By Amol Sharma and Ben Fritz
ESPN was laying off a few hundred workers on Tuesday, a sign
that the hugely profitable sports cable powerhouse is responding to
rising sports rights fees as well as other changes in the media
industry.
ESPN said some of the job cuts are coming through attrition, or
unfilled open positions, and didn't disclose the precise number or
types of workers who are being let go. ESPN, which operates several
cable channels in addition to its flagship, has about 7,000
employees.
In a statement, ESPN said, "We are implementing changes across
the company to enhance our continued growth while smartly managing
costs. While difficult, we are confident that it will make us more
competitive, innovative and productive."
ESPN is a crucial profit engine for its majority owner, Walt
Disney Co. (DIS). It is the biggest part of Disney's cable networks
division, which accounted for 69% of the company's segment
operating income in the quarter ended March 30. Operating income at
the cable networks was up 15% in the quarter, an increase that
Chief Financial Officer Jay Rasulo said was "primarily due to
growth at ESPN."
Much of that growth came from higher fees paid by pay TV
operators to carry ESPN channels, largely due to rate increases
built into carriage deals. Those fees are significantly higher than
that commanded by other cable channels.
Still, ESPN also faces steadily rising costs of its own, as the
price of sports rights balloons. Last summer, for instance, ESPN
struck an eight-year deal with Major League Baseball that was
reported to double the payments made by ESPN to $700 million a
year. ESPN is also paying an average of $1.9 billion per season for
the rights to air "Monday Night Football."
For the six months ended March 30, operating expenses including
programming and production rose 9% to more than $5 billion. A major
factor was the rising costs of carrying college football, NFL and
NBA programming, according to a company filing.
Bidding wars for sports rights are likely to get more intense as
competition heats up in the sports TV marketplace. News Corp.
(NWS), which owns The Wall Street Journal, is set to launch a
national 24-hour sports channel called Fox Sports 1 in August. CBS
Corp. (CBS) and Comcast Corp.'s (CMCSA, CMCSK ) NBC each have
24-hour sports cable networks.
ESPN also is trying to reallocate resources as its priorities
shift. For example, after years of consolidation in the pay TV
industry that has left fewer players, the company doesn't need as
many resources dedicated to dealing with cable operators. That is
one reason ESPN this week closed its Denver office, which had about
20 people, according to a person familiar with the situation. ESPN
is also shifting more resources into its Web and mobile offerings,
which have seen sharp growth, the person said.
Earlier this year Disney finished a cost review that resulted in
job cuts elsewhere in the company. Last month, Disney laid off
about 150 workers from its film studio, which employs about 7,000
people. It also shut down the video game unit of Lucasfilm, which
Disney acquired last year, resulting in the loss of about 200
jobs.
Write to Amol Sharma at amol.sharma@dowjones.com or Ben Fritz at
benjamin.fritz@dowjones.com
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