ESPN yesterday fired roughly 100 employees, including some well-known on-air personalities such as Trent Dilfer, Jayson Stark and Len Elmore.
The dismissals were necessitated by ESPN’s shrinking revenues brought on in large part by having fewer subscribers in pay TV homes.
Analysts yesterday offered a wide gamut of reasons for the subscriber decline, from ESPN’s liberal-tinged debate shows to a reduced popularity of live sports to an accelerated wave of cord-cutting by cost-conscious consumers.
But it says here that ESPN is in crisis because there is a bubble, one that’s starting to burst over every organization that has even a small investment in what was once a sports TV empire.
For years, the leagues, and the teams, have become rich almost beyond measure thanks to lucrative TV contracts agreed to by the networks and regional sports channels. The programmers consented to shell out the billions because pay TV operators felt obliged to pay comparably astronomical fees to carry their channels. No cable or satellite TV service could dare go without ESPN, or the regional sports network that aired the games of the local teams.
But this philosophy started to change about five years ago when the channels began raising their fees to unprecedented levels to offset the huge contracts they signed for the rights to broadcast the games. Pay TV operators concluded that the escalating fees would soon dent their profit lines and they began to say no. Compounding the pressure on the pay TV ops was the need to raise subscriber fees to make up for the higher carriage costs. Customers started to howl over the annual bill hikes, and that led to talk that they would drop their pay TV service, a practice known as cord-cutting.
DIRECTV, which once would have rather cut off an executive’s arm before not carrying a popular sports channel, drew a line in the sand four years ago when it decided not to carry the Pac 12 Network, although it’s popular in California, one of DIRECTV’s bigger subscriber bases.
But the real turning point came in January 2013 when Time Warner Cable agreed to pay $8.35 billion over 25 years to the Los Angeles Dodgers for the rights to their games, which would be seen on a new RSN called SportsNet LA. At the time, it seemed like a logical decision. You couldn’t go wrong acquiring the games of such a popular team, right?
Well, TWC soon found out that it was a huge mistake. With renewed fortitude, the pay TV operators said no f—– way when the cable operator came calling with excessive carriage demands to make up for that $8.35 billion. And today, there is still only one major provider in the LA market that carries SportsNet LA — Charter, which now owns TWC, so it could hardly not carry its woebegone channel.
The woes of the sports channels continued with several pay TV operators deciding to eliminate ESPN from low-cost programming packages in an effort to attract young people. The decision has cost ESPN several million viewers over the last year or so, leaving the sports network with shrinking profits and declining advertising revenue, which led to yesterday’s firings.
But this bubble will affect every sports channel. Pay TV operators can’t afford to keep raising their monthly subscriber fees and the only way they can stop doing it is stop paying excessive carriage fees.
And eventually, as sports channels are forced to reduce their internal spending, they will also be forced to reduce their spending on the rights to air games and that will eventually force the leagues and teams to tighten their belts.
As Mr. Zimmerman once said, ‘The times, they are a changin’.
— Phillip Swann