Tuesday, May 2, 2017

ESPN and the content bubble

It is easy to forget that, though it does occupy a unique niche, sports is part of the entertainment economy.

For years now, we have been discussing the increasingly apparent content bubble. Even though people's ability to consume content is approaching saturation (even taking into account multiple screens) and the competing sources of content are exploding, prices and production slates continue to skyrocket. This is not to say that there isn't a lot of money to be made or that the amount will not continue to grow, just that the probable rate of growth is nowhere near what would be needed to justify the current level of investment and hype.

We have mainly focused the discussion on things like scripted television and streaming services, but the recent news from the cable sports industry might provide a better example:

ESPN's Diminished Future Has Become Its Present by Kevin Draper

The causes of the layoffs are clear. As ESPN’s subscriber base, and the rate those subscribers paid monthly, grew in the late aughts and early 2010s, Bristol spent flagrantly. They created the Longhorn and SEC Networks, built a massive new SportsCenter studio, hired hundreds of writers to cover specific teams, and, most importantly, spent billions of dollars on live sports rights. They made big bets. They made wrong bets.

Right around the time the ink dried on a $15.2 billion deal to broadcast the NFL, subscribers began fleeing cable television in droves—not because of anything the Worldwide Leader did wrong, but because of secular changes in the way broadcast and video works. Phones, Twitter, and YouTube began instantaneously delivering highlights and entire games to fans, obviating the need for anyone to watch SportsCenter, or any other news shows, to catch up on what happened in sports, or even, in some cases, to watch live games. Terrestrial ad revenue never migrated online, and the revenue to be found there was largely eaten up by Facebook and Google, leaving little to pay those new ESPN.com reporters.

ESPN is still wildly profitable—the operating income of Disney’s media networks (of which ESPN plays the largest role) was $1.36 billion in the 2016 fourth quarter—but it’s less profitable than it used to be, and projects to be far less so in the future. With its latest cuts, ESPN isn’t just trying to stanch the bleeding and/or to be seen by investors as attempting to do so: They’re also laying out what the network will look like over the next five years and beyond.



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.

No comments:

Post a Comment