ESPN is doing a very bad job of pretending it isn’t deathly afraid of rapidly declining subscriber numbers. At the end of October, Nielsen released its monthly television subscriber numbers report, and it showed a loss of 621,000 subscribers for ESPN and similar losses for ESPN2 and ESPNU. Other networks, like Spike TV, lost over a million subscribers, and ESPN’s nominal competitor, FS1, lost 355,000. Overall, the median network subscriber loss was 529,000.
ESPN responded by attempting to work the refs, complaining to Nielsen and releasing a statement calling those estimates inaccurate:
The Nielsen numbers represent a dramatic, unexplainable variation over prior months’ reporting, affecting all cable networks. We have raised this issue with Nielsen in light of their demonstrated failures over the years to accurately provide subscriber data. The data does not track our internal analysis nor does it take into account new DMVPD entrants into the market.
Nielsen retracted their report, but late on Friday republished it, stating that they had re-run the numbers and found their initial report correct. ESPN ran another statement.
It’s puzzling what ESPN was hoping to accomplish by disputing precisely how many fish have disappeared from a rapidly draining pond. In 2013, ESPN had over 99 million subscribers. Today, it has just under 89 million. Over the last three years the network has lost a couple hundred thousand subscribers each month; a 621,000 loss is eyebrow-raising but on-trend. And even if Nielsen had halved ESPN’s subscriber loss to 310,000 in the updated report, it wouldn’t change the fact that it has lost 10 million subscribers in three years.
Besides, while Nielsen’s numbers are industry standard, they are indeed estimates, and don’t change the number of subscribers ESPN actually has. That is a number known to ESPN and its television distributors—and known quite precisely, because that is how everybody gets paid—and a number ESPN is free to release publicly if it chooses.
ESPNers would have you believe they are wholly unconcerned by subscriber losses, and consistently downplay those figures to reporters. Their argument, most recently made publicly by SportsCenter anchor Scott Van Pelt in a Washington Post profile that was well-liked in Bristol, is that critics lump a few unrelated issues together to create a narrative that ESPN is in trouble. Here’s Van Pelt:
“I look at it this way: [Stories like that are] like a Mad Lib: We’re going to reference cord-cutting, we’re going to reference the names of the high-profile talent who have left, then we’re going to mention that a bunch of people were let go, and then we’re going to mention ratings. … And the picture that it begins to paint is, ‘We’re [in trouble],’ ” Van Pelt said Tuesday in a telephone interview. “And then you see in the third quarter ESPN made $5.9 billion. I would put it this way, the analogy I would make is: Warren Buffet lost $50 million. He’s still a billionaire and he still has more money than the people he’s in common with that it’s not even close. So my push-back and my fatigue with this, and it’s real fatigue — I’m really tired of being painted as some sort of failing, sinking ship.”
Van Pelt’s analogy is a bad one. Warren Buffet is worth an estimated $65.3 billion; a $50 million loss is just .08 percent of his wealth. But ESPN’s loss of 10 million subscribers, on the other hand, meant it missed out on about $210 million in third-quarter revenue this year, a loss of 3.5 percent. Van Pelt is off by more than an order of magnitude.
Nobody that isn’t stupid or doesn’t have a vested interest in ESPN dying is claiming it is. But this year they will miss out on somewhere around $800 million in revenue they would’ve otherwise earned if they still had 2013’s subscriber numbers. That is self-evidently a big fucking deal, and something worth closely scrutinizing. And, frankly, if ESPN isn’t worried, it’s run by idiots.
This is, of course, an industry-wide problem, not an ESPN-specific one. Eighty-two of the 119 networks measured by Nielsen lost subscribers last month, and almost all have lost millions over the last few years. Potential subscribers are dropping cable altogether, trading down to smaller packages, subscribing to services like Sling TV and PlayStation Vue, or streaming illegally. Except possibly around the margins, this isn’t a reflection of ESPN’s programming quality or anything else, but simply the catholic trend of cord-cutting. Yet this trend affects ESPN more than it does any other network.
Television networks make money by selling ads (commercials), and from monthly subscriber fees paid by television distributors for the right to carry their channel and offer it to customers. Compared to other television networks, ESPN earns a much higher percentage of its revenue from subscriber fees than from commercials. ESPN’s subscriber fee is about $7.21 per month; by comparison, CNN’s is $0.71. In essence, ESPN makes a huge chunk of its money—literally billions of dollars—from people who do not watch its channels but pay for them anyway, because they’re in their cable packages. That’s the revenue stream cord-cutting threatens.
For the last few years, ESPN has been able to offset the decline in revenue from its subscriber loss by upping its subscriber fee. In April of 2013 the subscriber fee was $5.13, two dollars less than it is today. But ESPN’s subscriber fee may have already peaked, according to an interview Disney president Bob Iger (Disney owns 80 percent of ESPN) gave in August: “Rates, in terms of per sub fees, are not likely to go up that much.” The math—declining subscribers and a steady or declining subscriber fee—is simple.
But the most baffling thing about ESPN challenging Nielsen’s estimates or Van Pelt insisting everything is fine is that ESPN is clearly doing a number of things to prepare for the future, but refuses to talk about them in that language.
This summer, ESPN promoted executive Marie Donoghue—who oversaw the business unit containing ESPN Films, Grantland, FiveThirtyEight, and The Undefeated—to executive vice president, global business and content strategy. While Donoghue was previously “responsible for identifying and evaluating new business opportunities,” her new role—once you read between the corporate-speak—is to essentially solve the future (emphasis mine):
In this role, she will be responsible for the ongoing development and implementation of ESPN’s enterprise-wide strategy, with particular emphasis on identifying profitable growth and acquisition opportunities, evaluating new technology and business models and collaborating with the senior management team to best position ESPN’s content in light of evolving fan consumption habits.
In August, ESPN bought a 33 percent stake and an “option to acquire majority ownership in the coming years” of BAMTech, a spin-off of MLB Advanced Media. BAMTech provides the backend for internet streaming platforms like WatchESPN, HBO Go, WWE Network, MLB.TV, and a host of others, and is the most sophisticated internet streaming company this side of Netflix and YouTube. The acquisition will ensure that ESPN is able to serve up streaming video to millions of fans simultaneously, and maybe profit off of other networks going digital as well.
Across the company, ESPN is putting out a product that more closely represents and is more relevant to America’s changing demographics. Many of its most noxious and offensive personalities—who have said hateful things about minorities, immigrants, women, gays, and others—have gone to the FS1 retirement home, and have been replaced by a diverse selection of voices. They also recently launched a bilingual show on ESPN2, an attempt to attract tens of millions of young Latinos.
But for ESPN to open up about the number of interesting and forward-thinking ideas it has formulated to prepare itself for 2020 or 2030 would require a frank acknowledgement that its primary revenue stream is irreversibly drying up; that ratings for its most expensive programming (Monday Night Football) and its daytime shout shows are declining; and that this is the most challenging time to be ESPN’s president in several decades.
The network doesn’t want to do that, so instead they’ll whine to Nielsen and push back against an argument that nobody credible is making anyway. That might work fine as a PR strategy, but the facts remain what they are, and ultimately must be dealt with.
ESPN Is Hemorrhaging Subscribers And Pretending It Doesn't Matter.