The triggering event was Disney's earnings report, with CEO Bob Iger reported declines in the number of ESPN subscribers.
The retail price of basic cable goes up every year, so, unless there is a substantial amount of additional value being provided by the cable/DBS/telco operator, the service become slightly less attractive than it was the year earlier. Additionally, even with enhancements to the service itself (e.g., more and better original programming, VOD and TV Everywhere access to more and more programming), at a certain price level, the service is simply unaffordable to some segments of the market.
The substitution effect is another part of the story. Every year the Internet-delivered video options for consumers have improved. In the last year, HBO Now and Showtime over-the-top services brought content previously available only via a multichannel video subscription to customers without such a subscription.
Theoretically ESPN could do the same, but the economic model for it is not the same. HBO and Showtime are sold a la carte by all distributors and carry no advertising, ESPN is sold in the basic package and generates a lot of advertising revenue. If ESPN sells itself direct to consumer, it won't be in a big, broad package, it will be effectively a la carte-ish (maybe packaged with the other Disney-owned channels) and not everyone who wants CNN, USA, and A&E will get it, as they typically do now, with a basic cable package. That's not good for ESPN either as its ability to collect license fees and generate advertising from the casual- or non-sports fan, the core of its business model, will be put in jeopardy.
ESPN arguably is the biggest beneficiary of the basic cable bundle. It should be the last service to explore leaving it.
While the returns from YouTube's investment in original content are mixed, at best, the content on that platform is not going away and some stars have emerged, even if they don't look like what we have been used to.
|Pewdiepie, the most popular star on YouTube, takes viewers through his video game play|
Add to this story two high profile affiliate relations debacles: Viacom's disappearance from Suddenlink and Weather Channel's exit from Verizon FiOS. While these stories appear similar, they are very different.
The programming on the Weather Channel is simply increasingly irrelevant with the availability of its core functionality readily available on both computers and phones (often from the Weather Channel's own apps or weather.com or weatherunderground.com). Before ubiquitous internet access, a dependable destination for weather information on cable TV was pretty valuable. Now, not so much.
|The Weather Channel or The Weather Channel app?|
|it can work wonders with your customers as well!|
What may have happened is that while its programming was much hotter, Viacom got good deals out of larger cable operators who dominate the large markets (e.g., Cox, Charter, Comcast, Cablevision, Time Warner) and, when it got to Suddenlink offered them the same deal even though a few years later its content had considerably less appeal. especially in Suddenlink's smaller, rural areas.
Still, the people at Viacom are not stupid and less money is always better than no money. It is, unless, it costs Viacom, via most-favored-nations "give backs" with the big operators, more than it would collect from Suddenlink in both its affiliate fees and the advertising that it can generate from its viewership in Suddenlink markets -- which, of course, is 0 if the Viacom channels are not carried. Since Suddenlink represents only about 1% of multichannel households, it is likely that is the underlying issue for Viacom.
However the numbers line up, the other aspect of being part of the basic cable package is the belief among the distributors that your channels HAVE to be in the basic cable package. Suddenlink is now providing data to the industry of exactly how important the Viacom channels have been to them. There is the possibility that, while Suddenlink may be ahead losing some of its video subscribers without Viacom, the loss would be greater for other distributors who operate in markets where Viacom programming is more popular and/or who have greater margins on their video customers than Suddenlink does on its video customers. Local cable advertising, for example, is considerably more lucrative for the major-DMA-covering large operators than for a single system in a non-major DMA.
Changes in TV watching behavior have not caught up with the TV measurement. Everyone knows that younger people are watching TV programs on tablets and computers -- whether through password sharing, Netflix, or actual TV Everywhere use. Yet Nielsen only counts viewership on these platforms if that program is being watched live, even though a disproportionate amount of the viewing on these platforms is likely VOD.
Young people are not, generally speaking, abandoning multichannel television to watch original content on YouTube and other web sites. However, some big changes are taking place. Young viewers' tastes turn on a dime and they have definitely turned away from some of the services they used to lap up (and toward...zombies). Also, the ways that they are watching programming are shifting significantly. When you've got a strong, significant, profitable business, change is scary and two kinds of change are scarier still.
Update (25 November 2015): Eric Jackson's email newsletter details the enormous cost to Disney of ESPN's drop in subscribers. There are some issues with using Nielsen and paid subs interchangeably (they measure slightly different things and Nielsen's numbers are typically 10% higher for a cable network), but the underlying point is on-target as is his "follow the money" approach.