The End Of The Most Valuable Business Model Ever Is Going To Cost Sports Fans

The cable and satellite bundle model was the greatest the world have ever seen. This was something that created billions of dollars in revenue with customers tripping over themselves to pay each month.

It is now dead.

While this is going to have implications across the board, the ones who are most affected are going to be sports fans.

Source

Disney

I wrote a number of articles about the recent issues that Disney is having. Make no mistake, there movie business in 2023 is a dumpster fire. The estimated losses are near $1 billion.

This is a drop in the bucket.

Disney's quarterly profit from the cable aspect of the business is $1.2 billion. This dwarfs what the movie division does.

So while it is a big number regardless, we have to keep things in perspective.

The reason why Disney is such an important character in this play is because it owns ESPN. More on this in a moment.

Cable Bundles

For years, people were accustomed to getting their cable bills. This was something that people would complain about yet would pay each month.

There were options that people could choose from. For example, a channel like HBO was available for an extra monthly fee. While a certain percentage would pay the extra money, most would pass.

We see a point here that has to be mentioned: every channel has a cost. Some might garner 25 cents whereas others were a buck or more. ESPN was the king of the hill, pulling in around $6 per month, per subscriber.

Cable bills were not itemized unless you had extras. A pay-per-view episode or premium channel would be broken out. The amount being paid to the individual channels was hidden in the base fee.

This was a fantastic model as long as everyone kept paying the bill. The problem is that many started to cut the cord.

The Peak: 2014

The years was 2014.

Barack Obama was half way through his second term as the United States President and cable television peaked.

At that time, there were 100 million subscribers in the U.S. As of the latest count, that number is down to 70 million.

In less than a decade, this industry has lost 30% of its customers. That is a huge amount. Consider the billions of dollars that left the table.

For Disney, this is a real kick in the pants.

Remember ESPN and the $6 per month, per subscriber. At 100 million subs, that is over $7 billion a year in revenues. When we add in another couple billion in advertising, the total was above $9 billion.

Using the most recent numbers, the $6 times the 70 million subscribers equates to $4.2 billion. This is still a high margin business churning out some dollars. Again, factor in advertising and we can see it is still a cash cow.

Or was.

Battle With Charter

Disney feels that it is entitled to more money.

The revenues generated come from the fees charged to the cable operators to carry the channel. Over the years, since ESPN was the go to property, leverage was applied to cable companies to increase what they paid. They would roll this over to the customer, one reason why cable bills kept increasing.

Disney went to the same ole playbook and found out the reception wasn't quite like it was before.

Charter is a cable system in the United States with about 15 million subscribers. What makes this entity unique is that it does not know media properties. It is only a cable and Internet company. Hence, it has no channels itself to protect.

This is where Disney miscalculated. The old threats are having no impact because the leverage is with Charter, not Disney.

Historically, the properties that Disney owned had value. At the same time, since it spent billions in rights for live sporting events, it was able to make demands. Periodically, cable companies would push back and black out the channels. Disney would then tell people to call and threaten to cancel their cable subscription.

This would cause the cable companies to fold.

Not in this instance.

Charter is a cable and Internet company. It has a huge broadband presence. Another interesting fact: it makes more money off broadband than it does off the cable. Not only is the latter a dying animal, it isn't as profitable.

Hence, the push to cancel cable subscriptions played right into their hands. Charter would prefer people cancel their cable and sign up for YouTube TV or something like that. They get paid for that.

This means Disney has no leverage. The first weekend of college football was not shown on Charter. Monday night is fast approaching with the Bills and Jets kicking off the opening game on that broadcast. This is on ESPN. As of now, it will not be on Charter.

Charters cable subscribers: 15 million.

Remember that 100 million to 70 million drop for cable subscriptions. For ESPN, it is now down to 55 million.

Streaming Killed The Cable/Satellite Model

For those looking at how this is going to affect the amount you pay for sports, we will get to that in a moment.

Going back to Barack Obama in his second term and cable with 100 million subscribers, there was another event taking place. At that time, House of Cards was becoming a hit.

This was one of the first in house production for Netflix. Prior to this, the company licensed all content from other studios.

