ESPN has been dogged by dwindling subscriber numbers and clear signs that people are cutting the cable cord, but Disney CEO Bob Iger finally seems ready to embrace change at the sports network.
One of the biggest problems plaguing the network has been a decline in viewers as people nix expensive cable packages in exchange for more affordable digital streaming subscriptions. ESPN shed roughly 12 million subscribers from a peak in 2011 to early 2017, according to Sports TV Ratings.
Disney’s recent quarterly earnings reports have reflected ongoing troubles in the cable division. In the fourth quarter of fiscal 2016, cable sales plunged 7% to $3.9 billion. They rebounded to $4.4 billion in the first quarter of 2017, then decelerated again to $4.06 billion in the second quarter.
But strategic moves over the past year signal ESPN has finally started to embrace the cord-cutting phenomenon. The network has shifted more programming to streaming networks, where its target demographic has been spending more time, while cutting costs in the form of high-profile cable layoffs.
Consumers will be able “to buy the sports they want” on the ESPN streaming service that debuts later this year, Iger says.
— Daniel Miller (@DanielNMiller) May 9, 2017
ESPN let go 100 people at the network last month, many of whom were well-known analysts and “SportsCenter” anchors. That followed roughly 300 layoffs at the sports network in 2015. Iger hinted on the company’s most recent earnings call that more layoffs could be in the wings.
On that call, held earlier this month, Iger was adamant that ESPN’s recent investments in streaming and $1 billion investment in BAMTech will start to turn things around.
He acknowledged that “substantial growth” of ESPN content on services such as Sling TV, Hulu with Live TV, PlayStation Vue, DirecTV Now and YouTube TV, has executives at the network “bullish on the future” of nascent TV offerings, such as streaming. On a per-subscriber pricing standpoint, the new services are “just as valuable” to ESPN as traditional platforms, he said.
“Consumer response to these offerings is very encouraging,” Iger said. “Right now, they are a small part of the pay TV Universe, but we believe they’ll be a much bigger part of the business going forward.”
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As part of ESPN’s streaming TV strategy, Iger said the company is creating subscription products that give customers direct access to its content through streaming platforms. That will likely include an ability to have fans invest in the specific sports and events they find most interesting, rather than having to buy an umbrella package with a bunch of content they may never watch.
Those offerings will likely start on the platforms Disney already invests in, such as Hulu and BAMTech, which is expected to launch a new ESPN-branded service later this year. But it has also partnered with Sony’s PlayStation Vue, AT&T’s DirecTV, Sling and YouTube TV, a streaming TV service that launched in April with a dedicated ESPN channel.
In addition to investing in content for platforms, ESPN is also doubling down on mobile apps by upgrading its existing apps and creating new ones. In April, ESPN upgraded its Apple TV app to include on-demand content and a more user-friendly interface. It also started to create original content exclusively for digital platforms. For example, “We the Fans,” a new documentary-style series about what it takes to be a Chicago Bears fan, aired on Apple TV two days before it hit ESPN.
In the second quarter, ESPN’s suite of apps increased to nearly 23 million unique monthly users, who spent a combined 5.2 billion minutes engaging with ESPN through those channels. The company said roughly 80 percent of the people who connect with ESPN each month now access content via mobile devices.
However, the company stopped short of saying it was prepared to move completely off traditional TV channels, citing the popularity of consuming live sports that way. So far, the growth in subscribers to ESPN’s digital products has not offset the losses in its basic offerings.
“Currently, we don’t have plans to take the channel and just basically make it available direct, but I’m guessing that – and I’m not giving you any timetable at all – but it’s not very near, but there is an inevitability to that,” Iger said.
ESPN has lost 12 million subscribers in 6 years, but it is not as bad as it sounds: https://t.co/05HWfXtVJv by @CorkGaines #sportsbiz
— SportTechie (@SportTechie) March 1, 2017
For now, ESPN continues to buy live sports rights, which are among its most expensive costs of doing business. Iger said that rights for live events have only gotten more expensive, but continue to hold a significant amount of value for the brand and continue to draw “huge audiences to TV.” Programming costs are expected to top $8 billion this year, according to a Bloomberg report citing SNL Kagan.
The recent entry of digital platforms such as Facebook and Twitter, which have teamed up with professional leagues such as the NFL and MLB to stream live sporting events, shows how important live sports continue to be for digital platforms, Iger said.