It was the best of times for Mickey and it was the worst of times.
For the second year in a row, Disney is poised to have another “Star Wars” megahit on its hands with the company on track to sell $130 million in U.S. pre-release tickets for next week’s “Rogue One.”
But no matter how well it performs at the box office, the film’s success may be overshadowed by Disney investors’ rising alarm about another part of the Magic Kingdom: ESPN, which is shedding viewers in record numbers.
ESPN was thrust into the spotlight in November when the ratings company Nielsen predicted the sports juggernaut would lose 621,000 cable subscribers that month. Nielsen estimated the sports network would lose another 555,000 subscribers in December.
The staggering losses have led to calls by analysts for Disney to spin off or sell the beleaguered network, which has lost 9 million subscribers in three years, according to company filings.
Contrary to this incredibly well-researched suggestion, it appears that even the WWL is not immune to a growing number of viewers who don’t like paying for things they don’t use.
The challenges ahead are not unique to ESPN. The pay-TV industry as a whole has seen many consumers trim back their cable subscriptions in favor of online video services — or, fed up with the rising cost of TV, forgo cable altogether.
“There’s an underlying theme of the bundle being the problem,” said Gene Kimmelman, president of the consumer advocacy group Public Knowledge.
Ummm… that’s kind of a problem, isn’t it? Well, yeah, it is.
But ESPN remains one of the world’s most profitable sports networks, and its struggles raise troubling questions about the entire TV ecosystem. Long considered the linchpin of the traditional bundle, live sports is often what compels viewers to stay with their cable provider rather than cut the cord. But as more consumers defect in the face of growing cable bills, what is happening at ESPN could end up affecting channels up and down the lineup. And for Disney, one of the world’s most powerful media companies, the problems at ESPN risk dampening the success of its other brands, such as Star Wars, Marvel Studios and Pixar.
“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 Laura Martin, a media analyst at Needham and Co. “So that weak subscriber growth is a shadow over the whole empire.”
That empire shit is kind of creepy, but we’ll save that for a later day. The short term problem for Disney is that ESPN is bleeding subscribers, but the sports division is still it’s biggest revenue generator, and by a pretty wide margin.
ESPN and its siblings, such as ABC, account for the biggest chunk of Disney’s business by far, pulling in $24 billion in revenue this fiscal year. The company’s next biggest segment, theme parks, made $17 billion.
So while it would be an exaggeration to start tossing around expressions like death spiral, there’s no question that Disney’s stock price has taken a short-term hit. Big companies like that don’t tend to take short-term hits in stock prices well. What to do, then?
There’s only so much you can do to reduce internal overhead. That only leaves one other area to generate savings.
ESPN is hardly the only programming company facing long-term pressure as consumers increasingly opt for Internet-based video streaming that undercuts the legacy cable bundle. TV providers such as Dish Network and AT&T have raced to offer packages of traditional channels as Internet-based apps; the outlook for those efforts is still uncertain, but some analysts say ESPN faces a steeper challenge than most because of the rapidly rising cost to the network of acquiring sports broadcasting rights.
“Let’s face it – sports has changed,” said Jim Hill, a longtime Disney analyst. “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.”
The rights to broadcast live sports cost cable companies a collective $16 billion last year, according to a report from PricewaterhouseCoopers — up 50 percent from 2011. That figure is expected to grow another 30 percent by 2020.
Disney is in better shape to weather that storm than most of its competitors for live sports programming are — as one media analyst puts it about the others, “They’re losing subscribers, but they don’t have theme parks to protect them.” That doesn’t mean live sports will become a programming bargain as much as it means there may wind up being fewer interested buyers for the product if cable subscribers keep voting with their feet.
Which brings us to the tricky question: if you’re a conference commissioner, or a school president telling said commissioner what to do, do you really want to live in a world where ESPN as the last buyer standing has an even more commanding presence over broadcasting contracts than it already enjoys?
It’s a question I figure the Delanys and Sankeys will worry about after it’s too late to do anything about it, except take what’s offered. And if they think they’ll eventually be better off with their own home-grown media empires (to borrow a phrase), just remember that a few years ago, everybody thought Larry Scott was a genius.
Down the road, we may be using that best of times/worst of times reference to describe ourselves.
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