ESPN's 2-Year Subscriber Loss: 7 Million Homes; Viewership Losses Likely Worse

The Walt Disney Company filed its annual 10-K report with the Securities and Exchange Commission on Wednesday.

The "getaway day" timing of the filing may not be a coincidence, at least as far as its 80 percent-owned ESPN subsidiary is concerned. That's because the report contains bad news which Disney would surely want to see downplayed. Confirming problems yours truly observed in NewsBusters posts in September and October, Clay Travis at Fox Sports' "Outkick the Coverage" blog observed that annual subscriber revenue at the the sport network's various entities— even before considering likely accompany advertising losses — has declined by about $700 million dollars in the past two years (HT Instapundit; links are in original; bolds are mine):

ESPN Has Lost 7 Million Subscribers The Past Two Years

...  ESPN now has 92 million subscribers. That's a troubling number because just two years ago ESPN reported it had 99 million subscribers in the same 10k filing. The last time ESPN had 92 million subscribers was 2006, so the past two years have erased the previous seven years of subscriber growth. These filings are important because it's the first public acknowledgement of ESPN's massive subscriber losses. Given that the average ESPN subscriber pays $6.61 a channel per month, this means that ESPN has lost somewhere in the neighborhood of $550 million in subscriber revenue per year since 2013. (That's not counting advertising dollar losses.) Moreover, the decline in subscribers over the past two years is also hitting ESPN2, a loss of 7 million subscribers, ESPNNews, a loss of six million subscribers, ESPN Classic, a loss of six million subscribers, and ESPNU, a loss of four million subscribers.

Add it all up and ESPN is bringing in somewhere around $700 million less in subscriber revenue from these channels than it did in 2013.

... while ESPN has been jettisoning expensive on-air talent of late -- and firing hundreds of employees --- the problem ESPN faces is that its fixed costs aren't that adjustable. No matter how much it cuts, thanks to the massive sports rights deals that the network has purchased over the past several years, ESPN has nearly $6 billion a year in guaranteed payment obligations to the professional and college sports leagues. That number doesn't include, by the way, the potential hundreds of millions of dollars in additional cost per year for the upcoming Big Ten television rights package. Can ESPN afford to bid big dollars for the Big Ten? We'll see.

Declining revenues combined with high fixed costs spells potentially serious financial trouble. Travis observes that the bleeding may only have just begun:

... When Outkick wrote an article about its business challenges back in July, ESPN sent a statement that included the following data: "More than half (54%) tune into ESPN in the average month and almost two-thirds (65%) tune into ESPN over the course of a quarter."

If that's true then around 48 million cable and satellite subscribers watch ESPN every month. That's a very big number. But it also means means that 44 million cable and satellite subscribers pay $6.60 a month for ESPN and don't watch it in an average month. That means every month ESPN is pocketing $290 million off cable and satellite subscribers who don't watch the channel. Over the course of a year ESPN makes over $3 billion a year off consumers who don't watch ESPN.

Eventually isn't your Aunt Gladys going to realize this?

Yes, I think she will. She'll especially notice it if she hears sports fans who are turned off by ESPN's detours into political advocacy tell her that she's paying $75 or more a year to subsidize it.

Here's why:

  • In September, I noted that the network's August viewership was down by one-third compared to August 2014.
  • In October, I noted that the network's overall viewership decline was a much smaller but still quite troubling 9 percent.

To be fair, I should note that ratings for October indicate that ESPN's viewership increased by 3.5 percent compared to October 2014. While the October news is surely a relief, it appears to have largely been due to a fortunate collection of compelling college football matchups — something that isn't guaranteed to occur continually.

Despite October's news, it appears that ESPN is almost definitely losing viewers faster than the 3-1/2 percent rate at which it has lost subscribers (7 percent over 2 years). That would mean that its share of interested subscribers is down, and that it's losing viewers for reasons that go beyond "cord-cutting."

In ESPN's case, one could certainly contend that its obsessions with Michael Sam and Caitlyn Jenner, its insistence on over-promoting soccer and women's sports, and the overt non-sports political advocacy of some of its program hosts and guests, have combined to turn off much of its natural audience — one which now has broadcast and online alternatives (e.g., Fox Sports) which are far more viable than they were just a few years ago.

In other words, ESPN is losing viewers because it is force-feeding its audience programming they don't want or need. Glenn Reynolds at Instapundit has a tongue-in-cheek prediction:

The worse they do, the more they'll yammer about politics. Or maybe it's the other way around.

Though it seems completely illogical that ESPN wouldn't try to keep its audience by minimizing the yammering, what we've seen from the broadcast news networks over the past few decades is that they have become more overtly politicized as their audience has shrunk. Thus, it is not unreasonable to believe that ESPN will likely engage in the same self-destructive behavior. If so, the number of discussion with Aunt Gladys about "cutting the cord" will increase, accelerating the death spiral of ESPN and the cable companies themselves.

Here's a scary thought: What if the cable companies decide that offering sports network-free packages, thus avoiding ESPN's exorbitant fees, is a viable alternative?

Cross-posted at BizzyBlog.com.

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