Even The Power Of The Dark Side Can't Save Disney & ESPN From Cord Cutting

from the denial-leads-to-anger... dept

Wed, Dec 30th 2015 9:35am — Karl Bode

It hasn't been a particularly good year for ESPN, once considered evidence of cable's infallibility in the face of Internet video. The sports network spooked Wall Street several times this year; once when analysts realized ESPN's viewership totals had dropped 7.2% since 2011, and again when SEC filings showed the cable network had lost 7 million subscribers in the last two years alone. That's of course thanks to two major trends: cord cutting (and cord trimming) users tired of the high cost of TV, and the rise in so-called "skinny bundles" that ditch ESPN from the core channel lineup in a desperate attempt to retain TV customers.

And while Disney may be seeing a huge windfall thanks to Kylo Ren and our other friends in the Star Wars universe, analysts worry that cord cutting is the iceberg that Disney and ESPN simply won't be able to avoid:

"Even the Force cannot protect ESPN," BTIG Research analyst Rich Greenfield recently wrote in a note downgrading the stock to "sell." The sports channel long "viewed as the crown jewel of the Disney empire ... now appears poised to become Disney’s most troubled business as consumer behavior shifts rapidly."

45% of Disney's 2014 operating profit came from cable TV, which is caught in a desperate struggle between unsustainable programming increases and a consumer base finally fed up with bi-annual rate hikes. Case in point is basketball: in 2014 Disney signed a deal with the NBA in which it shells out $1.4 billion every year for nine years, even though ESPN's basketball viewership last season dropped 10 percent, its lowest since 2008. For years ESPN enjoyed bloated subscription rolls due to ESPN being force-included in the core cable package, and something both cord cutting and skinny bundles are threatening.

Though ESPN, like most incumbent broadcasters, has focused largely on denial instead of adaptation. Professing to be protecting "innovation," ESPN sued pay TV providers like Verizon for skinny bundles, while refusing to offer a standalone streaming service of its own for the modern era. And like most broadcast industry executives, Disney CEO Bob Iger seems to think this is just a stormy patch that ESPN can somehow ride out by charging angry customers more money:

"Iger, the Disney chief, has sought to calm investors worried about ESPN's fortunes, saying rising cable-subscription fees and increased advertiser spending would help the sports giant stay on top. Speaking on Bloomberg TV last week, Iger said, "We have lost some subscribers, but we believe we will continue to derive growth from ESPN. It will just not be at the rate it was before."

But this isn't a temporary slowdown. And, contrary to what many broadcasters believe, cord cutting isn't a fashion trend that evaporates once Millennials procreate. Cord cutting and Internet video are fundamentally changing the entire television and TV advertising landscape, something patience and a prayer isn't going to fix. At several points this year Wall Street suffered multi-billion dollar declines simply because they finally realized cord cutting was real. 2016 will be the year they finally realize the cord cutting battle station is not only fully armed and operational, but headed directly for the ESPN mothership.

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Filed Under: cord cutting, star wars
Companies: disney, espn

32 Comments

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Ninja (profile), 30 Dec 2015 @ 9:41am

Yep, they keep turning a blind eye to the opportunities. You know, offer live streaming with packages ranging from a single sport and/or season to full unlimited all-you-can-eat packages and single matches for ridiculously low prices.

But, you know, piracy.
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Michael, 30 Dec 2015 @ 9:42am

saying rising cable-subscription fees and increased advertiser spending would help the sports giant stay on top

Funny, I thought those were the things actually killing your business. Go figure.
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Anonymous Coward, 30 Dec 2015 @ 9:50am

rising cable-subscription fees and increased advertiser spending would help the sports giant stay on top.

