ESPN facing subscriber losses
The Walt Disney Company (DIS) declared its fiscal 3Q15 results on August 4, 2015. The company had revenues of $13.1 billion, an increase of 5% over its revenues in 3Q14. But the company’s earnings call had the company’s executives defending ESPN.
ESPN is a part of the company’s cable networks business which contributed ~72% of revenues to Disney’s Media Networks segment in fiscal 3Q15. Disney’s Cable Networks segment had an operating income of $2.0 billion, a rise of 7% from the same quarter last year. But in its earnings call for fiscal 3Q15, Disney scaled down its operating income growth estimate for its cable networks business from “high-single digits” to “mid-single digits” on a compound annual basis between fiscal 2013 and fiscal 2016.
The reason? ESPN’s subscriber losses, in conjunction with foreign exchange rate fluctuations, have caused a decline in operating income growth estimates for Disney’s Cable Networks.
As you can see in the above graph, according to a Wall Street Journal report citing Nielsen, ESPN’s cable-TV subscriber numbers have gone down 7.2% since 2011, to ~93 million in July 2015. Other major channels, including Time Warner Cable’s (TWC) Turner Network Television (or TNT) and Turner Broadcasting Service (or TBS), and Viacom’s (VIAB) Nickelodeon, have lost 6%–7% of subscribers since 2011.
Reason for subscriber losses
Disney’s ESPN seems to have fallen prey to the so-called cord-cutting typically attributed to Millennial users—that is, viewers in the age group of 18–34 years old who have moved from pay-TV to OTT (over-the-top) services. Another possible explanation for ESPN’s loss of viewers may be that ESPN is an expensive channel to watch. According to SNL Kagan estimates, pay-TV networks pay Disney a carriage fee of $6.61 per subscriber per month for carrying ESPN on their pay-TV networks.
As pay-TV operators continue to extend new online streaming services like Dish Network’s (DISH) Sling TV and “skinny” packages, they have remained reluctant to include ESPN, because ESPN would likely increase the overall package prices.
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