The common industry wisdom is that sports programming is the most powerful weapon of the cable companies since it provides content that cannot be found anywhere else. But from what I have been reading lately, I think perhaps that sports programming might be the first victim of cord cutting and skinny bundles.
There is no doubt that there are a lot of rabid sports fans in the country. And to satisfy this base the programmers have come up with a slew of sports networks. Not only is there the ESPN suite of channels, but we have channels that specialize in golf, tennis, and a number of other sports. And there are local sports networks in every major market.
But except for NFL football, which is in a universe of its own, there are a lot fewer sports fans than you might imagine. In a recent poll that asked people what channels they would most like to have on an a la carte basis, no sports network including ESPN registered as even a 30% choice. Sports fans find having sports programming to be a necessity, but the fact is that a large majority of people would gladly do without sports networks if that lowered their cable bills.
And now along comes cord cutting and skinny bundles. Cord cutters are those that abandon all big cable packages in favor of either no programming, or programming offered on-line. Skinny bundles are slimmed-down channel line-ups being offered by telecom providers as an alternative to their bigger channel alternatives. Add this to people who are down-sizing from large line-ups to smaller packages and there is a lot of change going on in the cable industry.
In looking at both of these alternatives today there is a dearth of sports programming offered on-line. Sling TV has the ESPN suite of channels. But most other on-line packages have little or no sports programming. The people abandoning cable are obviously not the sports fanatics.
There are many industry experts that want to pretend that cord cutting is not real. And for most of the networks that sell content, it really much doesn’t if it is real. In the US there are still around 100 million people buying some sort of cable package and sales of content from most programmers is booming worldwide as the US market ebbs.
But the same isn’t true for sports. ESPN has almost no appeal overseas and, like most US sports, the network is very much an American product made for Americans. I think that looking at ESPN is probably the best measure of the change in the industry. It’s been reported that ESPN has lost 7 million customers over the last few years, which is significant – and they aren’t going to make that up by selling their content anywhere else.
And so it looks like US sports networks, or the sports they support, might be the first real casualty of the changes in the industry. Every time somebody cuts the cord or flips to a skinny bundle the sports networks are going to lose a customer. And these customers are almost impossible to replace. Take ESPN: they charge nearly $6 per household per month to the cable companies to carry their programming. But if only 25% of households would actually value them enough to subscribe to their programming, then on an a la carte basis they would have to charge $24. But the big catch is that probably only a very tiny fraction of that 25% of sports fans would agree to pay that much. There is no model for a standalone ESPN that can make as much money as they make today.
Something is going to have to give as the sports networks lose customers. The most obvious thing to give is the millions that ESPN and the other sports networks pay to sports leagues to get exclusive rights to their content. As the sports networks make less money those payments are going to have to drop.
Many think that would be a good thing for sports. It is these TV payments that have led to college football teams paying multi-million dollar salaries for coaches. It’s these same TV payments that have led to crazy realignment of college leagues, such as seeing Maryland join the Big 10 or West Virginia join the Big 12. Big time college football and basketball have become all about the money and this has gotten carried to ridiculous extremes in recent years. Big TV revenues are also what feeds the giant payments to professional baseball and basketball players.
There are some sports networks that won’t survive a downsizing of the industry. But if a network like ESPN can be disciplined enough to not outspend their revenues then they should be around for a long time. There are a whole lot of folks who are going to be in for a rude awakening when this day hits – and the day of being realistic about payments for sports content is going to happen within the coming decade. It’s hard to imagine what college sports budgets will look like if a huge part of their revenues disappear = and the people in charge of those budgets better start thinking about that now before it’s too late to do anything about it.