Tuesday, May 21, 2013

ESPN To Lay Off Hundreds


Walt Disney's (DIS -0.44%) ESPN, long considered a cash cow for the media giant, is laying off hundreds of workers as it faces escalating costs for sports programming and increased complaints about the fees it charges.

A tipster to Deadspin pegs the job cuts at about 400. The network acknowledged "difficult" changes across the company Tuesday but would not confirm any specific layoff numbers. This is the first staff reduction at the channel since 2009, according to the blog.

Like its broadcast counterparts, ESPN has been socked with skyrocketing costs for sports programming. Last year,  the channel, along with News Corp.'s (NWS +0.60%) Fox and Time Warner's (TWX +0.67%) TBS, spent $12.4 billion for the broadcast rights for Major League Baseball from 2014 to 2021, an agreement that will double MLB's annual payout. In 2011, ESPN signed a $15 billion deal with the NFL for "Monday Night Football" that goes through 2021. The deal equals $1.9 billion a year, a 73% increase over the old contract.

For Disney, ESPN is the gift that keeps on giving. In the most recent quarter, Disney's Media Networks business, which includes the sports channel, earned $1.72 billion in operating income on $3.45 billion in revenue. The network charges cable and satellite operators $5 per household per month, the most of any channel. TV providers have grumbled about the fees for years, which ESPN has justified with ratings that continually rank at or near the top. Sports also are attractive to advertisers, since they are still watched live and continue to draw huge audiences.

ESPN is facing increased competition from CBS (CBS -0.04%) and Comcast's (CMCSA +1.71%) NBC, which have their own sports networks, and Fox, which is planning to launch one. There are also calls from Sen. John McCain, R-Ariz., to allow consumers to buy only the cable channels they want instead of being able to buy only tiers of channels.

Higher costs, rising competition and changing market conditions prove that the "worldwide leader in sports" has a tough road ahead as people who aren't sports fans wonder why they should be charged for ESPN.

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