ESPN, HBO and Fox Sports: Top 3 Cable TV Revenue Generators for Media Stocks

DIS: Walt Disney logo
Walt Disney

The stocks of media companies Disney (NYSE:DIS), Time Warner (NYSE:TWX), and News Corp (NASDAQ:NWS) are dependent on the revenues generated by their top cable channels ESPN, HBO, and Fox Sports, respectively.  While ESPN and Fox Sports are sports focused channels, HBO is known for its films and drama.

Below we compare the revenues generated by the top three US cable channels and the significance of their contribution to the stocks of their respective parent companies.

1. ESPN: $5 billion in Revenue and 32% of Disney’s Stock

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We expect ESPN to generate about $5 billion in revenue for Disney in 2010.  ESPN makes money through subscription fees charged to cable / satellite providers (Comcast, Dish, DirecTV) as well as through ads.

ESPN’s high revenue and value can be attributed to its high penetration in US pay-TV households and high fee per subscriber.  ESPN has around 98% penetration and charges cable / satellite operators a monthly fee per subscriber of about $3.20, which is much higher than the fee charged by its competitors.  The average subscriber fee for the majority of cable channels is less than $1 per month.

We estimate that ESPN accounts for about 32% of the $37 Trefis price estimate for Disney’s stock, and is valued at $23 billion due to the high amount of free cash flows it generates for Disney.

2. HBO: $3.7 billion in Revenue and 24% of Time Warner’s Stock

We expect HBO to generate about $3.7 billion in revenue for Time Warner in 2010.  Unlike ESPN, HBO earns revenue only through only subscription fees.

HBO is a premium cable channel and charges a high subscriber fee of more than $7 per subscriber.  However, due to its high subscriber fee, HBO only about 39% of US pay-TV subscribers receive HBO.

We estimate that HBO accounts for about 24% of the $27 Trefis price estimate for Time Warner’s stock and is valued at $7.8 billion.

3. Fox Sports:  $2.6 billion in Revenue and 19% of News Corp’s Stock

We expect Fox Sports to generate about $2.6 billion in revenue for News Corp in 2010.  This is about half the $5 billion in revenue we expect for the sports TV market leader ESPN.  Like its rival, Fox Sports makes money by charging monthly subscriber fees to cable / satellite operators.

Fox Sports’ subscriber fee of about $2.10 per month is less than that of both ESPN and HBO.  However, Fox Sports enjoys a much higher penetration of about 84% compared to HBO.  Because of its inability to scale its programming to match that of ESPN, Fox Sports has been unable to command the premium pricing that ESPN enjoys.

We estimate that Fox Sports contributes about 19% of the $18 Trefis price estimate for News Corp’s stock and is valued at close to $8.7 billion.

For additional analysis and forecasts, here are our models for Disney, Time Warner and News Corp stocks.