ESPN is, by far, the most expensive single channel on most cable customers’ basic cable bill, responsible for more than $5/month, with some industry analysts putting an approximately $8/month price tag on ESPN and ESPN 2 together. While it’s long been considered a basic cable must-have, millions of Americans have been dropping their pay-TV packages altogether, and recent surveys show that ESPN wouldn’t be a part of many folks’ ideal a la carte cable menu, meaning not everyone has a desperate need for ESPN. So, could cable companies hold on to their customers by lowering rates in exchange for saying goodbye to the 24-hour sports channel?
Verizon FiOS has been trying to do this through its “skinny bundle” program, which starts with a core group of channels (that don’t include ESPN) and then lets the customer add on bundles of 10 or so similarly stations.
ESPN’s parent company, Disney, is currently suing Verizon over this arrangement, saying it violates their contractual agreement.
In spite of this, companies like Charter have expressed an interest in following Verizon’s lead on the whole skinny bundle thing. Charter is currently in the process of trying to merge with Time Warner Cable, and if the combined company were to offer customers an out for ESPN, it could drive the sports network’s subscriber base even lower than its current level, which some industry-watchers have deemed critical.
At the same time, there have been rumblings that ESPN would start selling its service, directly to consumers without involving other pay-TV services.
“Disney does not want consumers to understand just how much ESPN costs them each year,” writes analyst Richard Greenfield of BTIG research. “We suspect Disney’s concern is tied to the fact that most consumers, by Disney’s own admission are not avid sports fans.”
As part of his research, Greenfield asked consumers to answer two questions about ESPN: Would they give it up in order to save money, and would they pay for a standalone streaming version of the channel?
A majority (56%) of all respondents said they would part ways with ESPN and ESPN2 if it meant saving $8/month on their cable bills. When broken up by gender, 60% of females were all for ditching the channels, while slightly fewer than half (49%) of males were ready to ditch these pay-TV mainstays.
Greenfield argues that these stats seem to indicate that going direct-to-consumer (DTC) could be a bad idea for ESPN, since half of the 92 million people who currently have the channel have no apparent desire to pay for it. The company would be putting an estimated $9 billion a year in subscriber fees at risk, not to mention the loss of ad revenue from casual viewers who currently tune in for certain events, but won’t be able to if they drop the station to save money.
If ESPN were to go DTC, DSLreports.com points out that its contracts pay-TV providers would allow those cable and satellite companies to remove ESPN from their mandatory basic cable packages if they desired.
“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,” writes Greenfield. “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.”
With regard to ESPN going DTC, only 6% of respondents said they would definitely pay $20/month for streaming access to just ESPN and ESPN2, which is currently too small a group for the network to risk, says Greenfield.
However, it’s worth noting that the Sling TV streaming service offers both of those stations in its base package of channels for $20/month, along with more than a dozen others. So the price point for a standalone ESPN streamer would either need to be lower or the offering would need to be significantly more robust than just the two channels.
Survey Says: ESPN Vastly Overearning and Incapable of Going Direct-to-Consumer #FadeTheForce [BTIG; reg. required]
by Chris Morran via Consumerist