This is an old trope. It really isn’t true.
ESPN in the bundle is important to Disney, but it’s more important to the MVPD. Over 1/3 of MVPD subscribers watch ESPN at least once a week. It is also the most watched channel in prime time for 18-49 year olds, and second most watched cable channel overall. What happens to cable if they drop ESPN?
ESPN isn’t the problem with the bundle, and ESPN will do fine if MVPDs decide to drop them. For ESPN, they probably need a fee of $20 per month to match revenue lost from cable to total DTC model. A significant number (maybe 1/3?) of MVPD subscribers could drop the MVPD subscription, get ESPN DTC and save a lot of money.
Piecing together info from various sources, I estimate that all of the ESPN channels together account for about $13/mo out of the average cable TV bill. Let's imagine that suddenly cable TV disappears and now the only way to buy ESPN is through a direct-to-consumer standalone app. If only about 1/3 of cable TV customers care enough about ESPN to pay for it, then we can expect that those folks will be the only ones who might buy this standalone ESPN streaming service. But that means that ESPN will have lost 2/3 of their paying customers versus what they were getting when ESPN was a non-optional part of everyone's cable bundle! So to get the same amount of total revenue, the cost of this ESPN standalone service would need to be 3 x $13. Now how many of those former cable TV subscribers do you think love ESPN so much that they'll
pay $39 per month for it?! So maybe instead of ESPN getting back 1/3 of their former subs, they get back only 1/4. But that means they'll need to charge 4 x $13, so $52 per month! Which, in turn, causes even more former ESPN fans to call it quits and walk away. See how this works?
This is why I say that ESPN's salad days are in the rearview mirror. I can't see any way that they'll ever be as profitable as they used to be as more and more US consumers ditch the cable bundle.
The cost to carry sports, especially big popular ones, is super-expensive. But even in the new direct-to-consumer (DTC) streaming era, companies can still get non-sports fans to subsidize the cost of a
limited amount of sports that they don't watch. I mean, obviously, Netflix carries all kinds of programming, most of which any one particular household never watches. This is how the economics of content bundling -- whether in the traditional cable bundle or the new DTC app paradigm -- works. You offer a buffet of varied content to appeal to a broad group of customers, but no one eats everything on the buffet.
But if a big general entertainment DTC service like Netflix, HBO Max, Disney+, Prime Video, Apple TV+, Paramount+ or Peacock is going to put live sports content into their service, they're going to want it to either be relatively cheap (e.g. foreign soccer, in order to pick up incremental subs who are big fans of that sport) or they're going to want it to be popular enough to pull in not just hard-core fans but also casual sports viewers (e.g. any NFL game, playoffs/championships for other major pro and college sports -- World Series, March Madness, Stanley Cup, College Football Playoffs -- plus Wimbledon, The Masters, Daytona 500, etc.). Because if they're spending big bucks on a game, they want it to appeal to as many of their customers as possible. If the cost of my streaming service bumps up a buck and they tell me it's to cover sports,
but I actually watch those sports, well, I'm much less likely to balk at the price hike.
But what happens to all the other stuff, all those other expensive individual sporting events that don't appeal to a large enough number of viewers to allow them to be stuffed into a general entertainment DTC service? All those regular season MLB, NBA, NHL, and college sports games? Because those big DTC services aren't going to want to add all that stuff, making the same mistake that the cable bundle did, i.e. stuff way too much expensive sports content into the bundle and force it on all subs, whether they watch it or not, thereby driving up the price of the bundle so much that the non-sports-fans just cancel. Netflix, HBO Max, Disney+, Prime Video, etc. all have to be thinking about that. Because if they load up on too much sports and then pass those costs on to customers, well, some of those customers will shift to a cheaper competitor with less sports. It's very easy to drop Disney+ and replace it with HBO Max, or vice versa.
The only solution I see is for all that other sports content to get bundled into focused services that appeal to the hard-core fans of those sports. And they'll pay dearly to be able to watch all those games! How much, of course, remains to be seen. I think what we'll eventually see is that major sports leagues will have to settle for less total TV revenue, which will of course mean reduced costs (i.e. less ridiculous salaries for athletes) or reduced profits. I suspect it'll be some combination of all the above. But these economic adjustments will take years to work out, which gives all parties time to adjust to the new realities they face. Which is that cable TV was a bubble inflated by another bubble inside it -- televised sports -- which was inflated by another bubble inside it -- greedy athletes, team owners and leagues.
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