NYT: How ESPN Went From Disney’s Financial Engine to Its Problem
Sorry if this was posted earlier—I haven't seen it in a thread—but on Aug 2, there was an interesting, detailed story in the New York Times about ESPN's financial decline:
ESPN has been Disney’s financial engine for nearly 30 years, powering the company through recessions, box office wipeouts and the pandemic. It was ESPN money that helped Disney pay for acquisitions — Marvel, Lucasfilm, Pixar, 21st Century Fox — and build a streaming service, transforming itself into a colossus and perhaps traditional media’s best hope of surviving Silicon Valley’s incursion into entertainment.
Those days, ESPN’s best, are over.
With its dual revenue stream — fees from cable subscribers and advertising — the sports juggernaut continues to earn billions of dollars for Disney. In the first six months of the 2023 fiscal year, Disney’s cable networks division, which is anchored by ESPN and its spinoff channels, generated $14 billion in revenue and $3 billion in profit.
The problem: Wall Street is fixated on growth. Revenue for those six months was down 6 percent from a year earlier, as profit plunged 29 percent.
The advent of cord-cutting has blown up ESPN's business model. ESPN had 100 million cable subscribers in 2013, but only 71 million today. They've tried to increase cable subscriber fees to make up the difference, but you can only get away with that for so long, as it incentivizes further cord-cutting:
But cord cutting has been hurting both those revenue streams. A decade ago, more than 100 million households received ESPN, meaning 30 million fewer households get ESPN today than in 2013. ESPN has consistently raised its affiliate fee to offset this decline, but its ability to continue doing so will be limited in the coming years: By 2027, fewer than 50 million homes will pay for cable television, according to PwC, the accounting giant...
Estimates vary widely, but if ESPN offered its cable channels à la carte, it would most likely have to charge an astonishingly high fee for the streaming service, perhaps $40 or $50 per month, just to maintain its current revenue.
Only 5 million people pay for ESPN+ directly, with many more getting a massively discounted subscription to ESPN+ through Disney+. This helps explain why the Pac-12's ill-fated streaming deal with Apple was such a gamble:
As of April, ESPN+ had 25.3 million subscribers, though only five million people paid for it directly, according to Disney’s financials. The bulk of ESPN+ subscribers bought it as part of a discounted bundle with the far more popular Disney+ and Hulu streaming services.
Many of us regretted that ESPN wasn't part of the recent B1G media deal. But given Fox's superior stability and economics, we did well to go with Fox.
The $2 billion question is: when it's time for the next media deal for both the B1G and the SEC, what will happen? It seems highly likely to me that the only way the B1G makes more money is by ejecting lower-audience schools from the conference, so as to concentrate the B1G schedule on the biggest-brand teams.
August 11th, 2023 at 10:31 AM ^
Seems like the conferences are betting on media deals that get bigger in perpetuity, forgetting that there is an ongoing cost of living crisis for many people in this country and beyond. It is ultimately consumers that pay for this largesse after all.
The only reprieves are finding a new source of paying viewers, perhaps internationally, or learning to curtail their ambitions and spending to what the long growth that the market will bear. But that has never stopped them before. It’s time to reign things in or consider a new structure that acknowledges and establishes football as a minor league and find more suitable subsidies and revenue streams so that universities and tuition-paying families are not on the hook for potential losses that are not part of the core academic mission.
August 11th, 2023 at 11:07 AM ^
The ACC really screwed themselves by signing their deal through 2036. They're locked in to like $250M/yr while the BigTen and SEC could be at like $1.5B-$2B by 2036.
August 11th, 2023 at 11:45 AM ^
Nice, simple picture of why what's going on, is going on.
August 11th, 2023 at 12:00 PM ^
With the addition of 4 Big 12 Teams, who are each guaranteed $31+M/year, does that make the Big 12 deal closer to $500M annually?
August 11th, 2023 at 12:27 PM ^
Not sure, but there is likely some partial memberships for new schools much like the B1G does/did for a couple years.
