ESPN isn't doomed, they've entered a new normal
Posted May 3
ESPN is a profitable business.
ESPN simply isn't as profitable as Mickey Mouse would like, causing a shift in priorities at the "Worldwide Leader." Unfortunately for everyone on Bristol's sprawling media campus, their transition is playing out in the open and getting coverage typically reserved for big sporting events. Since ESPN laid off 100 employees in April, including a high amount of popular on-air talent, the takes have been predictably hot. ESPN is supposedly doomed.
Except ESPN is not doomed.
The recent round of budget slashing only proves ESPN isn't immune to market corrections. Some aspects of ESPN's woes can be attributed to their own excess. Other issues are simply related to the ongoing disruption of traditional television. They gambled on a technically advanced studio to modernize SportsCenter, only to see their flagship program rendered obsolete by the internet. ESPN ballooned their staffing payroll with regional reporters and websites, only to reassess their initiatives when the return on investment wasn't there. ESPN helped create an incredibly expensive market for sports television rights, only to see it cripple their buying power after cable and satellite subscribers who were tired of high carriage fees for a channel they never watched flock to cheaper internet options or cut the cord altogether. None of these problems was present a decade ago, allowing ESPN to call their own shots while filling up their parent company's Scrooge McDuck bank vault. Now ESPN must answer to Disney's shareholders, who view the network's headaches as a drag on their investments. ESPN was left with no choice, acting like any other business in a similar situation.
The overwhelming reaction to ESPN's recent round of layoffs is a testament to their success and prestige. Accomplishments tend to bring out the haters, so ESPN was ripe to be picked apart by critics who have long wanted the network to be humbled. ESPN's importance to the sports world factors into why people like me spend so much time talking about it. Regardless of your opinion on ESPN, the fact remains they set the pace with their coverage and reporting. On a personal level, ESPN's layoffs also caused a sort of existential dread for anyone in the business. It's tough to see colleagues, some who have become friends over time, lose their jobs. And those jobs at the network? For many in sports media, getting hired by ESPN is the equivalent of getting called up to the Big Show. I've been on ESPN's campus in Bristol once, as part of a radio affiliate event, and it was an awesome experience to finally see the place that was a huge part of my formative years.
This is the new normal for ESPN.
Like any football team, ESPN can't afford to lose all three phases of the game
Offense, defense and special teams are the aspects of football everyone obsesses over. Dominate those areas, dominate your opponent. Similarly, there are three phases of the sports media game ESPN did better than anyone else. The highest subscriber fees, rights to the most coveted sporting events and flagship programming in the form of SportsCenter. To understand ESPN's current situation, folks don't need to look beyond those fundamental points.
1. The continued erosion of ESPN's bread-and-butter cable subscriber base and finicky consumer habits have thrown their future into question. Every consumer who reduces or outright ditches their cable package takes around $8 per month (and the lesser rates for ESPN 2) out of Disney's pocket. Do the math. The negative trend will continue for ESPN, because a large percentage of those homes subsidizing the network never cared about sports to begin with. Those consumers now have a variety of over-the-top internet streaming options, including recent offerings from YouTube and Hulu, and on-demand apps such as Netflix and Amazon providing an overwhelming amount of original scripted content. Providers, having seen the shift, have adjusted to make broadband connections and mobile data plans the focal point of their current deals to consumers.
2. ESPN is on the hook for roughly $1.5 billion a year for the right to televise the NBA. They pay the NFL almost $2 billion a year for Monday Night Football and all that footage for their studio shows. ESPN is heavily invested in college football, with millions spread out over key properties like the College Football Playoff, the SEC Network and the upcoming ACC Network. Throw in all the other live sports rights, from golf to tennis, and it adds up. These sports leagues aren't going to cut ESPN a break the next time their rights package goes back on the market, especially when they have options. ESPN not only has to compete with traditional broadcasting companies like CBS, FOX and NBC, they also have to deal with tech companies like Amazon and Facebook who are flush with cash. It's critical for ESPN to keeps their pockets straight in order to afford the next price hike. Don't be surprised when ESPN raises their carriage fees in an effort to sustain the kind of profit they've grown accustomed. American sports television will eventually start to mirror its European counterpart, where the full lineup of Sky Sports costs upwards of $30 per month.
