Cord Cutting Is About To Punch ESPN Squarely In The Face

If there's a primary reason for ridiculously-high cable TV prices, it's sports content generally, and ESPN specifically. On one hand, sports programming is one of the biggest reasons that people continue to pay for traditional TV. But with the slow but steady rise in cord cutting and an increase in so-called "skinny bundle" streaming services, it's pretty clear that the "worldwide leader in sports" is starting to get a little bit nervous. Cord cutting has hit segments like kids broadcasting harder than other areas, but it's increasingly clear the death of the traditional cable cash cow is headed in ESPN's direction at a pretty reasonable clip.

According to a recent Wall Street Journal report, the channel is tightening its belt after starting to feel the cord cutting (and more accurately, the cord trimming) pinch. ESPN has lost 7.2 million viewers in the last four years, and a little more than three million in the last year:

Since July 2011, ESPN's reach into American homes has dropped 7.2%, from more than 100 million households-roughly the size of the total U.S. pay-TV market-to 92.9 million households, according to Nielsen data. Viewership of SportsCenter, its marquee and high-margin sports-news show, has sagged since September, due in part to the fact that younger consumers are increasingly finding sports news at their fingertips on smartphone apps.

There's a cable and broadcast industry narrative that consumers just can't live without sports, and the blathering talking heads on ESPN somehow get included in this argument. But a recent survey by DigitalSmiths suggested that only 35.7% of consumers would include ESPN in their cable lineup if they were able to pick and choose their channels (a la carte TV). In fact, the channel came in at 20th place in terms of the most desired channels among those surveyed. So according to SNL Kagan data, there are about 94.5 million homes each paying $6.41 per month ($7.5 billion annually) for a channel they're not really all that interested in.

That's pretty clearly not sustainable, and ESPN could be served by getting ahead of the curve and launching its own direct-to-consumer streaming service. But the Journal points out that the company's current contracts with pay TV providers state that if ESPN goes that route, the cable operators have the right to boot ESPN out of their core channel lineups:

If ESPN offers its channel as a direct-to-consumer streaming service, some pay-TV operators have the contractual right to boot ESPN out of their most widely-sold channel packages and sell it a la carte, according to people familiar with the matter. ESPN would have to charge about $30 a month per customer in an over-the-top offering to make the same money using that model, analysts say. But those distributors would have the right to undercut ESPN in their retail pricing, the people said.

And you might recall that ESPN sued Verizon when the company decided to pull ESPN out of the core channel lineup, arguing at the time that this was necessary to protect "innovation":

ESPN is at the forefront of embracing innovative ways to deliver high-quality content and value to consumers on multiple platforms, but that must be done in compliance with our agreements. We simply ask that Verizon abide by the terms of our contracts.

In other words, if ESPN actually decides to get out ahead of cord cutting and cord trimming by focusing on a direct-to-consumer effort, they'll open the door to more cord cutting and cord trimming, since they'll no longer be able to force people to pay an arm and a leg for a product many of them don't actually watch. Isn't the Internet video revolution kind of beautiful?

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