News of layoffs in the media industry has become all-too-familiar in recent years, owing to declining user rates and hollowed out advertising revenue. Even sports media behemoth ESPN hasn't been immune to the trend; we're barely a year removed from a round of layoffs during which the company shed about 300 employees.
And now ESPN is reportedly preparing for another round of cost-cutting — and this time, the cuts could be even more significant, at least in terms of name recognition. SI's Richard Deitsch has some of the details in a recent column: "SI has learned that ESPN will have significant cost-cutting over the next four months on its talent side (people in front of the camera or audio/digital screen). Multiple sources said ESPN has been tasked with paring tens of millions of staff salary from its payroll, including staffers many viewers and readers will recognize."
The reasons offered by Deitsch are familiar: ESPN's subscriber base is shrinking — from 100 million early in 2011 to less than 88 million in a February estimate. Every lost subscriber costs the company more than $8 a month in lost revenue between ESPN and ESPN2. That's roughly $100 a year per subscriber. When you've lost 12 million subscribers in the past six years you see the lost revenue can reach more than $1 billion.
Combine that with declining ad revenue — which caused the stock of Disney, ESPN's parent company, to tumble at its last reporting date last month — and you have a dangerous mix that leads to layoffs.
That said, the reported layoffs also seem designed to appease shareholders more than being something truly necessary in the moment.
That's because even though ESPN's subscriber base has declined steadily in recent years, its fee per user has gone up significantly in the same span. As of mid-2016, the fee for ESPN alone was $7.21 per month — up more than a dollar from 2014 and more than double what it was in 2007. Basically, ESPN is offsetting lost revenue from lost subscribers by making those who still get the network pay more.
This math is oversimplified with round numbers, but it's still relevant: 88 million subscribers paying $7 a month ($616 million) is more revenue than 100 million subscribers paying $6 a month ($600 million).
Continuously cranking up that fee might be a dangerous game to play since there is a risk of accelerating the spiral of those ditching cable (and therefore ESPN) because of high fees. But sports are a major part of the reason subscribers stick with cable/satellite packages. What's another dollar or two to die-hard fans? We'll find out.
It's also worth noting that Disney stock rebounded from the hit it took in February when revenue fell short of projections; the stock is up almost $4 per share since then. So in cutting eight figures of salary, as was reported by Deitsch, ESPN is probably preparing more for a future that could require it to be a little more lean.
In the present, though, the network still is generating gobs of revenue — way more than competitors such as FS1.