August 11th, 2023 at 1:05 PM ^
Actually the Big 12's new deal--signed last year--guarantees full shares to new Power 5 schools that join the conference. I think the TV networks anticipated two additions not four, so when UA/ASU/Utah decided to join in addition to CU the conference had to get approval for the two additional full shares.
But they got said approval and everyone will receive a full share. Good for them as well as for ongoing conference stability (unequal shares breeds jealousy and contempt, although a finite period of inequality vs. open-ended does make a difference).
August 11th, 2023 at 3:15 PM ^
This right here is why I asked on another thread if it is legally possible for the ACC member schools to legally dissolve the ACC as an entity, and then create a new conference in its entirety and negotiate a new media deal. If given a chance to renegotiate a deal rather than live with one negotiated in a different collegiate landscape, they could do better IMO.
August 11th, 2023 at 4:39 PM ^
That may be possible, but it opens the door to Clemson and FSU leaving, whereupon the rest of the conference looks like the PAC-12 without USC and UCLA.
August 11th, 2023 at 10:57 PM ^
I saw something about how the ACC schools actually sold the rights to their sports individually as part of the deal. So even if break off from the ACC, they would have court cases ahead of them that they'd have to win before signing a new deal with a new conference and media entity.
August 11th, 2023 at 11:48 AM ^
There will be a crunch at some point - but the Big Ten's deal has a lot on broadcast. So the cost isn't directly passed to the consumer, except via copious advertising. And at the moment - even moreso with the Hollywood strikes - sports is one of the best sources of revenue for media companies. Maybe that crunch is happening right now, and hastened the Pac12's demise. But it doesn't seem like there are better bets for the media business than sports.
It is fair to say that the schools that spend on their ADs rather than see self-sufficient ADs have to question whather that's fair - especially at public universities, like infamously Rutgers. They should spend less - does Rutgers need a men's golf team, wrestling team, even baseball and soccer? I think women's sports I'm more sympathetic to. But we've seen in the past, when schools try to cut athletics spending, there's often political pushback - this occurred at Cal during the pandemic. So I'm actually not sure that students and others WANT to cut back on the non-revenue sports. And football is the main revenue generator for these ADs - even Rutgers.
August 11th, 2023 at 1:10 PM ^
The key phrase in your comment is "copious advertising." ~12 fewer plays per game with no fewer ads...none of us fans/viewers like this but...my question is when will the SUPER ANNOYING NON-STOP tv ads actually change our viewing habits?
Until that tipping point is reached they will continue to pile on the ads, perhaps even further reduce the # of plays on the field, and that will remain the biggest source of revenue associated with so-called linear broadcasts.
August 11th, 2023 at 12:43 PM ^
Seems like the conferences are betting on media deals that get bigger in perpetuity,
I don't think they're totally oblivious to this, at least not the Big Ten. They're likely drawing the line on adding Cal and Stanford because they don't think they'll be worth it to the league financially, now or in 2030.
August 11th, 2023 at 10:32 AM ^
I read a CNBC article that came out about the same time that also addressed this, but a little differently. Unless I completely misunderstood (which is very possible), Iger and Disney are hoping that rising affiliate fees will help break up cable companies and their bundling and open a world of network streaming. Disney has approached the NFL, NBA, MLB and NHL trying to get them all to take a stake in ESPN and sell it outright or spin it off. ESPN would then be the supplier of streaming services for franchises within each sport. Either way, it didn't seem like the money was there to maintain the current astronomical payments for sports broadcasting contracts. These current contracts may be the last ones that are bundled like this.
August 11th, 2023 at 10:43 AM ^
Well I think they finally started on the right path by cutting a lot of the over paid talking heads. If I turn on ESPN all I want to see is regular Sportscenter or actual sports being played. I don't want to watch two guys yelling at each other about which QB has a better chance of winning in a fight.
August 11th, 2023 at 11:50 AM ^
So true. I know there are highlights on youtube, but ESPN can still put together highlights shows and get me to watch rather than angry heads.
