The Truth About ESPN

On January 4, 2006, Texas beat USC in the waning seconds of the Rose Bowl to win the national championship. 35.6M people watched that game. Following that season, the entire slate of BCS/CFP games moved to ESPN, and not a single game has garnered more viewers. In 2006 the US population was 296M; at the start of this year, it was 324M. I've occasionally repeated this point, but yesterday's layoffs at ESPN punctuated their problems.

If you don't have the eyeballs, you can still outbid broadcast (over the air) TV for content, so long as your channel is bundled inside of cable TV. But once that unbundling begins, your revenue will shrink. At once, people no longer need to pay for your content when they're not watching it. Baseball fans no longer need to pay for football games they don't particularly care for, etc.

Bundling is a form of a monopolistic rent; once that monopoly was broken -- once rentiers had choices -- ESPN either had to lower its fees (rent) or lower its expenses (labor and content). They've chosen to lower their labor costs, but that's the low-hanging fruit.

As Deadspin noted:

If ESPN is trying to significantly trim costs, things are going to get grim, because cutting the salaries of online writers isn’t going to cut it. And so the fundamental question is how long ESPN—or Disney, or Disney shareholders—can be content with diminishing profits, and at what point they admit that aggressively outbidding competitors for live rights at the peak of what was at the time clearly a bubble was a mistake. If they do so, the knock-on effect to the leagues that rely upon their money to pay salaries and fund operations will be immense.

Services such as Sling TV and Playstation Vue offer you the ability to subscribe on a month-to-month basis without any penalties, and it piggybacks on the internet (ISP) service you would have subscribed to, regardless.

Last month the New York Post picked up on this:

SNL Kagan projects the total number of so-called “broadband-only” homes stood at 15.4 million at the end of 2016. 

The result of this trend is that homeowners pay less for TV and that the cable channels are seeing their revenues squeezed.

Cord-cutting is real and one significant consequence is that ESPN's monopoly on live sports is falling apart.

With falling subscriptions, ESPN's in deeper trouble than they're letting on.