ESPN Not In Trouble, Despite Firing 300 Employees

ESPN parent company, Walt Disney, released its quarterly financials last night and let us know that the Magic Kingdom is as healthy as ever.  Profits and revenues have both grown and the media division that includes ESPN rose 27% from the period last year.  According to the NY Times, "Disney said the increase was primarily due to higher ESPN affiliate and ad revenues, partly offset by higher programming costs".  Yet, as a Christmas present to 300 employees, they received their layoff packages.

ESPN and Disney are not suffering.  In fact, their bottom line was never stronger.  No the decision to fire 300 employees was to appease investors and not the business.  I don't mean to suggest that Disney or other public companies need to be charity centers to their employees; but, couldn't ESPN do something else with these 300.  Given the diversification of the empire, why couldn't these 300 be given internal opportunities to apply to other divisions within the company.  They have already demonstrated a fit to the organization, many have provided multiple years of impressive service and their experience might be truly welcome as other lines of businesses seek sales, marketing, production and other types of support.  I doubt that ESPN or Disney even considered that option.

So ESPN laid off 300 employees only to tell us that the company and brands are "stronger than ever".  I just don't believe the two stories jibe.  Thoughts?

Digital Killed The Television Star?

If you remember back when MTV first emerged, the first music video was "Video Killed The Radio Star".  It spoke to the demise of the old media with the rise of music video.  It was certainly not true, radio did not die, although it too was changed as the result of technology.

Today, it is television that is being affected by the rise of new media, digital and streaming media.  Consumers no longer are tethered to a box; rather, the screen moves with us and we control when and where we want to watch.  It has led to cord cutting, not just because of the freedom of movement, but because the cost to access on a tethered box has gotten too high. 

We want smaller bundles at lower price points.  Netflix provides its bundle of TV shows and movies for a low monthly fee and Amazon, Hulu, HBO, and others each do the same.  And as consumers we can pick which of these services we wish to carry.  With cable television, the appeal of their large bundle of shows and movies, linear and on demand, diminished as the price of carriage kept rising faster and faster.  The biggest culprit of that rise has been sports programming and the demand to license its content has enabled more channels to carry a piece of sports.  Where a decade or more ago, sports was the exclusive home to a few nets; today, games are seen on dozens of regional and national sports networks.  And consumers paid for access to each and everyone of these nets to be accessible on basic cable.  Ultimately, consumers pay too high fees for too many networks they may not want. 

Has digital killed the Television star, of course not.  Neither did video kill the radio star.  But digital has changed the playing field so that consumers have more control to cut the cord when their primary source for video has gotten too expensive.  Lesser expensive options with a diverse supply of streaming video now makes the choice to cut the cord easier to make.  Digital has changed the playing field and it is time to rethink the cable bundle. 

Stock Market Worried About Cable Networks

When Time Warner Inc. announced lower earnings expectations in the future, the stock market responded by selling off a list of cable network stocks.  From Time Warner to Discovery, from Disney and Viacom to AMC, a consistent sell off was evident.  But what drastically changed?  Just a week or so ago, ESPN cut 300 jobs to lower costs and hopefully improve earnings.  Cord cutting has been much discussed over the last number of years; in fact, many cable operators have been posting much smaller sub losses in their latest quarter.  And content companies have been pursuing new streaming deals and other revenue lines to boost earnings.  So what really changed?

Sure, the announcement that Time Warner Inc. now expected lower earnings in the near future. But just yesterday, its premium network HBO announced it was the new home for future Jon Stewart content.  And that news was positively received.  As to the daily price fluctuations of media stocks like Time Warner, Inc., the likely means to restore earnings will be to cut costs.  Expect some layoffs from a number of these companies to boost earnings for its stockholders. 

Star Trek Boldly Goes Back To CBS

For Trekkers, or Trekkies, the news that another Star Trek series would be coming back to television was met with very loud cheers.  That it won't be seen for 15 months, not until January 2017, tempered that applause.  Star Trek, first created by Gene Roddenberry in the 1960's, has seen itself grow from TV show to movies back to TV show and back to movies with different casts embracing the sci fi drama.

CBS seems to be using this popular series in a two-fold strategy with first-run episodes appearing on the flagship CBS network and subsequent runs of the show seen exclusively on its streaming subscription app, CBS All Access.  Currently, the $5.99 monthly app offers other CBS programs including the original Star Trek episodes. Is the Star Trek universe large enough to entice more subscribers to CBS All Access?  Probably not but I would be on the look out for more deals to be announced like this.  As CBS is not an owner in Hulu, this streaming property is their own strategy to retain the CBS brand in a digital world.

As to the new Star Trek series, little is known about the series.  Its place, characters, story lines are all a mystery for now.  But for those waiting for the follow up to Star Trek Enterprise, we will boldy go where CBS takes us. 

Note:  Some are suggesting that CBS will air only the first episode on CBS with the remainder of the season exclusively on CBS All Access.  Will that encourage consumers to subscribe to the service or fail miserably?  I think it would be a mistake to all of its constituents from the TV viewer to the local affiliate, from the cable operator to the cable subscriber to not air the series first on broadcast. The greatest revenue opportunity for CBS still lies with traditional television. 