Also - there's sports somewhere in the world almost always. Show me sumo wrestling, camel racing, kabaddi, squirrel surfing, whatever! Play sports, all the time.
August 11th, 2023 at 4:11 PM ^
I hate the talking heads too, and have never watched anything beyond live games or SportsCenter on ESPN.
HOWEVER, I don't think this is a mindless choice by ESPN. They know many viewers hate the talking heads, but other viewers like them. And extra talking heads shows in a studio they already own and staff is likely to be cheaper than showing live action games - where new costs for travel, equipment, and a camera team are not negligible, particularly when ESPN has branded itself an super high quality visuals.
I'd prefer camel racing over talking heads, but I bet you those talking heads are more profitable. Unfortunately.
August 11th, 2023 at 1:55 PM ^
Even this though, Sportscenter isn't what it was when i was growing up. The hosts aren't as funny or clever and almost seem cheesy. And I can watch 30 second highlights during Sportscenter where they are usually shitting on my favorite team, or I can watch in depth coverage on BTN and catch full game highlights on Youtube.
And the debate style is exhausting...PTI and ATH were innovative but they're now stale. I only watch ESPN during the CFB season to catch the Playoff rankings shows. Otherwise MGO, multiple podcasts, and youtube will keep me up to date.
August 11th, 2023 at 2:24 PM ^
Well they cut the only talking head (Jalen Rose) that I actually wanted to listen to.
August 11th, 2023 at 3:16 PM ^
I actually never watch SportsCenter anymore, because if I want to watch extended highlights of any game, I can find them on YouTube.
August 11th, 2023 at 10:52 PM ^
You’re speaking my language. All I want is my 1999 Sportscenter back. Multiple highlights of games instead of showing a Labron dunk and then switching to two guys screaming about Kobe vs Labron.
August 11th, 2023 at 10:49 AM ^
The $2 billion question is: when it's time for the next media deal for both the B1G and the SEC, what will happen?
Everyone at the table is going to pretend there's more money to extract from consumers than exists, and when the money doesn't materialize they'll point fingers at each other. The ACC is next to collapse; the B1G and SEC become the college equivalents of the AFC and NFC.
The games will lengthen by another half-hour of commercials to make up for the shortfall, but there won't be more buys so it'll be the same half-dozen commercials over and over. In an attempt to "speed up" the game, the NCAA will ban any ball exchanges behind the line of scrimmage. Forward passes only.
There's more to the story, but it rapidly turns into a sci-fi dystopian narrative from here.
August 11th, 2023 at 11:04 AM ^
Welcome to late-stage capitalism! When every other interest is relegated towards extracting more and more value and money, this is what we get. I think I read somewhere that Disney+ is a huge loser?
August 11th, 2023 at 4:14 PM ^
It seems MGOBLOG's dabbling in Marxism has extended beyond DTs.
(see your latest HTTV for reference)
August 14th, 2023 at 11:40 AM ^
I know you are better and smarter than ancient Marxist propaganda.
August 11th, 2023 at 12:33 PM ^
August 11th, 2023 at 12:43 PM ^
not having kids but can't wait to tell my next cat in 2045: the year of the Depends® Undergarment about how much better college football used to be.
August 11th, 2023 at 11:00 AM ^
I'll say: ESPN's ESPN+ app really effing bites. I would honestly pay for it if it wasn't so buggy and unpleasant to use, even without getting all the programming I want. But it's clear they don't care about it and so I don't subscribe and just use a friend's log-in when I need it.
August 11th, 2023 at 11:06 AM ^
So - Disney made all that money for so long because the fees ESPN charged cable subscribers were so high right? And ESPN's high fees were also the reason that cable rates kept going up and up, right? Then it's no wonder that people are cutting the cord.
I feel like sports media landscape is only going to get stranger because the younger generations seem to have little to no interest in live sports. I think soon they may experience the same difficulty that the movie industry has been going through.
