BTIG: majority of Americans would drop ESPN


Details

Joseph O'Halloran

| 14 January 2016




In what could be regarded as alarming news not only to the sports channel but also its rivals, research from BTIG has concluded that ESPN could face a subscriber exodus in 2016.



RTVN 14 Jan 2016 BTIG ESPNIn a report written by respected analyst Richard Greenfield, BTIG believes that ESPN is in serious trouble, having been ‘vastly’ over-earning and that it is now incapable of fulfilling its plan of going direct-to-consumer (DTC). The main reason for this, argued Greenfield, was that ESPN had spent far too heavily on long-term sports rights contracts, given the deteriorating state of the multi-channel video bundle and the accelerating shift of TV ad dollars to mobile.

ESPN has traditionally been Disney’s single largest source of profit, driving $6.8 billion in operating profit in the last fiscal year, or 46% of the company’s total. Yet Disney’s December 2015 10K filing revealed that ESPN has lost seven million subscribers over the last two years. In absolute terms that is ESPN’s subscriber base dropping to 92 million as of 3 October 2015, down from 95 million a year previously.

To substantiate its case, BTIG commissioned market intelligence company Civic Science to survey the views of US multi-channel television subscribers and found that more than half (56%) of those who currently subscribe to cable would remove ESPN/ESPN2 to save $8 per month. Fascinatingly, and maybe contrary to expectation, these results did not vary by age, producing similar behaviour among millennials, Gen X’ers and Baby Boomers all similar, adjusting for the survey’s margin of error. Civic Science excluded respondents who indicated they did not currently subscribe to multichannel television.

Furthermore, the BTIG survey also found, that only 6% of respondents would subscribe to ESPN/ESPN2 at $20/month if the channels were available as a standalone package such as Netflix or Hulu.

This latter data point was critical for two reasons said Greenfield. “As soon as ESPN launches a DTC offering, it will remove the ‘protection’ they receive from cable/satellite distributors who guarantee ESPN a certain level of penetration. So no matter what price point ESPN/ESPN2 launch DTC, it enables their legacy distributors such as Comcast to offer far more robust channel packages without ESPN,” he noted.

“Second, it shows how much Disney’s ESPN is over-earning. Cable programmers have forced MVPDs to distribute channels to consumers who do not want them, hiding behind the supposedly great ‘price/value’ relationship of the bundle ... More than half the country would like to save 10% of their cable bill by removing ESPN and ESPN2, but they are unable to based on the programming contracts that Disney/ESPN have signed with MVPDs. Given the high degree of fixed sports-rights costs that continue to escalate, ESPN margins could suffer meaningfully as cord-cutting/shaving/nevering accelerates. The price/value of ESPN and ESPN2 is simply too high for a majority of US consumers today.”