3. In 1997, I watched the same SportsCenter multiple times a day. In 2017, I might catch a SportsCenter once a week. Except I'm not any less informed about what happened the night before because I have a phone equipped with a variety of apps (including ESPN) that will show me what happened. I can say with extreme confidence that plenty of people are like me in this regard. The fewer people who watch SportsCenter, the less money that show can command from advertisers. If video killed the radio star, the internet killed SportsCenter. The fans who complain they'd watch more ESPN if the network simply went back to what it was in 1997 are lying. These are the same people who say they'd watch MTV if the channel played music videos again. These are things people say without actually thinking about what they're saying. If MTV played videos in 2017, these same people would scoff, "Why watch MTV when I can watch any music video I'd like on YouTube?" If ESPN did highlights and box scores in 2017, the refrain would be the same. "Why watch SportsCenter when I already saw that dunk or touchdown all over my Twitter and Facebook timelines?"
The name of the game is the game
FS1, in the spirit of competition against ESPN, ran a promo throughout November touting itself as the most watched sports network on cable. The commercial was factually correct, but it hilariously featured shows featuring Skip Bayless and Colin Cowherd as though they were part of the reason why FS1 was the most watched sports network. Except the only reason why FS1 beat ESPN for a week or so in October was because they aired Chicago Cubs playoffs games. Once the Cubs moved on to the next series and graduated up to big boy FOX, ratings for FS1 regressed to their underwhelming average.
Live sports drives ratings. Go look up any most-watched television list in the last decade, and you'll see they're filled up with playoff and championship games. Live sports is where ESPN gets their real return on investment.
Examining who ESPN let go in their latest round of layoffs extended a similar ROI theme. The hardest hit on-air talent and reporter groups involved hockey, baseball and college basketball. The purging of NHL-related employees is self explanatory given ESPN cares little for the league, so why waste money trying to compete with outlets who are invested in hockey? Those who covered baseball became redundant once Disney bought a large stake in MLB Advanced Media and their BAMTech digital distribution initiative, which will bring some simulcasting to ESPN2. While Andy Katz was the focus of ESPN's college sports layoffs, the network's apparent decision to lessen their presence in a crowded online field was the buried lede.
In the same week ESPN slashed their staff, they also lured veteran NBA reporter Adrian Wojnarowski away from Yahoo! Sports. Here's where that theme shows up again, given ESPN has prioritized NBA with their rights investment and the addition of "Woj Bombs" only enhances their product.
If you're a music fan, you're likely familiar with the concept of the "back to basics" album from a well established band. These musicians make it big, they sell out arenas and make boat loads of cash. The success affords them the opportunity to put out an "experimental" record or chase a sound similar to the musicians who influenced them. The hardcore fanbase sticks with the band, but they do lose their mass market appeal and start getting label pressure to make another smash album. So the band gets back in the studio, rediscovers what made them great in the first place and returns to form.
ESPN is coming out of their experimental era and about to go back to basics. ESPN will be about ESPN again, not ESPNBoston or whatever other online vertical the network launched when they were flush with cash. And like the SportsCenters of yore, ESPN is developing studio shows they feel will reconnect with their audience. Except this time it isn't about scores and highlights, but personality and engagement.
In 2018, ESPN will look familiar to anyone who regularly listens to sports talk radio. Daytime programming is set to have a new Mike Greenberg morning show, followed by the unbreakable "First Take" and a new studio show reportedly featuring Bomani Jones and Pablo Torre. ESPN will then air their venerable block of league specific shows like "NFL Live" and "The Jump," which leads into Dan Le Batard's "Highly Questionable," "Around The Horn," and "Pardon The Interruption." Michael Smith and Jemele Hill cap the afternoon with "SC6," while Scott Van Pelt anchors his signature late night SportsCenter. Every single one of these shows is based on the hosts' versatility and ability to connect with their audiences the way cold highlight reels never will.
ACC Network is happening, but that's all we know for sure
ESPN will launch the ACC Network, a linear cable channel similar to the SEC Network, in 2019.
That's about all anyone can say definitively.
I've used a considerable amount of digital space to argue against a traditional, linear cable channel and the difficulties of launching a new network in an era of cord-cutting and Disney budget cuts. While my opinion has softened a bit, understanding the cable sports bundle is still the best way to make money in the short term, I’m still skeptical of any earning projections. At some point, either Disney or the ACC will be forced to change their business model, whether it’s selling direct to consumers or making their cable tier as expensive as their European paid television counterparts.
If I were running a university in the ACC, two of my biggest concerns regarding my partnership ESPN would involve a possible carriage fee fight with cable and satellite providers, and production costs associated with the ACC Network. But I don't run any of these universities. I don't have to worry about the possibility of getting less money from subscribers. I'm not going to sweat the production facility the school just spent millions on in the hopes the wave of cash we expected when ESPN announced the network in 2015 would cover it.
The worst thing I have to worry about is having my skepticism proven wrong.