August 11th, 2023 at 1:51 PM ^
This is a great point. And basic cable fees skyrocketed because of the ESPN carriage fee increase. Non sports fans were forced to have ESPN and their costs included in their fee. Thus the cord cutting
The cable story for the 90s and 00s was that every channel wanted to be part of basic cable and not a tier. And those negotiations were tough. Cable properties dont want more content in basic. They didnt want ESPN in basic. But ESPN and its affiliated content were so valuable that Disney had all the leverage. Remember the last 15 years of battles between B10 networks and its partners vs Comcast.
August 11th, 2023 at 11:06 AM ^
I don't see Fox as any different positioned than ESPN. There is a reason you can't stream either of them stand alone, the fees they can charge cable companies and bundled streamers. What affects one affects the other.
And speaking of bundled streamers, such as YouTube TV, how many of those 30 million less cable subscribers just moved over, but are functionally paying the same fees?
August 11th, 2023 at 11:39 AM ^
But I think Fox, by nature of being much smaller and not being in streaming, is in a more "stable" position than ESPN (since ESPN is a part of Disney, not a standalone)
August 11th, 2023 at 1:57 PM ^
Fox is network TV though...everyone can get it, meaning you can charge more for ads and everyone, whether they have cable or not has Fox.
August 11th, 2023 at 3:01 PM ^
There is also FS1 and 2 though, and likewise ESPN is in charge of the sports on ABC, I think. For years, Fox and Comcast wanted a sports network like ESPN. Comcast basically gave up and went all in on network. Warner kept TNT and TBS as their sometimes sports channels. And Fox refused to get into streaming past Tubi - they got out of the RSN business, got out of the content creation business, and focused on network, cable news, and sports. At the moment it looks prudent.
August 11th, 2023 at 11:08 AM ^
"Many of us regretted that ESPN wasn't part of the recent B1G media deal. But given Fox's superior stability and economics, we did well to go with Fox."
Bingo. I'm much happier that Michigan games will be on Fox/NBC/CBS vs. Disney. Disney as an enterprise, is vastly overvalued.
There is more competition today for entertainment. This erodes Disney's entertainment proposition.
August 11th, 2023 at 11:12 AM ^
Disney at this point is like one of those restaurants you go into and they have like 100 things on the menu. Breakfast, tacos, lasagna, prime rib, ect. It’s all well intentioned but you know the place with say 10 menu items does those items REALLY effin good.
Disney does somethings good, but nothing really exceptional anymore. They’ve killed ESPN, Pixar, Star Wars and most recently a lot of the Marvel franchise.
August 11th, 2023 at 11:28 AM ^
Do they offer the Brown Jug burger on the menu?
August 11th, 2023 at 1:15 PM ^
Only during recruiting dead periods.
August 11th, 2023 at 11:37 AM ^
But they also allowed Marvel to pull in all the IP that led to its memorable run. Star Wars' best content maybe came long ago, but Disney's Star Wars series - The Mandalorian, Andor - are highly rated. Rogue 1 was also excellent. Honestly, the worst era of Star Wars was the prequels, which came before the Disney acquisition. While I don't think Disney made Pixar better, some of Pixar's best - Up, Coco, Inside Out - were all developed (not just released) when Pixar was an arm of Disney.
ESPN has been a part of Disney for nearly 30 years now - I'm not sure if Disney ruined it, but they've certainly both prospered together over that time. Disney isn't perfect and also can be horrible, but I don't think they've ruined any of the properties you mentioned.
August 11th, 2023 at 12:43 PM ^
"Disney isn't perfect and also can be horrible, but I don't think they've ruined any of the properties you mentioned."
Your post is valid but quite historical. Good moments happened with Disney and the properties they acquired. But those successes happened a while back. I enjoyed Mandalorian and Up as much as anyone....years ago. Snow White was pretty solid ~100 years ago. Disney today is not getting much out of the assets they own.
They could, and might, turn things around. They reinvented themselves in the early 90s. But the current trend is definitely downward.
August 11th, 2023 at 1:17 PM ^
But by "years ago" we mean like, 2019? All the properties mentioned made Disney seem like this all-encompassing, unstoppable force just before the pandemic. Now they've hit a rut in Marvel, maybe Star Wars and Pixar - but 2019, while historical, is a bit more relevant to 2023 than it is to Snow White from like the 1930s.
