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…