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Part 2: The Old Sports Network & Pay-TV Model Faltering in the Age of Cord Cutters

I stayed in the Friday night when Netflix’s Original Series,The Get Down, debuted, binge-watching all six episodes. The approximately six hours of viewing time was a priority for me (and a true joy) but nothing holds an urgency candle to viewing my sport, which was Arsenal’s first match of the Premier League season, on live as its happening.

Read Part 1: Sports Networks Need to Get Their Live Streaming Game On

Sports and breaking news content have been the two main forms of live linear television watching that people tune into, although network news is actually in a weaker position than sports given the multitude of sources one can access that do not involve licensing agreements (think citizen journalism using Facebook Live, which has resulted in its own complex legal and ethical issues).

In 2015 when Nielsen released their Q1 2015 Total Audience Report, it was reported by Motley Fool as a reason to “Terrify Television Execs.” The number of youth in the highly sought after 18-34 demographic is “leading the charge away from television.”

Not sure if the 2016 Nielsen data for the Q1 Audience Report caused a crying in the corner reaction, but it shouldn’t by now. Broadcast networks have got to see these numbers coming. In 2015 adults ages 18-34 spend an average of 21 hours and 55 minutes watching live television. In 2016 it dropped to 16 hours and 18 minutes.

That’s a lot of minutes of revenue loss when considering the hundreds of thousands of dollars television networks charge per ad slot, and “advertisers pay more for younger audiences.” The lower viewing time data by the 18-34 audience has brands also turning away from TV and moving their ad dollars towards other avenues that have a higher opportunity for engagement.

ESPN: Could be a Sports TV Case Study for Success or Failure, Depending on Their Playbook

Peter Kafka’s Recode Media podcast recently hosted James Andrew Miller, the award-winning journalist that co-authored the New York Times bestseller, “Those Guys Have All The Fun: Inside the World of ESPN,” with Tom Shales. Miller was discussing his latest book with Kafka, “Powerhouse,” an oral history of Creative Artists Agency (CAA) and the future of entertainment and sports content in the age of SVOD and cord-cutting consumers.

Considering Miller the best source person on ESPN, Kafka asked him about the network’s turmoil in the wake of talent drain and diminishing revenue, as sports licensing deals have shot up at the same time that pay-TV subscriptions plummet.

Miller answered,

“We can’t ignore the fact that close to seven million households disappeared at $6 dollars a head. Pretty soon, that adds up to real money.”

Real money as in, billions of dollars.

Nielsen reported that from February to May of this year ESPN lost 1.5 million subscribers, leaving them at approximately 89.5 million. That number dropped from 92 million, which ESPN’s parent company, Disney, had reported for the end of fiscal 2015. Which is lower than the 99 million ESPN had at the end of fiscal 2013.

That’s 10 million subscribers in just three years. “If this trend continues, ESPN will have just 87 million to 88 million subscribers by the end of Disney’s fiscal year,” stated Motley Fool.

According to SNL Kagan, in 2016 ESPN receives $7.21 per head for affiliate fees. That makes it the highest paid sports network. The bigger you are the harder you fall. In that four-month period, February to May, ESPN lost $10.8 million.

The other sports networks are also losing subscribers, but their affiliate fees are all under $2 per subscriber, so the revenue hit was less painful.

Fox Sports’ FS1 lost 950,000 while FS2 gained 736,000 (by the way, Fox Soccer 2GO offers a direct-to-consumer live streaming service), so the overall loss was estimated at $12 million. NFL Network lost $5 million with a drop in 324,000 subscribers. And NBC Sports lost $1 million dollars with a loss of 300,000 subscribers.

If you go back the end of 2013, adding in fees it also gets for ESPN2 and ESPNews, the losses for ESPN are still substantial.

This isn’t a temporary shift in the economy or even a seasonal dip in subscriber numbers. It’s a permanent shift in consumer behavior. A shift that will only continue to break apart the old sports network revenue model not year-over-year, but month by month.


Rising Sports Licensing Deals Clash with Dropping TV Subscribers

When ESPN first came on the TV sports scene in 1983, the revenue model derived from subscriber fees and advertising was highly profitable and continued to climb with each decade. It’s clear those glory days are over.

Even so, Miller sees ESPN as having fearless tenacity, especially after ponying up for the Big 10 3x increase of $2.6 billion over six years. “They have a pretty big mote versus their competition.”

Well, the competition also threw down. CBS and Fox Sports were part of the billion-dollar deal.

NBC Sports Network (NBCSN), who snagged the Premier League from Fox Sports in 2013, saw their licensing fees double when they renewed last year for a six-year, $1 billion deal that takes them through the 2021-22 season.

Over in the UK, Sky and BT Sport also paid a record £5.1 billion for Premier League TV rights as of the beginning of this 2016 season.

These double and triple digit increases in licensing deals have spawned a number of bubble burst predictions that date back to 2013 in the area of sports rights and TV network’s ability to keep up.

The industry is also seeing signs where sports entities that aren’t in the big leagues of the NFL, Big 10, and the NBA are either seeing or are expected to see their contract rights drop in value. This includes the MLB.

Networks paying those 2x, 3x increases with the bigger leagues are not renewing contracts with the less popular sports because they simply can’t afford to do so. For example, ESPN and Turner did not renew their joint contract with NASCAR. Instead, the racing league closed a joint 10-year agreement with NBC and Fox for $820 million per year, which was higher than what ESPN and Turner paid at $560 million a year, but is seen as the “last hurrah.”


Check out Part 1, Sports Networks Need to Get Their Live Streaming Game On. Part 3 of this Connected Sports Series will look at what options cord-cutting sports fans have today from “TV Everywhere” providers and legacy networks, and how new virtual MVPD’s like FuboTV are entering the fray.



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