Streaming Hurts Cable… and ESPN Sports Coverage

In the world of media, the mantra for over a generation has been “pity the poor daily print newspaper”, which became the poster child for media disruption in the on-line world. With much news, once provided by newspapers now available free online, reader subscriptions have declined, leading to a drop in advertising revenues, resulting in staff cut-backs and less content, leading to a further drop in subscribers, and so on.

No one in the media industry has stood more in contrast to the newspapers than the sports broadcasting business, and no company within sports broadcasting has cast a larger shadow than ESPN. Owned by Disney, ESPN has been perhaps the major source of steady revenues for the Disney empire. While the commercial fortunes of Disney’s creative content offerings ebb and flow, ESPN has provided consistent and respectable revenues. After all, the contents of sports broadcasts are unique. They must be consumed in real time (who wants to watch yesterday’s football match?), the demographics are an advertiser’s dream, and the exclusive nature of broadcasting rights promises to bring top dollar contracts between the broadcaster and the various sports leagues.

The diminishing number of newspaper reporters, virtually unknown to the wider public, drink coffee from plastic cups and operate in tiny cubicles; sports broadcasters sit in fancy studios and present to tens of millions of viewers, all the while projecting a sense of understated in-studio cool. Pity the poor newspapers and their staff, another example of an “oh-so-yesterday” form of media with an outdated business model.

Well, not exactly. As widely reported, including by The New York Times, ESPN has laid off what is described as “scores of journalists and on-air talent.” They include the firing of former American football players such as Trent Dilfer, who won a Super Bowl ring while playing quarterback for the Baltimore Ravens, and professional basketball player Len Elmore. It appears that the move was made overnight — here today, gone tomorrow.

So, what is behind the move? After all, The New York Times describes ESPN as “by far the biggest and most powerful entity in the sports media industry.” Certainly, there is a degree of truth in saying that sports broadcasting differs from the newspaper business. But that difference turns out to be more of degree than of kind. James Andrew Miller, the author of a book about ESPN, observed that “ESPN was wrapped in Teflon for many years.” But as everyone knows, there is nothing ultimately impregnable about a Teflon coating.

For ESPN, the Teflon ceased to be effective in the face of two factors. First, ESPN had entered into humongous deals to acquire broadcasting rights for various sports, such as the National Football League (eight years, USD15.2 billion dollars) and the National Basketball Association (nine years, USD12 billion dollars). Of course, no one forced ESPN to agree to such amounts; presumably, it did the calculations and came away convinced that the sums were reasonable.

However, in so doing, ESPN seems to have misread where consumer viewer habits were going in the face of changing communication platforms. In a manner not dissimilar to the failure of the print media to correctly understand the implications of internet connectivity for disrupting traditional newspaper reading habits, ESPN misgauged the durability of cable as the preferred sports viewing platform. In a word, viewers are more and more “cutting the cable”. Partly this is due to increasing resistance to the multi-channel, bundle acquisition cable model and the seemingly ever-increasing cable subscription fees. Meanwhile, streaming has become an increasingly popular alternative channel of distribution.

The result is a commercially deadly combination of increasing expenses and declining revenues from both subscriptions and advertising. Indeed, the Disney cable networks division experienced an 11% decline in operating income for its most recent quarter, as compared to the same quarter a year ago, all of which is due to a drop at ESPN. Locked into huge, long-term licensing fees, perhaps the only material way to improve bottom line, at least in the short-term, is to cut from somewhere, and that “somewhere” are the “on-air” personalities, many of whom have been with ESPN for some time. (In 2015, ESPN had laid off some 300 employees, but most of them were “off camera” types.)

Perhaps there was a sense that the fate of “on-air” personalities would be different; after all, they were identified by the public as synonymous with ESPN cable offerings. If that was the sense, it was wrong. In the best tradition of a sanitized corporate statement, the president of ESPN, John Skipper (how ironic, with “skipper” being slang in American baseball for the on-field manager of a baseball team), wrote in a letter to ESPN employees:

Dynamic change demands an increased focus on versatility and value, and as a result, we have been engaged in the challenging process of determining the talent—anchors, analysts, reporters, writers and those who handle the play-by-play—necessary to meet those demands.

At the end of the day, the sporting event itself (much like “meat and potatoes” newspaper contents), is the heart of what the sports broadcasting platform ultimately has to offer. In a hyper-charged world about anxiety over employment security, sports broadcasting may ultimately be no different —Teflon can only go so far.

The original version of this article was written for the IPKat by Neil Wilkof. It has been reproduced under a Creative Commons CC BY 2.0 UK Licence.

IPKat
IPKat
Launched in 2003 as a teaching aid for Intellectual Property Law students in London, the IPKat’s weblog has become a popular source of material, comment and amusement. IPKat covers copyright, patent, trade mark, info-tech and privacy/confidentiality issues from a mainly UK and European perspective.

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  • Michael Lazarou

    As an NBA fan I can attest to the change of habits in viewing basketball. Although I have not had access to ESPN broadcasting (due not living in the US), I have always used their website as my main source of NBA news. However, the recent upgrades to the official NBA app make me visit ESPN less and less. If you include the fact that a lot of the videos they provide are not viewable outside the US (I assume due to rights) then this reduces my visits to ESPN.com further. On the other hand content on NBA.com and the their app is always available.

    In addition, any changes to the websites of ESPN.com and NBA.com might change my habits as well; from time to time they make so many drastic changes which makes the site completely unusable… What is also interesting is the amount of new content appearing; people with so much experience being fired from ESPN run their own websites and draw a lot of traffic.

    The NYT article quoted mentions that YouTube and Facebook also bid for the rights of NFL broadcasting. What are the side effects of this? Are the tech big 5 (Google, MS, Amazon, FB, Apple) going to disrupt television broadcasting rights as well? You bet!