Why ESPN is on a Losing Streak

As a lifelong sports fan, the debut of ESPN as a 24-hour cable TV network in 1980 felt like a tiny slice of heaven on earth. I consumed sports any way I could up to that point—newspaper, radio, TV, peer-to-peer—but if more sports content was available I was game. Cable TV fueled my obsession with sports and entertained me whenever I chose to take a break from consuming sports.

Fast-forward 37 years, and I am still a highly involved sports fan. ESPN is still at the forefront of sports programming. Its media empire has grown to multiple cable TV networks, radio network, websites, magazine, podcasts, and more. ESPN delivered on its tagline of “The Worldwide Leader in Sports,” becoming synonymous with sports media. The value of ESPN as an audience magnet was not lost on ABC, which acquired ESPN 1984, and later Disney, which acquired ABC in 1995.

Today, Disney’s media networks account for the majority of the company’s revenue and profit, with ESPN leading the way. Yet, Disney and ESPN in particular are the subject of a doomsday narrative portraying a brand in decline. Last week, Disney announced its media networks revenue grew by three percent in the second quarter, but profit decreased by three percent. A widely publicized layoff of ESPN on-air talent disappointed many loyal members of the ESPN audience. How could ESPN go from worldwide leader to a brand in trouble?

A Perfect Storm

The root cause of ESPN’s woes is due to a collision of three forces. Any of these forces on their own could wreak havoc on a business. Taken together, ESPN must figure out how to position the brand for growth to overcome these significant forces. So, what exactly has put ESPN in the box it now finds itself?

Increasing costs. One way ESPN has kept its brand promise of The Worldwide Leader in Sports is to obtain broadcast rights to major sports properties. The best sports network should have the best programming, right? ESPN has locked down rights with popular properties including the NFL, NBA, MLB, College Football Championship, and the SEC. These brands are not only popular, but they attract TV audiences in numbers that most programs simply cannot deliver today. Between the value in audience ratings and reach as well as blocking other networks from buying the rights, ESPN paid a premium for broadcast rights to these properties.
Decreasing revenue. The cost of escalating media rights could be chalked up to being a cost of doing business. Unfortunately, at the same time media rights became more expensive, fewer people are subscribed to ESPN. The cord-cutting phenomenon is real. An estimated 700,000 customers will drop pay TV subscriptions in 2017. An estimated five million pay TV subscribers will cut the cord between 2015 and 2020. Moreover, a generation of consumers are growing up without even having to make a decision whether to cut the cord and drop cable TV service—many of them do not have pay TV to drop. Cable subscriber revenue is a key revenue source for ESPN. Fewer subscribers means fewer dollars coming in. ESPN must figure out other channels that will make the cash register ring.
Changing consumption patterns. In contrast to the cost and revenue problems facing ESPN, the third factor is beyond its control. Consumers are accessing content differently, and the traditional pay TV model is vulnerable. Global daily consumption of TV will be 22 billion hours in 2018, down from 23 billion in 2010. In contrast, consumers will spend 17 billion hours a day on the internet, up from five billion in 2010.

The death of TV is overstated and very premature, but it is clear that as we become a mobile-first world we are altering are media consumption behaviors. Not only are we using new channels to consume media, but we are engaging in a shift in how we consume, too. One can follow a football game on Twitter while doing other activities instead of parking in front of a television for three hours. Just as live event marketers face challenges in getting fans off the couch and in their venues, sports media brands face similar challenges in gaining the attention of their multi-tasking audience.

It’s Blocking and Tackling

The woes faced by ESPN can be attributed to unfavorable shifts in internal and external forces that affect its business. What is not mentioned in my analysis: Questions about whether ESPN’s stance on political and social issues has driven away customers. It is a complicated issue and difficult to pinpoint subscriber losses on differences of opinion between ESPN and customers. That said, it is likely that some customers were turned off by ESPN’s advocacy to the point they ditched the brand. Any customer losses due to ESPN’s political leanings are eclipsed by fundamental shifts in media consumption. ESPN’s business model is based on a content distribution model that is becoming less dominant with each passing year.

We can look to history for guidance. Blockbuster and other video rental stores ruled in serving consumers’ home entertainment needs. The desire for entertainment did not go away; the method by which we acquired entertainment changed. We wanted entertainment to come to our devices, not waiting for us on a shelf at a video rental store. Netflix adapted, and Blockbuster did not. The rest is history, as they say. Will ESPN be the next Netflix or another Blockbuster?

Bigger not Always Better when Selecting Marketing Partners

Remember times from your youth when a group was divided into teams to compete? Often, the bigger kids got picked first because, well, they were bigger. Another example of a “big bias” is shared by Zig Ziglar who points out that if a car stops at a group of kids to ask directions, the driver is likely to direct her question to the biggest child in the group… even though he may be the dumbest one in the bunch! The tendency to favor the tallest, largest, oldest or those perceived as strongest is normal, but sometimes flawed.

