ESPN On XBox: Implications for Disney, Microsoft & Other Pay-TV Providers

DIS: Walt Disney logo
Walt Disney

Disney’s (NYSE:DIS) ESPN will now stream its sports networks including ESPN, ESPN2 and others on Microsoft’s (NASDAQ:MSFT) Xbox. [1] The Xbox owners will need ESPN subscription on their pay-TV service as well as Xbox Live Gold service in order to access ESPN on their Xbox device. The question however for investors is whether this is a meaningful move? It’s hard to put a direct value but there can be some qualitative conclusions.

For ESPN, the presence on Xbox with the requirement of Gold subscription validates the premium nature of the sports channel and the extent of its demand. ESPN contributes about one-third to Disney’s estimated value and has one of the highest household penetration in the U.S. among all networks. The additional advantage of this move to ESPN is multiple distribution channels resulting in better viewer experience. This will come in handy as rival sports networks gear up to compete harder.

See our complete analysis for Disney

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While Microsoft’s direct value gain from potential subscriptions to Xbox Live Gold is very little, the company seems to target more integration with media. The Xbox Live service constitutes less than 1% to Microsoft’s value, as per our estimate. However, Microsoft’s push into integration with media and games gives it additional leverage to market its products.

For pay-TV providers such as Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC) and others, the move is not a threat as the customers are required to have ESPN subscription on their pay-TV service. The debate over traditional pay-TV vs. Internet as a medium for video consumption has been going on for a long time.

We feel that it’s not a threat to pay-TV companies yet for two reasons.

First, the video availability on the Internet is quite limited. And second, the pay-TV companies have the capacity to evolve with changing consumer preferences as they control the networks (including the Internet).

Our price estimate for Disney stands at $52, implying a premium of about 15% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. ESPN –Xbox deal won’t threaten cable and satellite TV distributors, FierceCable, June 5 2012 []