The Media Extinction Event

Clay Travis explains why ESPN is sinking fast, why the free ride that sports fans enjoyed at the expense of everyone else with a cable subscription has come to an end, and the inevitable implications for everyone in the media business

ESPN knows that their cable and satellite business is collapsing but, and this is key, they’ve also done the math and realize that streaming is going to destroy their existing cable business. Because, and this is what no one seems willing to say, ESPN doesn’t just have one bad business now — the cable and satellite bundle — they have the streaming business too, which is an even worse business. And, and this is very key, each business is accelerating the demise of the other. Streaming isn’t making ESPN stronger, it’s making ESPN weaker because it’s hastening the destruction of a profitable business — cable and satellite — for a money-losing business — streaming.

And that’s what many are still missing — as the cable and satellite bundle boat takes on water and sinks, the streaming bundle is also taking on water and sinking too. ESPN has tried to sell people on the idea that at the exact moment that the cable and satellite bundle collapses they are going to step to a brand new business, the streaming business, and it’s going to be a sturdy and successful lifeboat that carries them to richer waters.

But the reality is, streaming is a way worse business than the cable and satellite bundle. Because the only people who pay for ESPN will be sports fans. The free ride is over, your Aunt Gladys is never signing up and subsidizing your sports viewing again.

Let’s say ESPN makes $8 billion a year now in subscription fees. ($10 a month x 70 million subscribers they has before Charter cut this by 15 million). Toss in another two billion in advertising and let’s say ESPN presently nets around $10 billion a year. Okay, how many people will sign up for ESPN as a direct to consumer streaming service? If they could get 70 million subscribers we’d all have to pay $120 a year for ESPN streaming by itself. (This assumes advertising will still be the same, which it won’t, but let’s just be generous and pretend it will.) But, as I noted above, many of these people paying for ESPN now as part of their cable and satellite package never watch ESPN.

So how many people will actually subscribe to a direct to consumer ESPN streaming service? Turns out there are some early test cases.

The NFL Sunday Ticket is the most desirable direct to consumer product on the planet. Do you know how many households subscribe for NFL Sunday Ticket? Around three million.

Uh oh.

Wait a minute, you’re telling me that the NFL can only get around three million households to sign up for actual NFL games, all of the out of market games, in the entire country?

We’ve got a major math problem here for ESPN.

In other words, even if we’re generous and we assume all the other sports combined generate as much television interest as the NFL, we’re looking at a decline from 100 million at peak to six million. That’s a decline of 94 percent in households. In monetary terms, if we use a single-season, single-team MLB subscription as a stand-in for all other sports, that’s an 88 percent decline in revenue from $10 billion to $1.23 billion… with $45 billion in rights fees owed through 2027.

No wonder the Saudis are licking their lips and looking to buy up more sports leagues instead of teams. It also explains why Bob Iger is desperately casting around for anyone who wants to buy pieces of the collapsing Devil Mouse empire. But it’s not just Disney that is facing the precipice.

TNT, Turner, AMC, Nickelodeon, you name the channel, all of them are basically being held together by the cable bundle. And ESPN is the most important channel in the cable and satellite bundle, it’s the linchpin, the anchor store. ESPN is your neighborhood shopping mall’s anchor tenant — the Macy’s, the Nordstrom, the Dillard’s the JC Penny. When a mall’s anchor tenant leaves the mall is often dead for, the rest of the shopping mall collapses around it. That’s why the best analogy for ESPN isn’t Blockbuster, it’s Sears, a big mall anchor tenant that collapsed and went bankrupt.

Okay, if you’ve read to this point, you might be thinking, “This feels like it’s going to be really bad, Clay.”

Uh, yeah, it is, that’s why I called it a media extinction level event.

And yet, the alternative media will survive this unscathed, because we’re already accustomed to being entirely dependent upon our direct supporters. No free riders, no advertisers. And so, as it happens, the great media extinction may be the best possible thing for the future growth of Arkhaven and UATV.