ESPN announced this afternoon that it was shutting down Grantland, the website founded by former ESPN star Bill Simmons, which mixed literary sports writing with wider coverage of politics and culture. Simmons had a built a cult following as a sports columnist and parlayed that into a mini empire of his own at ESPN, with Grantland as the capstone. But he fell out with ESPN president John Skipper over the last year and was abruptly fired this May. Many of the writers and editors at Grantland had since moved on, some to work with Simmons on his new project at HBO. That meant the death of the website he built was in many ways no surprise.
The end of Grantland can be viewed as simply the end of the Simmons era, the dismantling of the fiefdom he built. Sources within ESPN say the site never made a mark on the company's financials one way or the other, and that closing it down is more about focus than cost cutting. But the move also comes on the heels of cuts across ESPN that laid off another 300 employees, and so is likely to be viewed as part of larger questions about how ESPN plans to move into the future.
Why is ESPN, the reining king of cable television and still a very profitable enterprise, suddenly cutting staff? The answer is that its long-term outlook has shifted dramatically in the last few years, leaving it with a declining subscriber base and ballooning content costs.
The current trouble at ESPN dates back to 2012, when the company was renegotiating its contracts with cable providers. It wanted to increase the amount of money it was paid per subscriber to an astonishing $6 or more, far and away the highest rate in the industry. To do that, ESPN had to agree to lower penetration thresholds, an industry term that boils down to what percentage of cable subscriptions have to carry ESPN. It lowered that figure from 90 percent of households to 80 percent.
ESPN is now losing subscribers
In the ensuing three years, the number of people cutting the cord, or at least shaving it down, has grown rapidly. The result is that, for the first time in its more than 30 years in business, ESPN began losing subscribers.
On the flip side, during those same years ESPN made a number of deals with major sports leagues like the NFL, MLB, and NBA, agreeing to pay billions of dollars for the rights to broadcast those sports over the next decade. It was spending on average around $2.7 billion annually for broadcast rights in 2010 and 2013. That number has since jumped to $4.74 billion this year, and will climb up to $5.86 billion by 2018.
ESPN won't be available without a cable subscription for a while
The tight relationship ESPN has with the cable industry has also prevented it from making some big moves in the digital world. While HBO is now able to exist both on cable and as a streaming-only service, ESPN and its parent company Disney have signaled that it won't be making a similar move for at least a few more years. And while Disney content will exist behind the paywall on YouTube's new subscription service, ESPN's videos have disappeared entirely from the world's largest video portal.
With a negative outlook for its traditional TV business, ESPN has decided the best way forward is to starting cutting costs where it can, and unfortunately that means laying off employees. Still, it's far from down for the count. It still has new media properties like FiveThirtyEight, and its audience — across web, mobile, and video — is large and growing. Skipper put his spin on it this way. "If you are cutting jobs in retreat, you’re in trouble. If what you are doing is preparing to have a modern workforce with the people we need to adapt to the changing environment, then we are preparing for success. And that is what we’re doing and why that action last week is not contradictory to a narrative of success."
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