Can ESPN Manage Its Own Decline? - Patrick Hruby
Can ESPN Manage Its Own Decline?

Buffeted by layoffs, declining revenue, and a stormy political climate, the sports network is adapting to a changing media landscape
By Patrick Hruby | The Guardian | December 2017
In the summer of 1998, ESPN did what successful American sports entities tend to do: it opened a restaurant. Located in Baltimore, the ESPN Zone was less a place to grab a bite than a 35,000-square-foot monument to the broadcast company’s ascendancy – home to a baseball batting cage, a mural of local athletic heroes signing the Declaration of Independence, and a fully functional replica of the set for SportsCenter, its flagship nightly newscast.

Back then, none of this seemed unusual. To the contrary, ESPN was so popular and beloved that restaurant industry observers expected a smashing success, with one analyst gushing to the Washington Post that ESPN’s parent company, Disney, was “so good. They know their limitations – even the precise moment when to pull a video off the shelf. They’re not going to go into a market until the customers are going to drool.”

Times change. Last week, ESPN laid off approximately 150 people, eliminations that came after 300 employees were let go in late 2015, and another 100 were eliminated in April. Taken together, the losses reflect the new reality facing the self-proclaimed “Worldwide Leader in Sports,” the biggest and most influential brand in American sports media.

Long synonymous with the games it covers, ESPN has been one of the great success stories of the cable television era, a multibillion-dollar empire consisting of broadcast networks, a glossy print magazine, and a strong web presence. But today, the company is under siege, battling many of the same forces eroding both the cable industry and sports media.

Right-leaning political commentators have attacked ESPN for perceived liberal bias, with the White House calling for SportsCenter anchor Jemele Hill to be fired after she called Donald Trump white supremacist. Younger fans have embraced edgier, digital-native competitors such as fast-growing Barstool Sports, placing ESPN in the uncomfortable role of stodgy, establishment incumbent.

Hovering over those high-profile headaches is a more serious problem: the ongoing, accelerating contraction of the cable market, a potentially existential threat. Over the last six years, ESPN reportedly has lost 13m television subscribers worth $1bn in revenue, numbers that have left Disney shareholders grumbling and executives scrambling to reconfigure how they do business.

“There once was a time when ESPN was a safe harbor, the destination job for people in sports media,” said Sports Illustrated media reporter Richard Deitsch. “But that’s no longer the case. They’re facing all sorts of headwinds, and facing them in an incredibly challenging media environment.”

Founded in 1979, ESPN is arguably one of the most important companies in American television history – and inarguably the most valuable sports property. Its rise followed the growth of cable; as niche channels supplemented and supplanted legacy broadcast networks, what started as a small-time college basketball and Australian rules football broadcaster operating out of a muddy plot of land in suburban Connecticut grew into a legitimate rival to the likes of CNN and TBS, by offering obsessive, round-the-clock coverage of the National Football League and other sports.

For hardcore fans, ESPN wasn’t simply a one-stop shop for games, highlights, and analysis. It was, well, cool. Star anchors like Keith Olbermann and Craig Kilborn did more than deliver the athletic news of the day. They infused it with winking irony, matching the Seinfeld and David Letterman-shaped comedic sensibility of the 1990s. During newscasts, injured players would dutifully be listed as “day-to-day” – “but then again,” Olbermann would quip, “aren’t we all?” Popular, mockumentary-style This Is SportsCenter promos featuring athletes and mascots made the sports world part of the joke. When ESPN appeared in the 1996 Tom Cruise film Jerry Maguire, it made perfectly authentic sense.

By the time the 2004 Ben Stiller comedy Dodgeball: A True Underdog Story featured a fictional eighth ESPN network – the immortal “Ocho” – the conceit was less throwaway gag than a nod to the company’s status as sports leviathan. ESPN had spawned sister networks like ESPN2 and ESPN Classic, created its own alternative sports Olympics in the form of the X Games, dabbled in dramatic film and series production, and even co-branded itself in sports video games.

