ESPN and the Cable Industry

espnI’ve been writing periodically about ESPN because they seem to be the poster child for what is happening to cable TV and to programmers in the country. It’s been obvious over the last year or two that ESPN is bleeding customers, and the many articles about them concentrate on that issue.

ESPN is a good bellwether for the industry because they are carried by practically every cable TV provider, and because their contracts require that the channel be carried in the expanded basic tier – the tier that generally has between 50 and 75 channels. Only a few tiny rural cable systems don’t carry ESPN since they carry only a small number of channels.

When ESPN loses customers it can only come from one of two reasons – people that cut the cord and drop cable altogether or from cord shavers who downsize to the smallest basic cable package. Basic cable is the small package of 10 – 15 channels that includes the local network affiliates, government channels and a few cheap throw-ins like shopping channels.

But it’s not easy to figure out the real number of cord cutters and cord shavers. The largest cable companies report total subscriber numbers each quarter but they don’t report on the packages that customers buy. Various analysts estimate the number of cord cutters each quarter, but they differ on these estimates – and I haven’t seen anybody try to estimate the number of cord shavers.

Nielsen tracks the number of customers of each cable network and that tells us how the various cable TV networks are faring. The latest article on ESPN comes from Sports TV Ratings, a website that tracks subscribers to the various sports networks. That site shows that ESPN lost 621,000 subscribers just last month (October 2016). That is an astounding number since ESPN has roughly 89 million customers – it’s a drop of 7/10’s of a percent, which annualized would be over 8% of ESPN customers.

But that number may not be a huge aberration. FierceCable reported earlier this year that ESPN had lost 2.2 million customers between February and August of this year, which is a clip of 440,000 lost customers per month. And the network has lost more than 11 million customers since its peak in 2013 when it had almost 100 million customers.

Trying to count cord shavings gets even more complicated because of OTT content. The cited drop of 610,000 ESPN customers is from the Nielsen numbers for carriage on cable systems. This doesn’t include online content which includes ESPN. For instance, the basic package on Sling TV includes ESPN and Goldman Sachs estimated that Sling TV will have almost 2 million customers by the end of this year. There are a number of new OTT offerings just hitting the market that will include the network, but for now Sling TV has most of the online ESPN subscribers.

ESPN has an advantage over many other networks in that it probably can add back customers by selling to people directly on the web. And so perhaps the network can find an equilibrium number of customers at some lower threshold than today. But this is not going to be true for a lot of other content. As an example, in October the Golf Channel lost 600,000 subscribers and The Major League Baseball Channel lost 515,000 customers – and those kinds of networks have very limited appeal on a standalone basis. That is the real story behind the losses at ESPN – the vast majority of cable networks are bleeding customers right now.

Some of the content providers are not too worried about the drop of US cable customers since they are picking up far greater numbers of new customers worldwide right now. But networks that are US-centric – sports, news, weather – are in for a rough ride over the next few years as the industry settles out to a new and lower norm. I think we can expect to see a transformation of sports programming as the numerous sports networks bleed customers. This probably means more emphasis on live programming and fewer sports networks.

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