One thing many people don't realize is just how much of their cable bill is spent on sports. The biggest expense to cable companies is ESPN and its sister companies. The following table is a bit dated but it gives a good idea of how your cable bill is split between the various companies.
This is just an estimate from a company that values entertainment companies but it is close enough to clearly show that sports programming is getting many times what other forms of entertainment receive from basic cable. When you consider that there's over 100 million subscribers in the US alone those rates are astronomical (100mm x $4 x 12 mo = $4.8 billion annual). Recent reports state that the ESPNs monthly charge is now over $5.00 with the expectation that it will get near $10.00 by the end of the decade.
Compare their rate to channels that produce quality non-sports television like A&E, FX, USA, TNT, and AMC. ESPN's charge is about 10 times what these channels are able to demand. How are they able to do this? The answer is because there is a perceived value by subscribers of having ESPN on the basic tier of channels. ESPN was one of the prime drivers that helped put cable into every virtually every home in America. As cable grew so did ESPN and while at first they only offered sports highlights eventually they bought properties like Monday Night Football and most of college football. The executives at ESPN have leveraged the fact that cable subscribers would revolt if their channel was moved to a higher tier. Other channels can't duplicate this because while some people love shows like "Mad Men" and "Justified", it isn't enough to push rates higher (Side note - One of the main reasons for the recent rise of original programming on basic cable is due to the hope that increased ratings will allow for higher subscriber fees).
Subscribers are almost universally ignorant of these facts. We pay our monthly bills and rely on the cable companies to negotiate the rates with companies like ESPN. We don't care what they pay but we do care when our cable bills start to increase. That has started to happen and combined with a recession, the cable companies are being pressured to pay more for content and charge less to consumers. They have been able to offset this by offering other services like high speed cable but that is causes another problem.
One of the issues with all forms of media is they are easy to duplicate once it has been filmed/recorded/etc. With the rise of the internet many properties are availble for download within hours of broadcast. This has hurt all media companies but one area that is safe is sports because viewers want to see an event live. That has only increased sports popularity with advertisers in recent years but the rise of companies like Netflix are increasingly cutting into the profits of the cable companies. Every year new technology is developed that ultimately will lead to the end of cable's monopoly on content. This will lessen their ability to pay companies like ESPN and force a reduction in rates. Ultimately ESPN is destined to end up in a pay tier of some sort and a sign that they know this is last years release of ESPN3 which allows for online streaming of their programming. It is currently streaming for free to most internet subscribers and is a nice long term hedge depending on what happens with the cable companies. The issue they will face is ESPN currently has 100 million captive subscribers payiing $4-5 / month. The question is how many of those 100 million will they be able to keep if it goes to subscription as that will determine the cost they will need to charge to break even. The rise of league owned networks like BTN and the NFL network combined with increased competition of NBC Sports and Fox means that keeping current content is going to be difficult regardless of what happens to the cable companies. ESPNs rise was due to leveraging their properties to force higher prices. If they lose them their fall will be just as drastic.
Bottom line for ESPN is they are in for a very difficult decade but that isn't to say they are doomed. You can see they have plans in place to deal with today's realities but they rose to prominence on major sports like football and now desperately need to hold on to those properties. If they don't they will fall just as quick. The good news for viewers is ultimately the cost for sports shouldn't go up as competition rarely leads to increased prices. These battles off the field may be as interesting as the ones that occur on it and no doubt will go a long way to determine how we see sports in the future.
No comments:
Post a Comment