost 40% of Americans over 55 have cut the cable cord also (Source).

ESPN’s direct to consumer sports streaming option, ESPN+, is the networks intended answer to cable cutting. The issue is that even as subscribers continue to rise on the digital side, they aren’t nearly enough to offset the losses being suffered on the cable side. ESPN has lost over 15M cable bundle subscribers over the last 7 years, compared to the addition of only 8.5M ESPN+ accounts. It’s also hard to tell how many ESPN+ subscribers are actually watching sports, given more than 50% of added subscribers purchased the Disney+, Hulu, and ESPN+ bundle deal (Source).

Keep in mind, the value of a paying customer for cable vs. digital is different. ESPN makes +/- $9/month on each cable bundle, while only taking home a blended price of ~$4.50 on the digital side. Also, digital advertising through ESPN+ is still in its infancy, while cable has a mature distribution channel which brings in significant revenue (Source).

On top of that, in an effort to slow down cable cutting, providers have specific stipulations not allowing live sports to be streamed without a cable package. So while ESPN is losing cable subscribers, they are unable to move their largest asset, live sports, to their new streaming platform without a cable subscription.

Think about it this way - the television audience is still close to 120 million, why would sports leagues do an exclusive rights deal with a streaming service like ESPN+ with less than 10M active accounts? Even if they offered more money, the sports league would decline the deal because the demand for audience variety would trump the larger check from a brand recognition standpoint.

The Future Of Sports Media

I strongly believe cable television will only be used for two things in the future, News & Live Sports, and everything else will move to streaming. News and Live Sports are the only two remaining categories that consumers desire to watch immediately, or better yet, can stomach being told when to watch rather than watching on-demand.

ESPN, presumably due to a recongization of this shift, is attempting to quickly transform their business from being cable-centric to digitally driven. The problem is that ESPN+ is not good enough. Without live sports, you need to offer the consumer increased value. Sure, they have exclusive member-only content, but they’re thinking too small.

Picture this - ESPN partners with 50-100 athletes to create their own podcast network housed behind a paywall on ESPN+. Similar to how league contracts work, they offer revenue sharing with the players, which gives them an opportunity to increase fan engagement while simultaneously building an asset they can rely on in retirement. ESPN can handle all the back-end content distribution work, and similar to their current role, the athlete is the talent. It’s about as much of a win-win as you’ll get.

Ultimately, ESPN just needs to think bigger picture. Instead of building a “skinny cable bundle” by offering consumers the option to purchase Disney+, Hulu and ESPN+ as a package deal, they need to drive unique value to customers without the use of live sports. As the largest sports media network in the world, this shouldn't be as hard to figure out as they’re making it seem.

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Extra Credit

Here is 2016 Interview with Fortune magazine where Bob Iger is asked directly about ESPN’s loss of subscribers. It’s definitely worth a 4-minute listen and I found it particularly interesting how he associated the decline with a “distribution problem” rather than a consumer demand issue.

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