Michael Smith and Jemele Hill (left) have helped diversify ESPN’s onscreen talent, while Bill Simmons (top right) set up a deal with HBO after leaving the company. Composite: Getty/NBAE/Bloomberg/USA Today Sports

Underlying everything was a wildly-profitable business model that was the envy of the broadcast industry. Typically, cable and satellite providers pay no more than $2 per month, per subscriber to networks like ESPN in order to carry them. But because the company held the rights to so many sports that fans couldn’t do without, it was able to charge more than double that amount.

At the same time, ESPN managed to include itself in the basic channel bundles offered by pay television providers to just about every customer, which meant that tens of millions of households that didn’t watch the company’s networks still paid for them. In 2013, ESPN made roughly $10bn – with $6.5bn of that coming from subscription fees.

Two years later, however, the company gave transgender women and former Olympic decathlete Caitlyn Jenner the Arthur Ashe Courage Award at the ESPYs, an ersatz sports Oscars created by ESPN to celebrate itself, raise money for charity, and fill a summer programming dead spot.

The broadcast drew a program-record 7.7 million viewers, but also made ESPN a target for conservatives. Subsequently firing baseball analyst Curt Schilling, an outspoken conservative, for posting a crude anti-transgender meme on Facebook further irritated right-learning viewers; by the time White House press secretary Sarah Huckabee-Sanders demanded Hill’s dismissal after she called Trump a “white supremacist who has largely surrounded himself w/ other white supremacists” on Twitter, writers for the Wall Street Journal and Breitbart News were accusing the company of bowing to “progressive political correctness”.

Compounding matters, ESPN now covers an increasingly politicized sports world, with stories such as the national anthem protests aimed started by former NFL quarterback Colin Kaepernick dominating the news cycle.

“People say ESPN has a political viewpoint, but I don’t believe that,” said Deitsch. “I think their point of view has always been about commercialism and money. But in 2017, the world has changed. You can see everything [ESPN host] Kenny Mayne thinks about from sports to politics on his Twitter feed. If you agree with him, good, but if you don’t, that can change the dynamic of how you perceive him and ESPN.

“They’ve also gone into more issue-oriented discussion on their daytime shows. They have journalistic chops. I admire that. But that means there can be a price to pay, especially in some corners that don’t want anything in sports to be about more than just sports.”

Even in that narrow band, ESPN has lost some of its cachet with fans. A messy split with Bill Simmons in 2015, at the time one of America’s most popular sportswriters, led the company to shutter Grantland, a Simmons-helmed site whose relatively modest traffic belied its influence and acclaim. Barstool Sports – a bro-ier site known for rape jokes and speculation about the size of New England Patriots quarterback Tom Brady’s baby’s penis – has made inroads with ESPN’s core young male demographic.

“In the mid-1990s, ESPN was so of the moment,” Deitsch said. “It felt fun, airy, vibrant. People felt like they wanted to hang out with this network. But it’s nearly impossible to stay cool for multiple generations. Think about music. People like Jay-Z or Johnny Cash, who transcend generations, are like one-in-a-million types. I don’t know if a sports network could ever be that.”

ESPN’s most pressing concern is financial. “Cord-cutters” and “cord-nevers” – cable and satellite customers who have opted out in favor of streaming options like Netflix, or else never adopted pay television in the first place – are eroding the company’s subscriber base. So are traditional customers snapping up “skinny” bundles that cut costs by cutting out ESPN, the most expensive non-premium channel on basic cable at roughly $7.50 per month and subscriber.

Over the last half-decade, Netflix has surged from 25m to 50m subscribers. By contrast, ESPN has dropped from around 100m households to an estimated 87m, costing the company an estimated $1.08bn a year. Those losses come as ESPN is spending more than $8bn a year for the rights to the NFL ($1.9bn), NBA ($1.4bn), and other sports, deals that run through the early 2020s.

When Disney CEO Bob Iger admitted during a 2015 earnings call that ESPN had seen “some modest sub[scriber] losses” and that the company’s profit growth would slow, Disney shares fell nearly 10% the next day.

