The rise of à la carte internet platforms like Netflix, Hulu, Amazon Prime Video, and others, diminish the need for customers to pay huge monthly fees for cable TV shows that they don’t watch, sending an ominous warning to ESPN that their relationship with the NFL may soon come to an end.
The problem for the global cable and satellite sports television channel is that unlike ABC, NBC, CBS, and Fox—the other network carriers of NFL games—the channel relies heavily on revenue derived from their inclusion in cable bundling packages.
Clay Travis writes at OutKick The Coverage, “ESPN pays $2 billion a year for Monday Night Football and one wild-card NFL playoff game that airs on ABC and ESPN.” From those revenues, the broadcaster profits a surprisingly low $285 million. Moreover, Travis points out that if you include the couple of hundred million a year to produce these games, ESPN loses $2 billion a year on the NFL.
Fortunately, with their current contractual relationships with cable subscribers, ESPN takes in $8 a month from each of the 88 million cable and satellite subscribers, throwing off a cool $8 billion in annual revenue.
Not bad for now but here’s the rub. Cable TV subscribers are dropping faster than snowflakes in a blizzard. Clay writes:
The problem with the math here is that ESPN is losing millions of cable and satellite subscribers a year. This is why I continue to say that cable sports rights fees are a bubble. The Fox, NBC, and CBS payments to the NFL require some semblance of connection to economic reality — the networks have to make their payments connect somewhat to what they can make off advertising. ESPN, meanwhile, is simply handing over your cable subscriber fees to the NFL.
Clay conjectures that ESPN, given that they are losing the subscribers at a ferocious rate, at the next contract renegotiation with the NFL may not be able to afford $2 billion a year. He asks the question, could internet titans “Facebook, Google, Apple, Netflix or some other large tech company enter the sports business and fundamentally alter the league’s economic trajectory?” In the words of legendary Yankee Broadcaster Mel Allen, if the answer is yes, then ESPN may be “going, going, gone!”