The economics of sports programming are intoxicating for networks when they’re growing. They negotiate rights deals up front, generally for a fixed cost, meaning the fees paid by every additional subscriber the network can generate drop right to the bottom line.And as the contradictions accumulate, the rotten edifice collapses.
When ESPN was adding subscribers, the $6.50 per-month-per-subscriber it charges to every cable operator meant $78 of additional annual profit for each new subscriber. This is a wonderful thing until a network starts losing customers, at which point all the revenue from every lost subscriber is chopped right out of that same network’s net profits.
There’s no easy fix for the networks. One possible solution for Disney—selling ESPN as a separate stand-alone or “over-the-top” service—holds potentially disastrous economics, with one Wall Street analyst suggesting that to maintain its current margins, ESPN alone would have to sell for more than $36 per month. That pricing would cause a death spiral for the network, if the survey data is accurate. The math simply doesn’t work.
Every participant in the sports economy—franchise owners, athletes, programming networks, cable companies, and even the fans themselves—have benefitted from this broadband version of the hide-the-ball trick. That big fat $100 average household cable bill that everyone pays has served as a siphoning conduit of cash forcibly flowing from fan and uninterested non-fan alike.That's going to turn out real well for the Mid-American Conference and its football on school nights, which is predicated on the broadcast revenues from ESPN.
The brazen economics of modern sports are being revealed and dismantled by the Internet, and the coming fumble-pile of desperate industry participants should make for some great viewing. That’ll be bad news for $30 million-a-year over-the-hill third basemen, the greater fools who pay them, and the unknowingly subsidized superfans who love them.