“ESPN is no longer the golden child of Disney,” said Sports Business Journal reporter John Ourand, who has covered the company in depth. “Nobody knows the floor for falling subscriptions. That’s the biggest issue in the media business right now. Everybody is waiting to see where this is headed.”

Caitlyn Jenner’s appearance at the ESPYs (left) did not go down well with some conservative viewers but ESPN can still afford to air events such as Wimbledon. Composite: Invision/AP/PA

At times, ESPN appears to have been caught flat-footed by the shift from cable to digital. Earlier this decade, the company invested $175m in an upgraded SportsCenter studio – never mind that highlights and analysis now are available almost instantaneously on social media, making the show itself increasingly obsolete. Perhaps wishfully, ESPN president John Skipper once believed that weak income growth among viewers was the primary driver behind cord-cutting – and not a desire by customers to treat television like music, paying only for the shows and songs they actually consume.

More recently, the company has moved to address its threats. ESPN is placing younger, more diverse multimedia talent – Bomani Jones, Pablo Torre, Mina Kimes, and Katie Nolan – into larger, forward-facing roles, and has launched The Undefeated, an African-American-focused sports and culture website. In what was seen by some as a sop to Red America, ESPN recently rehired Hank Williams Jr – let go in 2011 after publicly comparing President Obama to Hitler – to sing his popular Monday Night Football opening song.

In August, Disney announced plans to start two streaming services that would directly compete with Netflix. One will offer movies; the other, ESPN’s second-tier sports. The company is also adapting SportsCenter for Snapchat. “Part of what we’re seeing is the sloppy process of ESPN trying to pivot from being a gigantic TV company to a more nimble media company,” Ourand said. “It’s like the newspaper industry when the internet started to take hold.”

Of course, that transition has ravaged print media. Some observers believe an “imploding,” “dying” ESPN faces a similar fate. In October, the Hollywood Reporter speculated that the company might consider punting on the NFL after its eight-year, $15.2bn deal with the league expires in 2021, a heretofore unthinkable cost-cutting measure. Squint hard enough, and it’s possible to envision a scenario in which traditional television continues to contract, ratings collapse alongside, and an increasingly cash-strapped ESPN gets outbid for key sports by rich, content-hungry tech giants such as Facebook and Amazon – leaving the company hollowed out, with little of value to offer.

But that’s unlikely. ESPN remains a powerful, profitable enterprise: the highest-rated cable network among men, and adults ages 18 and 54, with the second-most total viewers in primetime, well-positioned to fend off would-be rivals like Fox Sports that also are being hit hard by pay television’s contraction. It doesn’t need to recapture its youthful hipness; to the contrary, a recent mini-fiasco in which the company announced and then cancelled a Barstool-branded show after criticism from its own employees suggests that the middle-aged company probably shouldn’t try. Nor should ESPN waste time attempting to pacify the politically-peeved – if the Trump Era proves anything, it’s that brands can’t escape America’s all-encompassing grievance vortex.

Ultimately, math is math. ESPN faces a future with fewer paying customers. Those who remain will still be sports fans. Can the company translate their passion into sufficient profit? Disney reportedly is negotiating a $60bn purchase of 21st Century Fox’s entertainment assets, including 22 Fox-owned regional sports networks –which carry teams like the New York Yankees, charge hefty local subscription fees, and serve roughly half of the nation’s television markets. For ESPN, acquiring those rights would be both a doubling down and a bet on the future: own the games, and people will pay you plenty to watch.

“ESPN can’t just make money by showing up anymore,” Deitsch said. “It’s never going to be 1998 again. That said, anybody who thinks they are going out of business tomorrow is insane. One day, they may be a 3,000-person company as opposed to 8,000 people. But that’s still a powerhouse.”

Albeit a smaller one. Seven years ago, ESPN closed five of its seven theme restaurants – including the Baltimore location – and blamed the Great Recession. It was, perhaps, a harbinger. Larger economic and cultural trends lifted ESPN to unprecedented heights. Going forward, the company may find itself in an unfamiliar inversion: still at the mercy of outside forces, and managing its own decline.