ESPN last week laid off 100 content-creating employees in a round of cost cuts. While cord-cutting has been widely blamed for the network’s troubles and the resulting layoffs, that’s a bit of an over-simplification. The real challenge is the traditional pay TV bundle is breaking apart and ESPN’s role as a must-have network is starting to crumble. I ran a survey on who watches ESPN last week and the results shed a little more light on the fundamental challenge for ESPN.
Far Fewer People Watch ESPN than get ESPN
The latest numbers from Nielsen suggest some 87 million households have pay TV packages that include its two flagship channels, ESPN and ESPN2. That’s roughly 90% of the 97 million pay TV households Nielsen estimates there are in the US and around 74% of total US households. ESPN is therefore present in the majority of homes and the vast majority of pay TV homes.
How many people, though, actually watch those ESPN channels regularly? In the survey I ran last week, I found the number who actually watch is far smaller. One brief note on methodology: previous surveys I’ve seen on this topic tend to only ask the respondent about their behavior and feelings towards the channels in question, which ignores the fact pay TV is typically a household purchase – i.e. you only need one person in the household to watch or find value in a channel, not every individual. As such, I asked the question, “Who in your household watches ESPN channels at least once a week?” and gave as options “Me”, “Someone else”, or “None of the above”. I crunched the numbers and the results are shown in the chart below:
In 38% of households, at least one person watches ESPN channels at least weekly. That’s actually enormously impressive – very few brands, especially in the increasingly fragmented world of TV, can claim to reach that much of the US adult population every week. But that’s also just over half the national availability of ESPN by household (which, if you recall, is around 74%). So, ESPN is currently way over-penetrated in terms of availability versus interest. One might argue that some households might find it worthwhile to subscribe to ESPN even if they watch less than weekly but I would guess weekly viewing probably correlates pretty well with value.
Who Actually Watches ESPN?
Drilling down further into the survey results is interesting with regard to who actually watches ESPN. It probably won’t come as any great surprise that ESPN viewing skews significantly male – among the respondents who said they themselves watch ESPN at least weekly, the rate is far higher among men than women:
Viewing by age is not as clear cut – the numbers suggest the youngest viewers (18-34) are most likely to watch ESPN, and the middle age groups (35-54) are least likely but the percentages don’t vary nearly as greatly as between genders. Incidentally, of that 3% that watches with someone else in the household, many are in the 18-24 age range, suggesting we’re mostly talking about roommates rather than families in that group.
Why This Matters
Why does all this matter? Surely ESPN collects subscriber fees from all 87 million households regardless of whether or not members of the household actually watch the channels? Well, yes, but that number has dropped by about 13 million in the last six years alone, and the number of people who have dropped pay TV entirely over that period is far smaller than that (perhaps 2-3 million). So what that suggests is a far greater number have dropped the ESPN channels specifically than have dropped pay TV entirely.
Given the low rates of viewing within the households where ESPN is available, there will be considerable pressure over the next few years to drop the ESPN channels as that option becomes available to more subscribers. Though that’s been hard in the past, it’s becoming easier with more skinny bundles from traditional pay TV providers and also more over-the-top streaming options which allow subscribers to ditch those expensive ESPN channels. And with those ESPN channels adding around $8 to the average pay TV package, they’re going to be the channels with the biggest targets on their backs, especially for those subscribers that don’t care much for sports.
Where ESPN Goes From Here
The big question then becomes what ESPN can do about all this. One answer, clearly, is reducing costs in one of its single biggest variable cost buckets: talent. That’s a risky move because the talent is clearly a big part of the value proposition. But with costs for sports rights locked up for years to come, it has to chip away where it can and it seems to have decided to focus on a smaller roster of on-air talent, perhaps with a few more big names, including NBA analyst Adrian Wojnarowski, whose hiring was just announced this week.
But beyond cost cutting, it’s not clear there are many solutions for ESPN. It has a business model founded on the proposition that 100 million households will pay $8 per month for its programming, with additional billions of dollars coming from advertising, but it’s increasingly looking at a world where under 50 million might end up paying $10 per month instead, leaving it with a massive shortfall in revenues. Going direct to consumers through a streaming service may feel like part of the answer but unless those subscribers are willing to pay twice as much, it’s not going to fill the void either. As such, ESPN is likely going to have to cut costs much more significantly in the years to come in order to maintain margins and be as successful as it’s been in the past.