August 11th, 2023 at 1:57 PM ^
I don't know the financial situation with Pixar, but I can definitively say that creatively whatever is happening right now is an unmitigated disaster. Lightyear was one of the worst movies I have ever seen. Not one of the worst Pixar movies, but one of the worst movies of any kind. Zurg is old Buzz? Wha??? (No this does not have anything to do with the same-sex couple, that spot was actually probably the best part of the movie).
And now Toy Story 5. What are they trying to accomplish here? It's over.
August 11th, 2023 at 3:05 PM ^
Sure - I'm not saying the latest Pixar releases are anything inspiring. But the narrative that "Disney ownership ruined them" is only as true as acknowleding that in the VERY recent past, Disney ownership had some very real successes with all of those properties - Marvel, Pixar, Lucasfilms and ESPN. Are they all bad now? I don't think ESPN is "bad" but wall street disagrees, and the other ones definitely don't get the rave reviews they did 5 years ago. But 5 years ago, and ten years ago, they were all still a part of Disney. And it's dishonest to say "ancient history" about that and compare it to something that happened before most anyone around now was alive.
August 11th, 2023 at 12:02 PM ^
Do you know how many things, over how many years, have been said to have killed Star Wars?
August 11th, 2023 at 6:43 PM ^
I think the situation is basically that Star Wars sucks, and always has.
August 11th, 2023 at 11:12 AM ^
With conference realignment driven largely by a football revenue money grab, it seems reasonable that the next wave would target the largest remaining pot of money.
To me, the most obvious revenue stream to tap next is men's basketball, and in particular the rights to March Madness. The current contract is $8.8 billion over 8 years, with the revenue going to the NCAA, not the member schools.
August 11th, 2023 at 11:17 AM ^
"To me, the most obvious revenue stream to tap next is men's basketball, and in particular the rights to March Madness. The current contract is $8.8 billion over 8 years, with the revenue going to the NCAA, not the member schools."
The Universities bypassed the NCAA to create the College Football Playoffs.
Could they do the same thing and create their own tournament to supplant what exists today? Who owns the trademark to "March Madness?"
August 11th, 2023 at 11:32 AM ^
I love college football - but I think conferences (and TV people) underrate college basketball. And also misunderstand college football. You often see quotes from these folks like, "College football gets higher rating than college basketball, so why isnt the CFP as highly rated as March Madness?" And it shows a fundamental misunderstanding of the structure of the seasons. Likewise, a focus only on ratings per event misses the totality of people who tune into college basketball games over the length of the season - not just for how they'll stack up in the big dance, but for all the other accolades your team can win against its rivals and within its conference.
So yea, they're going to try to squeeze March Madness for all they can - but I think so far, the strength of schools outside the Power 4/Super 2 - the Zags, SDSU, UConn, FAU - make it obvious that the same players can't quite wrest control of the whole thing and have the same legitimacy that the NCAA tourney has, unlike they are able to do with the CFP.
August 11th, 2023 at 12:34 PM ^
"College football gets higher rating than college basketball, so why isnt the CFP as highly rated as March Madness?"
That's ... not true?
Michigan-TCU drew 21.7 million viewers, while OSU-Georgia drew 22.44 million. Both of these totals were much higher than any basketball final in years.
Georgia-TCU, despite being a total laughter, drew 17.22 million, which still was significantly more than the basketball final (14.69M) and even slightly higher than the 2022 final that featured bluebloods Kansas and UNC (17.05M).
August 11th, 2023 at 1:20 PM ^
Thank you, maybe i got the statements wrong - but I definitely got the numbers wrong. The vibe I got from CFP expansion was a desire to emulate March Madness. Perhaps I misread, or was just flat wrong. Or whoever had that desire meant it in a way other than ratings - I'm not sure.
August 11th, 2023 at 4:46 PM ^
There are 3 CFP games and 67-ish basketball tournament games, depending on how you count the play-in games.