It’s Not About ESPN Losing Subscribers

A few days ago there was a Nielsen report that ESPN had lost 621,000 households. This is misleading, since ESPN doesn’t sell any version of itself à la carte (one channel, by itself, say over streaming like Netflix or HBO GO).

The scarier truth (for cable and DirecTV) is that subscribers are no longer willing to pay $100+ for hundreds of channels, the vast majority of which no one watches (and I mean no one).

It’s far more likely that the lost subscribers for ESPN are people that actually didn’t watch ESPN at all and decided they can live on à la carte services, Amazon Prime Video, iTunes, Showtime, HBO, and network TV. ESPN has been making a fortune off of people that could care less about sports because all of the cable companies (including DirecTV) force the ESPN channel on to all subscribers and ESPN charges $7/month for this “privilege”, per household.

So ESPN’s business model is really what is under attack, as well as the existing premium package philosophy of the cable and media companies.

Netflix has already realized that although people will re-watch Friends forever, it can’t survive on that viewing pattern. Therefore it’s spending money on pipelines that will always bring in new customers, even if some customers drop off. These pipelines include high quality original content as well as highly re-watched content from Disney.

Because of à la carte streaming, the cable industry is getting massively disrupted and it’s only going to get worse.

I would expect this disruption to continue until ESPN is hemorrhaging from it’s NFL and other sports obligations and eventually the infamous sports network will go bankrupt. It won’t die, but it will go bankrupt. This is only the beginning of the end of the invisible subscriber business model (people who pay for a channel even though they never watch it).

What can ESPN do? Move to à la carte streaming as soon as possible and convince the NFL to move everything except home team games to pay-per-view models. I’d also expect the PPV model to cost $10/game or less, otherwise no one but the most ardent fan will pay.

What can cable companies do? More original programming, chop up their packages so people can pick and choose what they want for lower prices, and let go of the premium package model. It’s going to die. It’s already dying. The news of lost subscribers is the early indicator.