Netflix killed Blockbuster. Most of the world saw this new content delivery system and were amazed. It made some serious money even with the fees for content increasing.

What happened next was magical. The media companies decided they wanted a piece of the action. If Netflix could make money, surely they could to. After all, they had decades worth of content that Netflix had to pay for.

This kicked off the streaming wars.

The only problem is that, as of now, Netflix is the only one to make money. All the others are losing money hand over fist. Of course, this is only a guess since the companies do not release their streaming numbers. This is actually a point with the unions and the ongoing strikes. They are negotiating for a piece of the streaming profits, something many surmise is not there.

And how did our good friend Disney fare: to date it has lost $11 billion on its streaming service.

In other words, it has to make $11 billion back just to break even. They are not alone in this.

All of the major media companies killed the Golden Goose. The promise was that streaming was going to usher in a new era of huge profits. Instead, it is really just a sea of red for everyone other than Netflix.

Death of Channels And Higher Sports Costs

ESPN is still a major force. Disney keeps spending huge sums of money to ensure it has the sports rights that people want. It has some of the biggest events including MNF and the College Football playoffs.

Sadly, for the firm, these keep getting more expensive.

The challenge is that revenues are being cut and this is going to affect sports fans. They are not going to be too happy.

What is overlooked is that sports fans, for decades, were subsidized. Every month, they were given a handout. Nothing like free money.

The cable packages forced everyone to pay for all content, regardless of whether it was watched or not. The $6 per month for ESPN was paid by all, including those who had no interest in sports whatsoever. Since it had the highest fees, this was subsidized the most.

Going forward, this content is not going to get any cheaper. The leagues will still want their money, knowing they have a product that is not easily substituted. After all, if you want to Georgia and are a huge Bulldog football fan, there is no replacement for that. Thus, either you pay what is required or do without.

Dire hard fans are not likely to do without.

This means that, with the subsidies going away, people are going to pay more for direct. We all know the direct-to-consumer is going to come into play. For ESPN to get its money back, it had to charge per users $72 per year PLUS an amount on top of it to compensate for the revenues it got from non-sports fans.

What we are looking at is direct packages that are going to run $40 or $50 per month. This is a lot more than the $6 or so per month that was built into the cable price.

Some might disagree with this but the numbers do not work out any other way. When we see the money that the leagues are taking in, and then dishing out in the form of salaries, it has to come from somewhere. Broadcast rights are one of the most lucrative aspects of the entire business model.

Bankruptcy For Most

Many channels, including Disney, are heading for bankruptcy.

In the sporting world, we already say the regional sports networks go under. Many of them filed just before the Major League Baseball season. It took a loan for MLB to sustain them through this season.

If the regional networks were going broke, what is to say that the national one will not? It is all following the same model.

We also have to look at the impact outside the sporting world. Many channels survive on the billions in cable. While they do not get the lofty fees of ESPN, they do get a dime or quarter per subscriber. What happens when this goes away?

The likely outcome is bankruptcy for many of the hundreds of channels out there. Again, it becomes simple math and we see these properties are not going to survive.

The Death of Broadcast Television

We are now watching the rapid decline of broadcast television.

Sports is a major component but not the only one. This is one factor that is still keeping it alive. When that goes away, we are looking at a zombie.

The march to the grave is being driven, literally, by death. As the Baby Boomers leave the planet, so does their cable subscription. They still make up a bulk of the subscriber base.

This means that the entire industry is simply biding time, awaiting the death of their customer base. Technology is ushering in new options yet the Boomers are the least likely to change. This has sustained these networks.

We could see this all flow through to sports leagues, the teams, and even the players at some point. For now, there is still enough money especially with the entrants of corporations who have a business model that is not dependent upon broadcast. Apple and Amazon basically have these as auxiliary to their primary business. Profitability off these contracts is not of the utmost importance if they can leverage things in other ways.

If that does happen, it will take many years and a number of broadcast contracts for the leagues to feel the pinch.

As for the broadcast networks, they are feeling it now. Each time a cable subscriber cuts the cord, that is more money lost.

The old model is dying a rapid death. That means sports fans are going to get hit in their wallets.

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