Drop in ESPN Viewership Has Disney Worried

December 9, 2016

MattDempseyWhile a major entertainment conglomerate like Disney has many sources of income, the iconic brand earns the bulk of its revenue from TV networks like ESPN and ABC. This year these channels have brought in nearly $24 billion, exceeding the company’s theme park earnings by 40 percent. But this enormous payout doesn’t tell the whole story about Disney’s TV holdings. For the past few years, subscriptions to its premium channels have dropped significantly, leading to a similar dip in the company’s share price.

ESPN’s recent performance alone is enough for The Mouse to worry. In 2013 the sports network had 99 million subscribers. That number has since dropped by more than 9 million. In fact, Nielsen data suggests that ESPN lost a record-breaking 621,000 customers between October and November of this year. “Most of the Disney empire is healthy, but its stock price has been suffering to the downside because we have weak subscriber growth at ESPN,” said media analyst Laura Martin. “So that weak subscriber growth is a shadow over the whole empire.”

On one hand, ESPN’s dip in subscriptions could just be a sign of premium television’s wider decline. For years now, cable and satellite TV services have lost business to “cord-cutters” who exclusively depend on the Internet for their media. But while ESPN certainly feels the effects of this trend, the network must also deal with increasingly costly broadcast rights. Last year companies spent more than $16 billion purchasing media rights for sports programming, an increase of 50 percent since 2011. What’s worse, that number is only expected to rise in the coming years. “Let’s face it — sports has changed,” said Disney analyst Jim Hill. “It’s gotten so expensive … it’s a scary time all around the barn right now for sports, and that’s another thing that Disney’s eyeballing.” If ESPN continues to decline, Disney may sell the network in order to keep it from dragging down the stock price for the entire operation.

Questions:

 

  1. Why have media rights for sports broadcasts become so expensive in recent years?
  2. Should Disney sell ESPN if the network continues to decline?

Source: Brian Fung, “One of Disney’s Most Popular Brands Has Investors Really Worried,” The Washington Post, December 7, 2016. Photo by Matt Dempsey.

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