Skinny Bundles Case

When Disney announced their numbers for its fourth quarterly earnings in 2015, we saw a massive decline in revenue and subscribers from ESPN, a whopping 3.2 million subscribers in 2015 and a cumulative of 7 million subscribers within the span of two years, reported Nielsen. This major decline resulted from the acts of ‘cord shaving’ and ‘cord cutting, which is respectively when consumers opt in for ‘skinny bundles’ that does not include expensive programming and when they decide to cut their cable subscription entirely. The increase in these two acts is a direct result from ESPN’s extremely high carriage fee, or the amount of money that cable providers have to pay ESPN per subscriber. Its whopping $6.41 carriage fee (as of 2015 compiled by …show more content…
Cable providers typically bundled ESPN and other networks into fixed cable packages that consumer could not customize. Therefore, if you love to watch Breaking Bad but have no desire to tune in to SportsCenter, you’d still have to share the weight of ESPN’s skyrocketing carriage fee with your cable provider. As a result, viewers began to cancel their cable subscription (cord cutting) and switch to cheaper and more convenient services such as Netflix or Amazon Prime. This resulted in a big loss in revenue for cable providers. In response, they began to offer ‘skinny bundles’ (cord shaving) as a way to stop viewers from cutting their subscription altogether. These options offer consumers more flexibility in choosing what they want to pay for cable and selecting what channels they want in their package. ‘Skinny bundles’ and the act of cord shaving proved to be extremely effective as their demand increased dramatically, giving ESPN less and less leverage to raise their carriage fee, especially when their subscribers count took an even bigger hit after this …show more content…
Not only is ESPN losing subscribers, its ability to increase its price is also dwindling. In SNL Kagan's report, this loss in carriage fee revenue costs ESPN 147 million dollars and 350 jobs in 2015 (Warner). Going forward, ESPN needs to restructure its business model and optimize revenue from its digital platforms such as online and mobile content. Since most of its revenue comes from carriage fee and advertising, ESPN needs to freeze the increase on its carriage fee and focus on optimizing its advertising revenue instead to offset the increase in the rights fee demanded by the major sports leagues. Since there is no indication that the demand for sports in America is diminishing anytime soon, it is likely that ESPN will soon regain its dominance if it could effectively adapt to the changing market and fully exploit its viewers’ demand for sports