When it comes to selecting marketing partners, we would be well served to think back to our childhood experiences and remember bigger is not always better. This analogy came to mind this week when the National Hockey League announced a new 10-year TV broadcast deal with NBC Sports. Fan interest has grown since the NHL returned from a year-long lockout in 2005, and the Winter Classic has quickly become a New Year’s Day sporting tradition in the U.S. The NHL’s current American TV broadcast partner is Versus, a Comcast property which is now part of NBC by virtue of the NBC-Comcast merger. When the NHL debuted on Versus in 2005, it was the up and coming sports channel’s best known professional sport property.

Fast forward to 2011, and the NHL attracted the attention of other networks interested in acquiring broadcast rights, including ESPN. NHL games were broadcast on ESPN prior to the lockout of 2004-2005, but unimpressive ratings and an abundance of other sports content left ESPN with little interest in bringing the NHL after the lockout. But, ESPN was in the mix for acquiring TV broadcast rights, primarily interested in broadcasting the Stanley Cup Playoffs. In the end, the NHL saw NBC as a more committed partner, one that will put resources toward promoting hockey. In contrast, NHL would be competing for attention and air time on ESPN networks that already serve up heavy portions of NBA, college basketball, college football, NFL, and MLB.

Some observers have criticized the NHL for not partnering with ESPN. Yes, ESPN is the dominant sports media brand today… with the key word being “today.” ESPN made its mark by securing leadership of televised sports in the 1980s. The media landscape has changed, and we have many options for consuming sports content- streaming games online, blogs, podcasts, mobile applications, and social media networks, to name a few. There are no guarantees that the behemoth of sports television will be the dominant sports brand of the digital age. In fact, history suggests that companies with a dominant position struggle to adapt as technologies and consumer preferences change. Look no further than General Motors and Microsoft as examples.

Bigger is not better when it comes to selecting marketing partners. Commitment to your success matters- who is willing to invest in growing your business?

NHL.com – “NHL, NBC Sign Record-Setting 10-Year Deal”

SEC Social Media Clamp Down: Good Move, Handled Poorly

The Southeastern Conference was the latest entity to issue a formal policy on social media content. The conference’s edict initially appeared to prohibit social media production of any type at events. That interpretation meant that a fan sitting in the stands at a University of Alabama football game could not upload photos or write game descriptions and post to his or her Twitter or Facebook page, for example. Needless to say, the response to news of the policy was outrage among users of social media. The SEC was skewered by bloggers and sports fans alike. A quick clarification from the SEC ensued, noting that the policy was not directed to individual fans but content producers such as bloggers or other persons that seek to capture video and post online.

The revised policy is easier for the passionate followers of SEC sports to accept. The conference is in the first year of a lucrative media contract with ESPN. The SEC is doing what any business (yes, it is a business)would do to protect the interests of a valuable partner. Given the investment ESPN has made in SEC sports, it is imperative that the SEC implement policies that spell out what is and is not permissible in the social media realm. The stakes are too high to allow parties that do not have media rights to do an end-around and capture video or audio for distribution.

Social media tools can allow SEC sports fans to share their passion, commune with fellow fans, and deepen their connection with SEC partners like ESPN. It is unfortunate that the SEC lost sight of this fact; its initial announcement of the social media ban came across as very heavy-handed. To its credit, the conference got it right and can now let social media connect fans with the sports and teams they so dearly love.

The New York Times – “Leagues See Bloggers in the Bleachers as a Threat”

ESPN’s Twitter Dilemma

ESPN has experienced multiple facets of the impact of the microblogging web site Twitter. One facet of Twitter is that it provides a channel for ESPN personalities to communicate with followers. The result is the “talking heads” became more personable to people who watch ESPN programs on TV and follow the personalities who have a presence on Twitter. Another facet of Twitter ESPN experienced is a rapid outcry from users when word came out about a new ESPN policy that apparently restricted the freedoms of ESPN employees on social networking web sites like Twitter. Criticism was swift and harsh for ESPN.

The situation at ESPN is one that is indicative of challenges arising from the emergence of new media. Social networking sites are a new channel of communication, one in which the level of interactivity is vastly different from ESPN’s customary one-way broadcasting to its audiences. The potential benefits to ESPN of fans and ESPN personalities engaging in two-way exchanges of information cannot be overlooked. Creating associations with ESPN as the source for sports entertainment information and content is a very lucrative incentive for ESPN and its employees to have a strong presence in social media.

But, one must not lose sight of the fact that ESPN is a brand, one with a great deal of equity in the marketplace. It is incumbent on protectors of a brand as strong as ESPN to take steps to safeguard it. While the guidelines the company has established for social networking use sound very “corporate,” they are probably a necessary step to make explicit the role of social networking for the company. ESPN and its personalities will continue to have a presence on social networks, the change going forward is that the company has established guidelines for employees’ use of social media and connecting it to overarching concerns of protecting brand equity.

Mashable – “ESPN Responds to Criticism and Publishes Social Media Policy”