How ESPN Could Rebound Amid Cable-Cutting
A common metric of pay-TV subscriber numbers doesn’t include new streaming services, which could be a source of growth for networks such as Disney’s ESPN
Pay-TV subscriber declines are accelerating—at least that is what recent headlines and commentary from media executives suggests. But as the traditional cable bundle fragments and frays, a new wave of streaming services could provide a surprising boost to the most popular networks.
Shares of media companies tumbled last year when Walt Disney Chief Executive Bob Iger admitted his company’s sports powerhouse ESPN had lost some subscribers. Amid cord-cutting and cord-shaving—the trend of moving to cheaper bundles of fewer channels—determining the rate of subscriber losses is essential to valuing cable-network owners.
The problem is that finding reliable third-party subscriber data is difficult, particularly as the subscriber base grows for nontraditional services such as Dish Network’s Sling TV and Sony’s PlayStation Vue.
Data from Nielsen released last month showed ESPN subscribers declining at a rate of about 4% over the previous year versus a rate of about 2% last year. But the data don’t take into account streaming services.
ESPN is on both Sling and Vue, and Disney says it gets paid the same amount for those subscribers. More such services are on the horizon. Disney said during its fiscal third-quarter earnings report last week that ESPN and a number of its other cable networks would be part of AT&T’s DirecTV Now streaming offering, expected to launch in the fourth quarter. A similar service from Hulu, in which Disney owns a stake, is expected early next year.
Subscriber declines are still happening. Disney said last Tuesday that a drop in subscribers at ESPN offset growth from rate increases. But having a presence on these streaming bundles may mean the difference between a steady or rapid decline in subscribers. In the future, it could even mean a new source of growth for certain networks.
Data from pay-TV providers seem to underscore the point. Traditional U.S. pay-TV subscribers fell by 1.3% in the second quarter, versus a 0.8% drop in the second quarter of 2015, according to MoffettNathanson. Include estimates for Sling, however, and the decline was only 0.8% versus a drop of 0.6% a year ago. The research firm estimates that Sling has more than 700,000 subscribers.
Granted, pay-TV provider numbers also include subscribers to TV “skinny” bundles, which typically consist of basic broadcast channels plus premium channels such as HBO. These bundles exclude pricier cable channels and are likely more responsible for declines at those networks than all-out cord cutting. Still, the popularity of these top networks is what makes them so appealing for inclusion in streaming bundles.
Nielsen is working with media companies to evaluate how to include streaming subscribers in its estimates. Until then, investors should give credit to the networks that appear on the stream.