Serial Adds Another Platform

The popular podcast Serial, known for its analysis of the Adnan Syed murder trial, has expanded its distribution platform.  Previously, Serial was only available as a free downloadable podcast, but the next season's episodes will also be available on Pandora.  Good news for those that don't know how to download a Podcast.  It should continue to be available for Pandora.

As a fan of Serial, part of me would hope that they would deliver a new update focusing on what has transpired and changed since their report was first made.  It seems that may not yet be in the cards.  Some expect that season 2 of Serial will instead focus on U.S. Army soldier Bowe Bergdhal who deserted his post.

According to Polygon, Pandora will put season one on their site later this month.  The date for season two has not yet been released. 

ESPN Cut Jobs, Others Will Too

300 ESPN employees lost their jobs last week, but they are not the first media company to do so.  While content matters, employees don't, and the ultimate bottom line, when you are a public company, is to appease the shareholders.  And when revenues don't rise, costs must be cut to sustain and ideally grow profits.  As The Godfather likes to remind us, "It's not personal, it's strictly business."

Truth is, it is personal and affects many individuals as well as their families.  While content costs rise, and sports content costs skyrocket, cord cutting has led to lost subscribers and advertising dollars have shifted from TV to digital.  ESPN made those same high programming cost deals while watching its base erode.  Its parent company, Walt Disney,  demanded that ESPN cut costs to support profit goals.  And while other networks have tried to recapture lost subs by offering OTT services, including CBS, HBO, Showtime, and most recently Starz, to name a few, ESPN has not because its license fee agreements could lead to cable operators dropping the service from their cable line-ups.

Its happened to in other media.  The Daily News in NYC is cutting writers and other personnel to keep afloat, too.  The sad truth is that this trend will only continue to mount as subscribers flee, costs rise, and the easiest way to make up the difference is to cut labor.  And while ESPN may be in the news today, other networks have done the same thing in other years and will continue to announce cuts in the near future.  It is not the end of job cuts, only the beginning.  For my friends at ESPN and at other networks, I can only hope that as this door closes, other opportunities open. 

Starz Follows HBO And Showtime

It only took about half a year for Starz to recognize that the leader in the premium cable space, HBO, was on the right track.  In a classic follower move, Starz has announced that they too will offer an over the top (OTT) app to consumers seeking its content, without also buying a cable subscription.  It has become a necessary step as their cable subscribers continue to downgrade and turn them off as well as their sister Encore networks.  Per Multichannel, the OTT platform is weeks away from being released. 

At the same time, rumors continue that Starz could be an acquisition target; however, given their lackluster results, their full value may be dropping precipitously.  The hope is that they can rebound by finding new customers interested in this new OTT service.  Most likely, the overall reason for an OTT distribution stream is to become more valuable for an inevitable sale of the company. 

NY Times Likes The Apple TV

Quite an endorsement today in the New York Times for the new Apple TV set top box.  The writer, Brian Chen, speaks glowingly of this new generation box, applauding it for both unique apps and a better remote.  It may be more expensive than other OTT boxes, but Chen remarks that "Apple TV is on the path to turning the television set into a smarter connected screen." 

The price point may drive some people away, but seeing how consumers are willing to pay more for a better built product has been the history of Apple.  They have done it with their iPod, iPhone, and iPad, and have kept their price point higher with the Apple Watch and now the Apple TV. The Apple TV starts at $149 while a Google Chromecast could access OTT streams for just $35.  Given the features described for the Apple TV, the higher price point might just be justified. 

Will the Apple TV be a holiday winner?  I'm sure it will be highly touted in all the Apple stores along with Apple Watches and other products.  For Apple it could be another strong quarter. 

Apple Measured On Growth Not Absolute Size

Despite stellar sales, multiple product lines, and a meaningful cash horde, Apple gets measured more on growth increases and not on total size.  That being said, Apple released its quarterly earnings last night and continues to outperform expectations.  Its just that most analysts focus strictly on its iPhone sales and much less on its other product lines. Can Apple continue this growth trajectory?  It depends.

It depends on how often consumers upgrade their iPhones.  That seems to be every 2 years or so.  it depends on how much bigger their international release can get, and it depends on what else consumers are willing to buy.  We certainly don't upgrade our iPads nearly as fast; mine is almost 5 years old and performs quite well.  It depends on how many folks finally switch from PCs to Mac laptops and desktops and how long they hold them till it is time to buy another.  It depends on how fast consumers accept that an Apple Watch is a must have product and how many choose to become Apple Music subscribers.  And now it depends on how well the Apple TV box, just available for purchase, is integrated into the home.  Lastly, it depends on the next innovation to come from Apple, whether an Apple Car, Apple streaming TV content subscription, Apple business services, Apple advertising, or another Apple technological product offering. 

And even if Apple turns from a growth company to a value company with sustainable revenue, free cash, and a steady focus on innovation, Apple can continue to be a major piece of our daily lives.  It is much easier to fall off the mountaintop then to climb it and Apple must continue to innovate or risk technological change making them irrelevant.  If they don't, they could one day be seen as the next Circuit City, Tandy, or Casio.