ESPN President: Wage Stagnation, Not Technology, Is the Biggest Threat to the TV Business

If you want to scare John Skipper, don't show him a report about Google or Apple. Show him an income distribution table.



BRISTOL, CONN. - When John Skipper, the president of ESPN, wants to worry about the future of the most valuable media company in the world -- not just think anxiously, but actively worry -- he doesn't focus on Google trying to buy exclusive rights to the NFL. He doesn't think about Apple going head-to-head with the cable companies. He doesn't think about CBS, or NBC, or FS1. If there's any acronym that truly scares him, it's CBO.

Yep. John Skipper thinks about income distribution tables.

The statistic that frightens him the most, he told a group of reporters in Bristol yesterday (which he also told me in a previous interview), is that the bottom 20 percent of American households still makes less than $15,000. And the poorest households are seeing the slowest wage growth in the country.

That's a problem, because ESPN and other networks are selling a mass product, the cable bundle, whose price has tripled in the last decade and a half. And the number-one driver of rising cable costs today are the sports rights that make ESPN so valuable. The cost of exclusive rights to show sports are growing about 7% annually through the rest of the decade, 4X faster than private sector compensation growth (graph below via RBC/click to expand):

Screen Shot 2013-08-22 at 10.55.49 AM.png

The cable bundle is under assault from technology and viewer habits. Mobile phones and tablets are stealing screen time. Tech biggies like Google and Apple are making a play to put all your channels online, where consumers could potentially watch and buy a la carte, as Quartz reports. Meanwhile, Netflix, Hulu, and the the Web offer so many hours of video entertainment (much of it financed by the cable bundle) that many young people have chucked the whole bundle altogether.

But Skipper is persuaded that if more Americans were simply making a little more money, there would be no fraught discussion about cord-cutters and cable-nevers. "The real issue is economics," he said. "Most of the cord-cutting has been financial." Not only does the bottom quintile make less than 15,000 a year, as Skipper often points out, but also about a third of households make less than $30,000 in after-tax income, according to the Tax Policy Center's distributional analysis.

"ESPN is a mass product," he said. Wage stagnation threatens to make it a luxury product.

Cable: So Cheap, Yet So Expensive

Skipper's acknowledgement that macroeconomics is intruding on entertainment economics is so fascinating, because the most common thing you hear from a TV exec is that their product is super-affordable.

On a per-hour-watched-per-person basis, cable TV costs less than $0.30 -- 30X cheaper than buying a two-hour movie for $10. When they're feeling bullish and defensive, the cable guys make a point best summed up by this graph below. Wage growth might be plateauing, but that plateau still sits miles above annual cable costs.

Screen Shot 2013-08-21 at 10.48.02 PM.png

But $876 a year isn't nothing. And most American families don't make financial decisions by calculating per-hour per-person experience costs. They answer an easier question: Is this familiar number, my cable bill, eating into my disposable income?

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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