In todays day an age with technology changing ever so rapidly and consumer trends in media consumption evolving along with the new technology, it is interesting to take a step back and see how the news media industry is changing from its traditional forms to its more modern day trends. One area of the news media industry that has evolved so much and continues to evolve is the traditional TV news industry. The idea of digital disruption has had an enormous impact on the TV industry.
Much of this digital disruption that has completely shaken up the TV and news industry, is in large part due to the new consumer preferences and the habits of younger generations. More specifically, the generation that has had the biggest effect is the generation that most companies try to target for profit, which is the millenials. These new consumer trends have had a major effect on how big media companies distribute their content online as well as on TV. For example, according to a Ypulse.com study, 30% of millennials say their top news source is online news sites, next up at 21% was social media sites.
These two numbers alone show how consumers have abandoned print media and are beginning to leave TV.
This idea of consumers leaving traditional TV and getting access to TV content on other platforms has been a very hot topic and a very worrying topic for media companies over the last couple months. What the media industry is calling cord cutting, or, “the process of cutting expensive cable connections in order to change to a low-cost TV channel subscription through over-the-air (OT) free broadcast through antenna, or over-the-top (OTT) broadcast over the Internet. “(techopedia.com). This trend has had a massive impact on the media company’s revenue, since a large chunk of their revenue comes from TV contracts, cable subscribers, and the ad dollars that come with their content. For example, in the first fiscal quarter of 2015, media analyst Craig Moffett reported that the pay TV companies lost a collective 31,000 subscribers. With these pay TV subscribers disappearing from the traditional TV outlets, TV providers and media companies are forced to distribute their content in new ways that appeal to these customers.
When looking at the pay TV landscape and why subscriber numbers have been on a downward trend, one of the first factors you have to look at is price. According to a Leichtman Research Group study, the average monthly price of a TV subscription is $99.10, which shows a 39% increase since 2010. One of the biggest reason for this increased price is due to the fact that the average TV bundle size has also increased to the point where a basic cable bundles are upwards of one hundred channels. Although this selection of channels may seem nice on the surface, in reality people don’t want to pay for all of the channels, since the average consumer only watches 17 of those channels (WSJ.com). Since subscribers are very selective on what channels they want to watch, they are becoming more and more likely to opt out of big bundle subscriptions and sign up for smaller services like skinny bundles and OTT services such as Sling TV, Apple TV and products like Netflix.
Another major factor that contributes to the loss of traditional pay TV subscribers is due to the loss of interest of “live TV’. With the rise of features like recording TV, or on demand, consumers have lost the need to watch TV immediately when a show originally airs. These consumers don’t want to be locked into a specific time to watch a show. Consumers want to build TV into their busy schedules and watch it on their time. Because of this new trend, TV subscribers are beginning to cancel their traditional TV subscriptions and purchase services that allow them to watch TV when they want. Examples of these services would be things such as Hulu, Netflix, etc. these products allow people to watch whenever they want and not be locked into a traditional TV schedule.
Advantages/Disadvantages for ESPN
Knowing that TV subscriptions have become extremely expensive and consumer want more flexibility out of their TV experience, it is interesting to see how media companies are being effected by these new trends. One extremely unique news media company that is very interesting to look at during this time is ESPN. There are many aspects of ESPN as a company that cause them to have advantages and disadvantages over other companies during this turbulent time in the media industry.
One of the biggest advantages that ESPN has over other media companies in terms of retaining subscribers, is the idea that, most of the ESPN content is only available to be watched live since most of their content is live sporting event. By having these live sporting events, it forces consumers to stick with traditional TV subscriptions in order to watch games while they are happening. While much of the ESPN content has the live aspect built in, some of their flagship programs have taken huge hits due to digital disruption. For example, ESPN’s most famous show, SpotsCenter, a sports news and highlight show has taken a hit in terms of viewership due to digital disruption. During my research for the future of ESPN I had the opportunity to interview Olivia Knotts an ESPN employee. I asked her what her thoughts were regarding SportsCenter’s recent low numbers and if it will ever be able to become a popular show again? Olivia stated, “Although the old model of SportsCenter which was strictly game analysis and highlights isn’t working. ESPN has already made strides to get better numbers by making the show more talent based rather then highlights.” In today’s society people are able to get highlights anywhere on any device. Therefor SportsCenter needed to differentiate the show to get people to continue to view it.
