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Source: Rob Poetsch.

ESPN may be the crown jewel of Walt Disney (NYSE:DIS) and the cable bundle, but more than half of subscribers said they'd ditch the network for a discount on their cable bill, according to a recent survey from Civic Science. The survey, commissioned by and highlighted in a note from BTIG Research analyst Rich Greenfield, found 56% of respondents would cancel ESPN and ESPN2 to save $8 every month.

What's more, just 6% of respondents said they'd be willing to pay $20 per month for a stand-alone ESPN/ESPN2 subscription service, even if it was the only way of watching the network. Analyst estimates say ESPN would have to charge $30 per month for an over-the-top service to maintain a similar revenue base as it gets from cable carriage fees.

Was Bob Iger wrong?
Last summer, Disney CEO Bob Iger said he sees a time when ESPN could be sold directly to consumers like Time Warner's (NYSE:TWX) HBO. This was only a couple of months after the launch of HBO Now, which was quickly followed by CBS's (NYSE:CBS) launch of a similar over-the-top service for Showtime.

But the fundamental difference between HBO/Showtime and ESPN is that consumers already purchase those premium channels a la carte, whereas the cable bundle obscures ESPN's costs. SNLKagan estimates that ESPN charges $6.61 per subscriber per month for just ESPN (not ESPN2 or other channels) regardless of whether a subscriber watches the network.

That key difference is why analysts estimate ESPN would have to charge so much more if it went over the top. Comparatively, HBO and Showtime are able to charge similar prices whether you subscribe over the top or through a pay-TV provider. But with so few individuals willing to pay such a high price for one network, ESPN is best suited to stick with the bundle as long as it can.

But subscriber losses are growing
Cord cutting and cord shaving are having a major impact on ESPN's total subscriber numbers. As pay-TV operators start offering skinny bundles that usually don't include ESPN and the number of over-the-top options continues to grow, ESPN has seen its subscriber count decline by about 7 million over the past two years. The Civic Science survey indicates that pay-TV operators may be well suited to offer more skinny bundles to subscribers.

As this trend continues, ESPN may find its revenue declining, with ad sales unable to offset the decline in carriage fee revenue. At $6.61 per subscriber per month, ESPN may be reaching the upper limits of where its carriage fees max out with pay-TV operators, adding more pressure to subscriber losses.

As the cable bundle becomes more fragmented, ESPN will find itself earning less than it currently does. With big sports rights set to kick in over the coming years, the network's content costs will balloon to nearly $6 billion over the next few years, putting even more pressure on operating income. That may be the impetus for the network to test the waters with an over-the-top service.

CBS CEO Les Moonves has noted on several occasions that a la carte television is the direction the industry is headed. His company offers its premium network Showtime over the top, as well as access to CBS and its entire archives through CBS All Access. Additionally, it's reportedly thinking about taking the CW -- a network it jointly owns with Time Warner's Warner Bros. -- over the top.

If Moonves is right, it's not a matter of whether ESPN could go over the top, but when it will. On the other hand, if Disney can keep the cable bundle together, it would foolish for it to take its networks directly to consumers. With the trends we've seen over the past couple of years, Moonves is looking awfully smart.

 

Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Time Warner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.