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Cord cutting should be looked at as a leading indicator in the sports media economy

Cord cutting could be a leading indicator for the financial health of entertainment companies.

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Leading indicators are factors that change before a particular trend or pattern emerges; like an increase in building permits are a good indicator that housing will be up in the future and the overall economy will soon follow the upward trend. The goal is to be able to plan accordingly. Some leading indicators are measurable and some observable, but both require expert intuition/interpretation.

Five years ago every broadcaster/cable channel was my client in some fashion.  Every one of them had sports as a centerpiece of some — or all — of their programming strategy.  Our team had done an analysis that showed cord cutting –households cancelling cable to get their entertainment via the internet — would be best case (for cable and content providers) 5-percent over the next five years and likely 10-percent and worse case 15-percent.  One executive I shared the information with said they actually had flat — little to no growth — as the best case, growth at 3-percent and worst case at 6-percent.  He said cord cutting at 10-percent means content distributors would go out of business due to the high fixed cost of programming. His response was an exaggeration, but it does show how tight margins are for broadcaster of sports content.

Now, the leading indicators for the future value of sports programming portend a negative trend. The NY Post reported Time Warner Cable would take a $1 billion loss on its Dodgers’ contract. Ratings in general for television are down. The ad market has softened as companies look for more efficient ways than television to target consumers. Long term growth for the country for the foreseeable future has been adjusted downward by a third to 2-percent.  The stock market finally caught up to the negative cord-cutting trend, which ended up being approximately 10-percent.

The market shaved $50 billion of value off entertainment stocks due to cord cutting in just one week.  The Disney earnings call turned into a defense of ESPN’s business model, per reports.

Ratings for sports have held up, but for the most part distribution rights for games is a TV loss leader. However, if other more affordable shoulder programming isn’t profitable by generating advertising revenue it affects how much of a loss companies can take on distribution rights.

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