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Thursday, August 17, 2017

Disney's $1.5B MLBAM Purchase Foretells Grim Tidings For ESPN

Al Yellon a couple days ago posted a piece about MLBAM being sold to Disney in a $1.5 billion deal. The upshot of this is that every MLB team will get $50 million in cash off the bat, but it also suggests something else: MLBAM, which has been a cash cow for the league, is going away at the exact moment cord-cutting continues to be a problem for cable TV. There's something about this deal that reminds me of the Yankees getting out from YES Network, which now seems prescient: better to let someone else figure out how to sell those ad dollars, and take whatever they want off the top.

Along those lines, ESPN is now launching its own streaming service, which looks from the outside like a Pyrrhic victory. As Techcrunch explains,
"A streaming service, while it might attract sports fans who have cut the cord, won’t solve ESPN’s profit problems. Instead it will exacerbate them. Why? Because ESPN will continue to lose the millions upon millions of cable subscribers who pay for it but never watch it. Losing $7.21 from each non-watcher is going to be a revenue killer. There is no possible way the universe of sports fans who want ESPN can make up that revenue, even if they’re charged more for a streaming service."
(The above was quoted in the story text, but it's unclear from context who was being quoted. Edit: it's an excerpt of this Bloomberg News story.) This is a problem of long-standing I first noticed with the Dodgers and their cable TV deal; there's simply no way the insane TV rights deals stand up without mandatory bundling. Things are going to get tighter for everyone in this space, and soon.

Update 2017-08-23: One aspect of this that has bothered me from the beginning is the same sense I got when the Guggenheim Group bought the Dodgers for $2.1 billion, and that is that this is predicated on revenue streams that simply cannot exist in the real world. (Even my rough contemporaneous pencil test showed the Dodgers couldn't milk that stream for the kind of dough they were getting out of bundled cable deals.) I'll spend some time digging and see if I can get MLBAM subscriber numbers somewhere. Also, it's important to know for return-on-investment figures that Disney earlier bought 33% of BAMTech for $1 billion, so their total investment appears to be $2.5 billion for (effectively) the whole magilla, or at least a majority stake.

It appears that MLBAM as of two years ago had 3.5 million subscribers, though this LA Times article doesn't mention how many are MLB.TV subscribers. But assume that 90% of them are paying for MLB.TV at $112.99/year. That means revenues are
3.5M subscribers * .9 * $112.99 subscriber-1*year-1 = $356M/year
It's not implausible that they might be able to make money under this scenario, but it omits the costs of carriage for MLB, MiLB, PGA, and other content.

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