Aren't those the prime drivers of cord cutting, high costs and too many adverts?
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crade (profile), 30 Dec 2015 @ 10:04am

Re:
You just see opportunities differently than they do. Falling subscribers are an excellent opportunity to manipulate legislation for your benefit!
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RRRansom (profile), 30 Dec 2015 @ 10:06am

"I can't go on like this-- losing a billion dollars a minute! I'll be BROKE in 600 years!" - Scrooge McDuck, CFO, ESPN
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S. T. Stone, 30 Dec 2015 @ 10:10am

As long as we’re doing Star Wars references:
Iger’s opinion about ESPN and its future is valid…from a certain point of view.
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Haywood (profile), 30 Dec 2015 @ 10:11am

Metro’s Ridership Is Still Falling, and Fare Hikes Might Be the Only Way to Keep Its Revenue Up.
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Chris ODonnell (profile), 30 Dec 2015 @ 10:18am

It's only going to get worse because the millennials that don't subscribe in their 20s are never, ever, getting back together with cable TV.
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TechDescartes (profile), 30 Dec 2015 @ 10:27am

What's a meta for?
2016 will be the year they finally realize the cord cutting battle station is not only fully armed and operational, but headed directly for the ESPN mothership.
In space, cutting an umbilical connected to a "mothership" usually has adverse effects, like, say, drifting into the void and dying. Maybe a different metaphor is in order...
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Glenn, 30 Dec 2015 @ 10:27am

I would say that the theaters went over to the dark side when they raised their ticket prices for seeing Episode VII, but TBH they were already there.
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Anonymous Coward, 30 Dec 2015 @ 10:27am

Re:
Yeah, but that will not be subsidized by the unwilling like ESPN usually is. For those who pay it will be very expensive.
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TheResidentSkeptic (profile), 30 Dec 2015 @ 10:37am

Question for Iger
What color is the sky in your world?
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djl47 (profile), 30 Dec 2015 @ 10:38am

ESPN
Seems like every time I am somewhere that has ESPN on the TV it's talking heads bloviating about the NFL and occasionally the NBA. In my non random cord cut sample from the sports bars and pizza joints I visit, ESPN has more NFL related programming than all other sports combined. I rarely see baseball, tennis, soccer or other sports covered by this channel.
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Nastybutler77 (profile), 30 Dec 2015 @ 10:40am

"Iger, the Disney chief, has sought to calm investors worried about ESPN's fortunes, saying rising cable-subscription fees and increased advertiser spending would help the sports giant stay on top. Speaking on Bloomberg TV last week, Iger said, "We have lost some subscribers, but we believe we will continue to derive growth from ESPN. It will just not be at the rate it was before."

I'm not an economist, but I'm pretty sure Iger has the supply vs demand graph all wrong. As demand drops so are prices. Anybody who's taken an economics class can tell you that, so how is it Disney's CEO isn't privy to this bit of knowledge?
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Anonymous Coward, 30 Dec 2015 @ 10:52am

in 2013 My mother in law collapsed in our house, and died 3 times on the way to the hospital, full organ failure, multiple micro-strokes. The doctors assured us the final curtain was closing.

Instead her kidneys fired up again and she did a full 180, coming out of it with some (relatively) minor brain damage and a reduced walking range.

She's the ONLY reason we still have cable, and even SHE'S sick of it and learning how to stream.
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TDR, 30 Dec 2015 @ 11:57am

To paraphrase Dark Helmet...
"Good will always triumph because evil is dumb."
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Anonymous Coward, 30 Dec 2015 @ 12:00pm

Poker but ESports...
I blame ESPN for showing Poker when the NHL strike happened. Though, I begrudgingly give them respect for showing DotA2.

So, I am mixed on how I feel about them. Meh, let them die, I say.
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Anonymous Coward, 30 Dec 2015 @ 12:13pm

Re:
I think Iger heard you're mother-in-law's story, and figures ESPN can pull off the same thing.
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afn29129 (profile), 30 Dec 2015 @ 2:30pm

Let em die.
Good residence to bad rubbish. And American's might be healthier for it as well (less time spent in front of the tubs, and more time spent getting some exercise).
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Anonymous Coward, 30 Dec 2015 @ 2:31pm

Re:
Some of us aren't millennials. I'm probably one of the group they think will never cut the cord having grown up seeing PPV spring into being.

