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ESPN Had a Bad Quarter

10 Nov, 2016 By: Erik Gruenwedel

Subscriber losses at Disney’s flagship sports network underscore move toward OTT distribution

There’s a reason ESPN is turning up like a weed on Web TV services Sling TV, PlayStation Vue and the pending DirecTV Now, among others. The Disney-owned sports network is reportedly losing subscribers at an alarming rate — 621,000 subs in October, which is double the monthly decline, according to Nielsen.

The network has about 89 million subs, down from almost 100 million three years ago, which translates to about a $210 million decline considering ESPN generates $7 per month per sub — tops in pay-TV.

Operating income at Disney’s cable networks, which includes ESPN and Disney Channel, dropped $207 million to $1.4 billion on revenue of $3.9 billion, which was down 7% from $4.2 billion.

The drop off underlines the fact ratings for “Monday Night Football,” ESPN’s coveted NFL broadcast, are down 24% this season — more than twice the average for network NFL broadcasts.

Disney CEO Bob Iger Nov. 10 told CNBC subscriber losses at ESPN are primarily due to the rise of so-called “skinny bundles” on basic cable that offer reduced programing slates without ESPN.

While admitting NFL ratings are down, he said ESPN and ABC combined generate two-thirds of all TV broadcast minutes consumed for college football.

“Which is a lot,” Iger said.

He called Nielsen’s ESPN sub loss “an anomaly” to what the industry is seeing, adding the data was “surprising” when compared to other third-party media data trackers. Iger characterized the sub loss as “possibly wrong,” and not in line with what management has observed.

“We think it’s possible their [ESPN subscriber data] was off. We believe it bears further scrutiny.”

Indeed, the Nielsen data did not factor in online TV — services such as Sling TV, PlayStation Vue and the pending Hulu Live and DirecTV Now — data from which Iger said ESPN is pressuring Nielsen to provide. 

“We’ve exhorted Nielsen to provide those [numbers] sooner, rather than later. They believe they eventually will. We would like to happen faster.”

Iger said revenue from Web TV is growing at a compelling rate and would increase with the arrival of new platforms. And that ESPN adapts well to mobile platforms.

“And that’s where we are moving ESPN. We feel bullish about that. We think long-term prospects for ESPN are just fine.”

Meanwhile, the CEO said fiscal-year 2017 at Disney is going to be “a bit of anomaly” due to “significantly” higher costs at ESPN on the programming side due to a new NBA contract — up $600 million from the previous deal.

In addition, on the heels of the box office and home entertainment blockbuster Star Wars: The Force Awakens, revenue projections for Rogue One: A Star Wars Story, which releases theatrically Dec. 16, are measured.

“We have great confidence in it, but we don’t expect it to do at the level — $2.1 billion at the global box office — that The Force Awakens did,” Iger said.

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