RISING RIGHTS FEES AND INCREASED COMPETITION PUT THE PRESSURE ON ESPN

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http://www.awfulannouncing.com/2013/may/rising-rights-fees-and-increased-competition-put-the-pressure-on-espn.html

Written by Matt Yoder on 25 May 2013.

The news of ESPN's hundreds of layoffs this week staggered the sports
world. How could the leading media company in all of sports, and maybe
even in all of media, cut almost 1/6th of their workforce? How could a
company that spends billions of dollars (yes, that's billion with a
"B") on rights deals just for the privilege to televise games not have
anymore room for a senior staffer in the accounting department? How
could one of the laid off employees drive by the new multi-million
dollar digital center and not think there was something in this
picture not adding up?

Perhaps what isn't adding up is ESPN's longstanding invulnerability
over the sports world. ESPN's value has been placed in the tens of
billions of dollars. Forbes even remarked, "The reality is that there
is not another media property in the world worth as much as ESPN
because no media asset delivering content generates close to as much
money." And truth be told, as cold-hearted as it seems, the washing
out of veteran highly-paid employees with younger (i.e. cheaper)
alternatives to maximize profit is nothing new for corporate America.
In fact, ESPN posted job listings for many new positions this week,
presumably including ones that had just been filled days earlier, and
announced a high-profile hiring of southern sports radio personality
Paul Finebaum. ESPN isn't hurting for business.

However, one of the reported reasons for ESPN needing to slash dollars
from its payroll is the humongous rights fees the network has dished
out to the NFL, college football, and other sports in recent years.

One of the most intriguing conversations around sports media has been
that of a "rights bubble." The cost for televising live sports has
exponentially increased in recent years. Major League Baseball's
contracts with Fox, TBS, and ESPN is worth more than double its
previous deals. NFL TV rights increased 60% when the league re-signed
with its network partners. It's one of the reasons why the NBA is so
eager to get to the negotiating table. College sports and conference
networks are a new cash cow in televised sports, too. The logic is
simple, there's more money in televised sports because sports are one
of the last broadcast entities that you have to watch live in a DVR
age. But with rights fees going up the pressure is on the networks to
find the capital needed to pay for them. That financial squeeze is
also putting more pressure on distributors and consumers. With prices
rising (just look at your most recent cable or satellite bill), some
consumers are considering cutting the cord and counting on streaming
outlets like Hulu, Netflix, or Aereo for their television viewing.

That's why ESPN finds themselves in a much different landscape than
the last time the company faced large scale layoffs in 2009. Not only
is the price of poker going up, but the competition is getting
stronger and more pronounced. NBC (backed by Comcast) has launched NBC
Sports Network and Fox Sports (backed by News Corp) is planning the
August launch of Fox Sports 1. Both are national 24/7 sports cable
networks that will compete with ESPN for talent, sports rights, and
everything in between. Fox Sports in particular seems ready to
challenge ESPN's spot at the top of the mountain that has been
entrenched for decades.

The brilliance of ESPN President John Skipper has been building and
securing ESPN's place in the sports world by aggressively pursuing
live sports rights. Sports fans are ingrained to turn to ESPN because
that's where all the games are. It's the central reason why NBC Sports
Network has struggled to get off the ground and Fox Sports 1's pursuit
to overtake ESPN may take not years, but decades to complete, if it
ever does succeed. Already though, Fox has made an impact by
surprising the sports world and taking World Cup rights from Bristol
starting in 2015. The network is also poaching talent to staff its new
network like ESPN's Charissa Thompson and TSN's popular anchor duo of
Jay Onrait and Dan O'Toole. Not even ESPN's resources are unlimited
to match all the opportunities that exist at the moment.

ESPN's dominance in the sports world isn't capitulating tomorrow, but
it faces more national competition than ever before. Does the recent
round of layoffs show ESPN's position at the top of the sports world
is less impenetrable? Does it represent a tightening of the sports
rights bubble? The television industry is on the verge of significant
changes in the coming years and the sports world will be directly at
the center.