Today, ESPN continued to restructure its organization, laying off about 100 on-air personalities and writers, a huge chunk in personnel salary. Its problem is rooted in a deep investment in TV cable deals that don't expire any time soon, even though sports fans are cutting the cable cord and finding other ways to watch live events.
Over the past few years, ESPN has lost over 10 million subscribers, according to the New York Times. That loss in subscribers in conjunction with big payouts for rights fees has resulted in an ominously shiny bubble. And one of the biggest revenue streams for any TV network is advertising revenue, something directly correlated with viewership.
Consequently, advertising dollars are shifting toward online advertising. Last year, eMarketer projected that U.S. digital ad sales would surpass traditional TV for the first time. It's a massive shift in the way money is being spent and how advertisers want to interact with consumers. It's something new that doesn't return an investment in live TV events whose rights are bought through cable deals — ESPN's bread and butter that is getting soggy and molded.
According to that same report, advertisers will have spent $72.09 billion on U.S. digital advertising by the end of 2016, while TV spending will account for just less, $71.29 billion. It gives digital a 36.8 percent share in media ad spending, which is 0.4 percent higher than TV's share.
This makes sense because ESPN's 10 million less subscribers have gone somewhere, and all signs point to online platforms that continue to grow. Consumers are streaming shows from mobile devices and consuming news on the subway rather than on the couch.
This development is good for Internet-based platforms, including online publications, considering a variety of advertisements can be plugged into such applications. As time passes, newspapers will be asked to provide interstitial ads in their e-Editions; online catalogs will be asked to provide cross-platform advertising between manufacturer and distributor; and interactive yellow pages will continue to squeeze out online advertising revenue through banners and videos.
It will be increasingly important to operate within platforms that are flexible and custom, in order to service the wide range of advertising networks served online. An HTML5-based solution will be more capable of this than anything still based in Flash.
ESPN's story is hard to have anticipated when these major cable deals were struck; however, its certainly an indicator of why digital and online advertising has become so important.