Over a decade ago I couldn't see the value in the programming then that was steadily getting worse as time went by while prices increased. I became very dissatisfied when they began to add commercials to programming paid for by a monthly subscription.

One day it became evident that it was no longer worth paying for as I was only looking forward to one or two shows a month. All the rest seemed to be trash and slot fillers without any real value.

Never looked back, never again did I ever look at PPV but as a waste of money with very little in value to make it worth it.

Now others are waking up to the same thoughts and actions.
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Anonymous Coward, 30 Dec 2015 @ 2:43pm

Re: Let em die.
Change the TV couch to an exercise bike & pedal like your life depends on it.
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Anonymous Coward, 30 Dec 2015 @ 2:46pm

Re: Question for Iger
It must be a rosey colour, however that may be due to the red ink pouring off the end of year financial reports.
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Anonymous Coward, 30 Dec 2015 @ 2:47pm

Re:
Falcon hell, that isn't good news for cable TV.
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ECA (profile), 30 Dec 2015 @ 3:18pm

Lets.
Lets FORCE these companies to think about distributing Content the OLD way of Antennas around the country, or joining up with other companies to get a TV show and adverts to people.. The Cost is HUGE..

Some other countries solved this, by sending up a Satellite and doing Major broadcasts across Nations..FREEEEEE!!!
1-2 Sats could/would cover this nation, and be allot cheaper then setting up WHOLE systems of antennas(as it used to be)..
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Jeremy2020 (profile), 30 Dec 2015 @ 3:45pm

Re:
If you keep repeating something loud enough and often enough then it will come true....or your lobbyists will choke off streaming services and force them to include to ESPN.
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Dukrugger (profile), 30 Dec 2015 @ 4:47pm

Years of reaming their customers with a dry pole and now they cry when they run for the first option they have? Let them die a slow and paiful death.
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aidian, 30 Dec 2015 @ 8:25pm

Cable's one option isn't pretty
The one card cable companies have is their dominance over wireline internet access. Their play is to make sure that whether or not you get TV service from them they still get the same Average Revenue Per User (ARPU).

The play is to use the combo of market power and political power to drive the price of bandwidth up so their profit stays unchanged. They don't care how they get their $100-$200 - costs every month.

If that means they tax your broadband and then you have to pay content providers directly, great, less hassle for them.

WRT broadcasters that will mean sink or swim -- or rely on the market power of your parent company to make sure viewers have to pay for your content. Just like they do now.
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Anonymous Coward, 30 Dec 2015 @ 8:37pm

They brought this on themselves
It's been generally known that self fulfilling prophecy's are caused by focusing on everything but your own actions.

Quote: -rising cable-subscription fees and increased advertiser spending would help the sports giant stay on top-

You don't have to be physic to see where this might be headed.
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Mark Wing, 31 Dec 2015 @ 2:51am

Who could have guessed that customers would abandon an industry that long ago dropped all pretense about screwing them over.
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BC, 31 Dec 2015 @ 3:29am

Re: Re:
Yep, I'm a boomer and we cut the cord like 4 years ago. Of course, Comcast got some of that back because I went with business-class service to avoid data cap fees and get customer service that actually serves. But Disney/ESPN isn't getting any of that.

Missing sports was the hardest part, but it's not impossible. Netflix, Hulu and now Amazon and YouTube are now offering top quality video. If One of those companies decides to bid on a major sports league's broadcast contract, it's game over for traditional broadcasters.
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bugmenot (profile), 31 Dec 2015 @ 8:28am

From "Famous Last Words" Dept.
"The floggings will continue until ESPN subscriber revenue grows!"
-- Bob Iger, CEO Walt Disney Company
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Anonymous Coward, 31 Dec 2015 @ 8:56am

Like the banks and brokerage houses I believe they are too big to fail. So suck on it American consumer, you will pay one way or another. Thank your democratically elected mentally retarded representative for that. And yes the banks and brokerage houses are at it again, and no one seems to give a shit, again.
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