quo vadis
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RE: ESPN loses eight million cable and satellite subscribers in 2021 - CFB implications
(05-25-2022 09:28 AM)johnbragg Wrote: (05-25-2022 09:07 AM)quo vadis Wrote: (05-25-2022 08:55 AM)Frank the Tank Wrote: (05-25-2022 08:40 AM)Scoochpooch1 Wrote: (05-23-2022 08:46 PM)Frank the Tank Wrote: I think the large problem that so many of these articles on this subject have is that they’re looking solely the top line revenue decreases at ESPN and other cable networks but never acknowledge that they’re *still* extremely profitable. Even with everything that Disney owns, ESPN is still the single most profitable business in that entire company. That context can’t be emphasized enough. That alone answers Travis’ question about why Disney still holds onto ESPN. In fact, ESPN has been the biggest reason why Disney was able to get through the last 2.5 years of the pandemic ravaging pretty much every other business that it had outside of Disney+ (e.g. theme parks, movies, cruises, etc.).
Now, there can certainly be an inflection point where revenue decreases so much that it gets to the point where ESPN would outright lose money. However, even if the bottom is around 50 million subscribers (as Travis mentioned), I don’t know why Travis is critiquing a business that would still be generating $6 billion per year just on subscriber fees. Remember that sports also charge the highest ad rates out of any type of programming BY FAR, so ESPN is generating the highest ad sales in the industry on top of those subscriber fees. To put $6 billion per year in perspective, that’s still more in *only* subscriber fees every *month* than the domestic grosses of all but 16 movies in the entire history of cinema. Only one movie (the latest Spider-Man film) since the start of the pandemic has made as much as what even a 50 million subscriber base ESPN would make every single month *before* ads. We really need to understand the context of just how much money that is in order to properly compare it to anything else.
It’s not that I’m bullish on sports per se, but more that I’m bearish on the profitability of pretty much all other forms of mass market entertainment in general outside of a handful of marquee movie franchises (e.g. Marvel, Star Wars, Pixar, Disney Princesses, Harry Potter, Jurassic Park). When Travis asks why anyone would invest in sports when it doesn’t create a back catalog of programming like movies or TV shows, it’s because (1) the franchises are really what works for those types of programs, but there just aren’t that many of them and they’re expensive to do well and (2) we have no idea what TV shows that people will watch 10 years from now, but it’s still a good bet that people will still watch the NFL, NBA, MLB, college football and other major sports properties at a material level (even if it’s lower than today).
Finally, I just don’t think anyone can discount the value that sports are truly the only type of program that people watch live en masse anymore. 93 of the top 100 most watched programs last year were sporting events. Only 1 of that top 100 was a scripted TV show… and that was only because it was shown after the Super Bowl (the biggest sporting event of them all)!
So, as long as there’s an ad market where companies need to reach a large audience at the exact same time, then sports will also always have high value since it’s the only property that actually serves that market anymore.
(Note that the movie industry that Travis points to as where Disney could shift money to away from ESPN is super dependent on such live ad market. Every movie has a “time is of the essence” marketing campaign for a movie where they need to show the maximum number of ads in the last week or two before opening night. Nothing delivers that type of audience better than sports. See how the new Thor trailer is premiering tonight during the NBA Eastern Conference Finals on ESPN, which is a classic example of Disney corporate synergy.)
Admittedly, I have not looked at ESPNs earnings. But how is revenue decreasing and earnings increasing when rights fees are increasing. They have that many operational efficiencies or did they just scale back on talent salaries? I know they are overpaying Scum A. Smith and others at the moment.
ESPN is still increasing its subscriber fee levels, so that's how it's possible that they could be losing subscribers yet still making similar (or even more) revenue. The per subscriber revenue is going up even if the total number of subscribers are going down.
The reason why sports rights fees are increasing in general goes back to what I've stated already: sports programs are really the only option that linear TV networks have to get people to watch anything live at a specific time AKA get people to watch commercials that those TV networks can charge for. This similarly helps ESPN because they're able to charge among the very highest advertising rates in the industry. Their ad revenue is much more stable compared to any other network.
That's why everyone needs to put ratings and viewership decreases into context. In a vacuum, sports ratings and viewership have been decreasing for years. However, the thing is that *everything* else on TV has had way way WAY worse declines in ratings and viewership by comparison, which means that the *relative* importance of sports compared to everything else on TV has risen dramatically.
Back in 2001 or even 2011, you would have never seen a chart where 93 of the top 100 most watched programs on TV were sporting events and absolutely *no* regularly scheduled prime time network shows were on that list.
Think of it this way: even putting aside the NFL (which dominates everything), the NBA, MLB, Big Ten and SEC all offer multiple games per year that draw a larger audience than ANY of the regularly scheduled prime time programs on ALL of the over-the-air (much less cable) networks COMBINED. This wasn't the case 10 years ago. That's the power of sports right now and why their rights fees are increasing so much. There is no alternative for linear networks to find any type of live audience other than sports.
If I was a Disney shareholder (and I'm not, btw), declining cable viewership would concern me for ESPN if it was reflective of a decline in consumer interest in sports.
But I see no evidence that people are losing interest in sports. To the contrary, that interest seems as strong as ever.
So I suspect that ESPN will be able to adjust its business model as viewership adjusts and remain profitable.
That's not to say that I think ESPN or Disney are invulnerable. When I was growing up in the 1970s, GM and Sears were regarded as invulnerable. The latter is now non-existent (right?) and the other is a shadow of its former self and needed a $50 Billion government bailout in 2009 to emerge from bankruptcy.
But I just wouldn't worry about them *because* of changes in how people are consuming sports. They are still consuming sports, which IMO is the more essential issue.
The reason for concern isn't about rising or declining interest in sports.
The reason for concern is that the old Cable model forced everyone who had cable TV to consume Sports whether they had any interest or not. ( I guess to get really really specific they were compelled to pay to consume Sports)
That's the revenues is drying up. And screaming is not going to replace that.
That's been balanced by the fact that sports are flat-out the only thing that commands a live audience, which is the only way you can get anybody to watch ads.
In the Cable Bundle era, if you had a property with a big loyal audience that wasn't inclined to switch, like sports or Fox News, you had leverage to impose that cost on everybody.
Now you don't
Well first, I think we are still in the "cable bundle era", in that I think most people are still subscribing to cable bundles. I am, for what that's worth.
Second, about the bolded, it does seem that ESPN still has leverage, in that IIRC, they are still able to command very high rates from cable carriers. IOWs, as a cable subscriber, ESPN is still able to impose that cost on me (which I willingly pay, btw).
The problem isn't that cable carriers are using leverage to force down ESPN carriage rates, it's just that fewer people are subscribing to cable and paying those rates. That's a different problem, IMO.
Nobody knows what will happen, but I don't really believe that ESPN's profitability is *mostly* dependent on millions of grannies with no interest in sports being forced to pay $10 for ESPN in order to get the cable channels they do want. I suspect its partially dependent on it, but they would still be profitable without that subsidy from non-sports fans.
Actually, I suspect the opposite is at least equally true - I'd much rather just pay $30 a month for all of my sports channels and shed the other non-sports channels that get bundled with them, but on balance its a good deal for me. So I suspect (with no data admittedly) that there are as many sports fans getting socked via cable with being forced to watch non-sports as there are people who don't want sports but are compelled to buy ESPN. We all get socked.
In the end, I think as delivery models change sports fans will still buy sports. And ESPN will do fine. We'll see.
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