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

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

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.

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

The Cable Industry's Response To A Banner Year For Cord Cutting? Massive Across The Board Price Increases For 2016

from the pouring-gasoline-on-a-house-fire dept

2015 was the year cord cutting stopped being written off as fringe behavior and truly went mainstream. 23% of consumers engaged in "cord trimming" in 2014 (reducing their overall package where they could), while 16% said they had unsubscribed from pay-TV services in the past year. Billions in stock value evaporated in a flash as Wall Street realized cord cutting wasn't a fad. in 2015, 4.9 million consumers called themselves former cable customers, a tally that's expected to jump 12.5% in 2016. Consumers are finally tired of paying an arm and a leg for bloated channel bundles, when they only watch, on average, about 17 of them.

Facing an unprecedented shake up in their industries and a dire need for evolution, cable and broadband companies are ringing in the new year the only way they know how: rampant tone deafness and major across the board price hikes starting in January. AT&T, Verizon, Dish, DirecTV, Comcast and Time Warner Cable are pummeling customers with $2 to $10 rate hikes for cable TV service in the new year. Not only are base channel bundles seeing a hike, but all providers are jacking up regional sports fees and so-called "Broadcast TV" fees:

"Comcast, the nation's largest cable provider, announced earlier this month that subscribers nationwide will see prices go up an average of 3.9 percent, and increases already have taken effect in some markets. The company will also hike its "broadcast TV fee" by 66 percent from $3 a month to $5. This relatively new fee covers the cost of retransmission fees that over-the-air broadcast TV networks like CBS, NBC, ABC and FOX charge cable companies for redistributing their networks on pay-TV systems."

Those retransmission fees are simply the cost of doing business (read: the cost of programming). But cable operators have started breaking a portion of these costs out below the line in order to misleadingly keep their advertised rates low. In other words, fees like this are why your already absurdly expensive cable rate is usually significantly higher once you actually get your bill.

As all cable operators are quick to do, they cry to the media, stating they too are simply victims of the soaring cost of TV programming nobody seems able to do anything about:

"Cable and satellite companies say the higher prices cover some but not all of the higher programming costs. The amount that Time Warner Cable pays local broadcast channels has risen 85 percent in the past two years, while its costs for carrying sports networks have increased 116 percent since 2008, according to spokesman Bobby Amirshahi."

While it's true many cable operators (especially smaller ones) are finding TV profit margins tightening, there's a few problems with cable operators' faultless narrative. One, many companies like Comcast/NBC Universal are also broadcasters and -- like Time Warner Cable -- own the regional sports networks contributing to higher costs. More importantly, it's worth noticing that many of these cable operators -- the same ones breathlessly pretending to be consumers' friends on the issue of soaring programming rates and retransmission disputes -- are busy raising rates on most of their non-TV-related services as well.

For example, Time Warner Cable's going to be ringing in 2016 by jacking up the cost of cable modem rentals from $8 to $10 a month (if you're still renting a modem, do yourself a favor and buy your own). DirecTV's jacking up the cost of the company's "TV fee," which the provider's website (seriously) claims is a monthly equipment fee that "allows us to keep our monthly fees low." Most providers are also jacking up the rental costs of set top boxes, and even the fees charged to pay your bills in person or over the phone. That's before you even get to the relentless pursuit of usage caps and overage fees.

And to tie these new year rate hikes off with a bow, most providers insist on insulting their customers' intelligence by claiming these increases are about improving the customer "experience," ignoring most of these companies rank lower in customer service and satisfaction than any other U.S. industry or company. In other words, the cable and broadband industry plans to respond to a banner year for cord cutting by pouring gasoline on a house fire, highlighting why they're absolutely begging for a disruptive ass kicking in the new year.

Filed Under: broadband, cable, cord cutting, price increase, tv
Companies: at&t, comcast, directv, dish, time warner cable, verizon