ESPN has lost 3.2M subs in the past year; could pull itself off Sling TV

ESPN has lost around 3.2 million subscribers in a little more than a year, and 7.2 percent of its customer base since July 2011, as pay-TV users abandon their services or cut them back to cheaper skinny bundles.

The most expensive and profitable channel in the pay-TV universe is now in cost-cutting mode, demurring on pricey contract renewals recently for high-priced on-air talent including Bill Simmons and Keith Olbermann. And according to the Wall Street Journal, the customer loss could trigger contract clauses that would result in ESPN being removed from Dish Network's big OTT play, Sling TV.

ESPN charges an industry-leading $6.61 per pay-TV subscriber, on average, according to SNL Kagan, and it generates 25 percent of the operating profits for its corporate parent, the Walt Disney Company.

But the national sports network has been hit as hard as any other channel by disruption to the pay-TV industry--it's now down to around 92.9 million subscribers after peaking at over 100 million in July 2011. Over that same span, only The Weather Channel (down 11.2 percent) has faced bigger attrition. Viacom's Nickelodeon (down 6.9 percent), Turner Networks' TNT (off 6.1 percent) and NBCUniversal's USA Network (minus 4.9 percent) have also faced steep declines.

Meanwhile, ESPN is watching its content costs go up as Comcast's NBCU division and 21st Century Fox's national sports network Fox Sports 1 begin to competitively bid for the broadcast rights to major sports leagues. 

Under its new agreement with the NBA, for example, ESPN's yearly licensing cost increased from $485 million to $1.47 billion.

The network has responded by cutting costs. Earlier this week, the channel opted not to renew the contract of controversial personality Olbermann--not because of his polarizing opinions, the WSJ reported, citing unnamed sources, but simply because of costs.

ESPN is also working to eke out more money from its existing advertisers. For example, ABC typically receives four minutes during each NBA Finals game to plug its own shows--but during a recent June game ESPN trimmed that allotment to about 1 minute in order to score more advertising revenue.

The impact, WSJ added, could extend to Sling TV, the over-the-top pay-TV service that has used ESPN's audience power to quickly grow a subscriber base that is reportedly more than 250,000 users.

According to Disney's contract with Dish, the conglomerate can pull ESPN from Sling TV if it loses more than 3 million pay-TV subs starting in May 2014--that's a benchmark that's already been surpassed. 

By its own admission, ESPN is approaching lower-margin plays like Sling TV with some reluctance. In an unbundled programming universe, only 36 percent of U.S. consumers would pay an a la carte fee to access the sports network, according to a recent study conducted by TiVo-owned Digitalsmiths. 

To maintain its current revenue levels, ESPN would have to charge each of those subscribers more than $30 a month.

For more:
- read this Wall Street Journal story

Related articles:
Only 36% of consumers would add ESPN to their personal a la carte bundle, Digitalsmiths study says
Clearleap survey: Sports is not the lynchpin keeping the pay-TV bundle together after all
ESPN sues Verizon over 'Custom HD' bundle

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