One example of ESPN making their flagship program SportsCenter more personality based like a late night show is how they came up with the SportsCenter midnight show. This SportsCenter edition is hosted by Scott Van Pelt, and it feels more like a talk show rather then a sports show. In a SporsBusinessdaily.com article they say how this new SportsCenter is meant to be broken into segments that can become viral, capitalizing on the digital disruption that hurt them in the first place. Although ESPN continues to try and make SportsCenter more popular, in a survey I conducted asking 50 student athletes about their sports news consumption, most of them don’t utilize SportsCenter for sports news.
Although ESPN has a major advantage over other media companies on retaining TV subscribers due to their live content, this live content comes at a massive price. The first aspect of this price comes from the TV rights that they have to buy from the sports leagues to air the games. In order to be the leader in the sports TV category it is crucial for ESPN to outbid companies like Fox Sports, NBC Sports, etc., this bidding process ends up causing ESPN to have to write a massive check. For example, in the most recent NBA rights deals, according to an SB Nation article ESPN will pay the NBA $1.4 Billion per year to air NBA games on ESPN channels. With this massive investment ESPN must ensure that they retain subscribers and get great ratings in order to secure ad dollars to pay off these investments.
As a result of the massively expensive TV deals ESPN has become extremely expensive for cable companies to carry them on their cable bundles. Conscious that they have some of the best sports rights, ESPN is able to increase their subscriber price knowing that they most likely wont get dropped from cable companies. For example, in 2014 the estimated price cable providers paid ESPN for each subscriber was $6.04, the next closest was TNT at $1.48 (WSJ.com).
In the past ESPN was safe doing this because consumers had no other choice for TV. But now with so many viewing options, and live TV not being super popular, many consumers and cable companies are ditching ESPN for other options.
After doing much research on ESPN and the TV landscape it is hard to say whether or not ESPN will be able to continue to have success. As of now ESPN is in a great spot. With the traditional TV bundle still intact ESPN will still be able to benefit off their insanely high subscriber rate at $6.04. But as the TV industry slides and more and more people leave the traditional bundle ESPN will need to find other modes of content distribution. The problem is that not enough people are willing to pay such a high price for one network. Although the traditional bundle has not completely died yet, more people are favoring the skinny bundle and the streaming service products. But credit ESPN, they have already been proactive in getting their content out there on these new platforms. For example, EPSN already has deals with companies such as Apple TV and Sling TV. Both of which are products that people are turning to instead of traditional TV. Although their content is already on some streaming services, I do see ESPN creating a standalone streaming service for strictly ESPN content. In my interview with Olivia Knotts I asked her for her opinion on an ESPN specific streaming service. She stated, “I think that is definitely something ESPN will invest in, but at the same time I think ESPN will try to stick with the bundle for as long as possible due to the fact they make so much money off the subscriber rate from the cable companies.” Wile ESPN may invest in a ESPN specific streaming service I believe that ESPN could not survive if they only offered ESPN on a streaming service. The reason for that is due to the fact that not enough people want to pay a lot just for ESPN. For example, in a BITG Research survey, analysts found that 56% of respondents would get rid of ESPN/ESPN2 to save $8 on their cable bill. On top of that analysts estimated that ESPN would have to charge $30 per month for a streaming service in order to get a similar revenue stream compared to the traditional TV bundle. In my mind that $30 a month is way to expensive for one network.
Here is a video of Walt Disney CEO Bob Iger stating that ESPN would be able to successfully have their own streaming service outside of the traditional bundle
Overall I do think that ESPN is safe for now due to the fact the traditional TV bundle is still intact. But if the traditional TV landscape falls apart it will be interesting to see if ESPN can still be the most successful sports media company out there. When looking back on the digital disruption of ESPN it is clear that it has both helped and hurt the company. Recently the disruption has allowed ESPN to gain more subscribers. But it has also hurt some of the company’s most important shows such as SportsCenter. In terms of the future of the company we will have to wait and see whether or not digital disruption will end up benefiting or hurting EPSN.