Disney’s (NYSE:DIS) ESPN sports network has held preliminary talks to offer its programming on Internet TV.  Industry peer Viacom (NASDAQ:VIA) is also in talks with Sony to offer its content on Sony’s TV sets and PlayStations (Read – Viacom Nears A Content Deal With Sony). Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL), Intel (NASDAQ:INTC) and Amazon (NASDAQ:AMZN) have been eyeing the U.S. pay-TV market, and higher competition in the pay-TV market will translate into more revenue opportunities for content owners such as Disney, Viacom and Time Warner (NYSE:TWX). ESPN is the most valuable asset for Disney. The network has more than 100 million subscribers globally and it brought close to $11 billion in revenues for Disney in 2012.
- Is Twitter The Answer To Disney’s Problems?
- ESPN And Theme Parks To Shine For Disney
- Here Is What We Expect From Disney’s Q3 Earnings
- Here’s How Disney Might Be Working Towards Improving Its Theme Park Experience
- Dissecting Disney’s Shanghai Theme Park: How Big It Really Is?
- Why Did We Update Our Price Estimate For Disney, Though the Change is Modest?
ESPN Over Internet TV
ESPN dominates the global sports viewership through its multiple networks. The network stated that an Internet TV provider would have to pay as much or more than cable and satellite services. The sports giant will sell its entire suite of products including ESPN, ESPN2, ESPN News and mobile apps rather then offering single products.  It is essential for Internet TV providers to offer a suite of networks to its subscribers in order to compete with the traditional pay-TV operators such as Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC) and DirecTV (NASDAQ:DTV).
Internet TV providers are trying to obtain programming rights to win TV viewers from existing pay-TV operators. Content owners have been gaining from retransmission fees as well as content deals with alternative video providers such as Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN), and more players in the market to offer the content would mean more revenues. The increased reliance on retransmission fees, affiliate fees and content deals for content owners is evident from their recent quarterly performances.
How Is ESPN Doing?
According to our estimates, ESPN networks contribute close to 40% to Disney’s value. The network is the most valuable channel on pay-TV with the highest subscriber fees on basic cable. The network charged an estimated subscription fee of $5.05 in 2012.
However, ESPN has been facing increased competition. Other sports networks such as NBCSN, Golf Channel, MLB Network, NFL Network and Fox Soccer, all have seen higher viewership and even more networks are kicking in. Earlier this month, Fox Sports 1 was launched. While the competition between Fox and ESPN for sports rights will be limited because ESPN recently renewed most of its major contracts, Fox will be competing for advertising dollars, which could hamper ESPN’s advertising growth. In the Q3 2013, Disney’s media networks witnessed a 5% jump in revenues to $5.35 billion due to higher affiliate fees, which rose by 9% driven by contractual rate increases at ESPN. Notes:
- Disney’s ESPN Holds Preliminary Talks for Web-Based Pay TV, Business Week, Aug 21, 2013 [↩] [↩]
- Disney’s SEC Filings [↩]