ESPN has lost more than $2 billion because of cord cutting
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We are starting to get a better look at just how much of an impact people ditching cable television, or "cord cutting," has had on the biggest network of them all, ESPN, and the cost is in the billions.
A recent regulatory filing confirmed what some had already estimated, that ESPN has lost about seven million subscribers in the last two years, down from approximately 99 million homes with the network in 2013 to about 92 million homes this year.
This recent decline comes after three decades of strong and continual growth.
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This combined with some recent layoffs by the network and a surge in how much the Worldwide Leader in Sports is paying to broadcast live sports shows that cord cutting is finally starting to hurt the one industry that many thought was immune to cord cutting: live sports.
But at the same time, like many things, the true impact is not nearly as obvious.
As more people ditch cable television, the importance of networks like ESPN to the cable providers grows. For all the cord cutting, cable (and satellite) television is still the easiest way to view sports live, and it is still the one type of programming that people want to watch as it airs, which increases the value of the advertisements.
As a result, despite the decreasing number of homes carrying ESPN, the percentage of those homes that depend on ESPN is actually increasing. This is seen by the continuing rise in how much ESPN charges cable companies per subscriber, also known as subscriber fees or sub fees.
In 2011, at their peak in terms of subscribers, ESPN was charging cable providers an estimated $4.69 per subscriber, per month. In other words, everybody who had a cable subscription plan was paying about $68 per year for ESPN alone, whether they watched it or not.
Since then, the number of homes with ESPN has dropped ~8.3%. However, the amount ESPN is able to charge for each of those customers is actually up 40.9%, to an estimated $6.61 per subscriber, per month, according to the Wall Street Journal.
The bottom line is that ESPN is actually making more money than ever off cable subscription fees, despite the drop-off in subscribers.
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In other words, ESPN is still making a ton of money. In fact, this year they will make about $5 billion more than the next biggest network, in subscription fee revenue alone.
It is still good to be ESPN.
Of course, this is also the glass-half-filled way to look at it.
While the subscriber revenue is up, their potential revenue is not. That is, what if cord cutting had not happened? What would ESPN's subscriber revenue - which makes up more than 60% of their total revenue - look like if the growth of the cable industry had continued at the same rate seen in the years before the decline?
Based on an average annual growth of 1.9% more homes each year (average rate seen in the five years before the decline) and how much ESPN is estimated to have charged cable companies per subscriber, the damage has been big.
ESPN lost an estimated $1.3 billion in subscriber revenue this year alone, compared to where they would have been with continued cable company growth, and a little more than $2.5 billion combined since 2011.
Cork Gaines/Business Insider
So, while subscriber revenue is up, at the same time, it could be better, and it looks like their revenue model needs to change.
People still want live sports and they are willing to pay for it. ESPN just needs to figure out a better way than having the bottom line supplemented by people who don't watch live sports. Because those people have had enough.
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