How ESPN’s Rising Carriage Fees Offset Its Subscriber Losses

Dave Warner
Mar 24, 2017 · 4 min read
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When we last looked in on ESPN’s struggles with cord cutting in December of 2015, ESPN had lost seven million subscribers in a two-year span from 2013 to 2015. Fast forward 16 months later, and it’s clear that this trend has not abated.

As of March 2017, ESPN now has only 87,437,000 subscribers. That’s a loss of nearly 12.7 million homes from its peak of 100.13 million in July of 2011, and its lowest subscriber count in 11 years. The most recent bad news about ESPN involves a purging of expensive on-air talent between now and June — presumably a piece of what was previously reported as $250 million in budget cuts at the Worldwide Leader In Sports in 2017.

Fox Sports’ Clay Travis used the report of those layoffs as an excuse to push his ESPN-is-failing argument forward for another year, while insiders in Bristol claim that argument is a “false narrative” and that ESPN is doing just fine. So what’s really going on here?

Here’s where Clay Travis’ narrative falls a bit flat: while ESPN has lost 14.5% of its subscribers in six years, its monthly carriage fee has increased 58.4% in that same span.

According to SNL Kagan’s most recent published estimates (as of August 2016), ESPN charges cable companies $7.21 per subscriber per month. ESPN2, meanwhile, charges cable companies $0.90 per subscriber per month. Those numbers are expected to grow 6.5% every year, which means they could be as high as $7.68 and $0.96 by next August.

Let’s extrapolate some numbers. Let’s assume for a moment that ESPN’s carriage fee actually increases quarterly by 1.625%, rather than annually at 6.5%, and has done so since last August. Let’s also assume that ESPN will lose roughly 400,000 customers per month throughout the course of 2017 — not an unreasonable number, given pay TV’s recent trends.

Given those figures, here’s what ESPN’s flagship channel would earn in total carriage fees:

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Now let’s throw in ESPN2’s carriage fees on top of that.

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It is extremely difficult to suggest that ESPN is failing when its two biggest channels are expected to earn more than $8.8 billion in carriage fees alone in 2017 — an increase from an estimated $8.5 billion earned by those two channels in 2016. This doesn’t take into account advertising revenue, which is down a bit overall but still adds at least a couple billion to ESPN’s bottom line, thanks to ESPN consistently being the most-watched cable network in prime time, especially during big event games.

As a reminder, here’s what ESPN will pay out this year for its biggest broadcast rights properties:

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* — SEC figure is for 2nd-tier rights deal only and does not include shared profit from SEC Network, which could be as much as $210 million for the 2016–17 season.

While that total is not the full total of every rights deal ESPN has, it does take up 63.3% of ESPN’s expected carriage fee income in 2017. Those same rights cost ESPN only 52.5% of its carriage fee income in 2015. Meanwhile, Big Ten rights will increase by $90 million next season, and both the NFL and MLB TV deals will be up in just five years, with several smaller deals coming up before then.

Those cost increases, combined with the growing loss of subscribers and the slight decline in ad revenue, are part of the reason both Wall Street and various pundits are casting an askew glance at ESPN’s financials these days. The appearance is that ESPN is no longer growing, and thus it’s unable to maintain the same level of profit it once did. That’s part of the reason ESPN parted ways with expensive personalities and cut staff where it could, and those cuts are still coming.

That said, the key factor here is that carriage fee increases are still outpacing subscriber losses. Millions of people have abandoned the cable bundle, but that hasn’t prevented the cable bundle from pouring billions into ESPN. What’s more, as ESPN and ESPN2 become crucial channels in a growing number of online TV services, the Worldwide Leader in Sports is positioning itself to continue earning those billions from people who hate their cable company but still want live sports.

Only through the Wall Street prism of growth über alles could ESPN be viewed as a failing enterprise in 2017. ESPN is merely struggling to adjust to a TV market where only sports fans are willing to pay for sports — which is exactly how it’s supposed to be. The days of ESPN getting fat and happy off the cable bundle aren’t entirely done yet, but you can see the horizon from here. And so can they.

Major sports leagues earn BILLIONS of dollars every year.

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