Weekly Media Notes: ESPN Streaming Service, Mayweather Fight And Cable News Ratings

The media industry remained active this past week with Disney’s CEO stating that ESPN will eventually be sold directly to customers. In another note, major cable news networks, including Fox News, saw a ratings uptick in Q2. In yet another, CBS’ Showtime says that September will mark Mayweather’s last fight. On that note, we discuss below these developments related to media companies over the last week or so. Also, the upcoming week will be eventful as major media houses, including Disney, Viacom, Fox, CBS and Time Warner will report earnings.

Disney’s (NYSE:DIS) CEO, Bob Iger, stated that ESPN will eventually be sold directly to customers. However, he said this might not happen immediately but maybe after five years or so. ^[1] There is no surprise element here as major networks should be going over-the-top in this environment where there is a shift of audience from traditional television to alternative platforms. With HBO and Showtime already available over-the-top, it is about time when ESPN does that. Currently, one thing that holds back many customers from cutting the cord is sports programming. Once ESPN goes over-the-top, it will surely increase cord cutting and customers will have a free choice to opt for the programming they want. But for ESPN cable model is far more important, at least in the current media market. ESPN wouldn’t want people to cut their cable cords and then subscribe to ESPN streaming. In fact, when HBO and Showtime went over-the-top they were very clear that the target customer is broadband-only subscriber or the people who haven’t subscribed to these premium networks. We are eager to see when Disney decides to launch ESPN’s standalone streaming service.

• Trefis has a $105 price estimate for Disney’s shares, translating into a $178 billion market cap. This is roughly 10% below the market price of around $120 seen over the week.
• We estimate the company’s 2015 revenues to be around $53 billion for earnings per share of $5.00, compared to consensus of $5.04, according to Reuters.

21st Century Fox

21st Century Fox’s (NYSE:DIS) Fox News inched up to 2nd spot in all of primetime cable in July. While the network saw a 4% decline in total day viewers, it was up 5% in primetime demo. Time Warner’s (NYSE:TWX) CNN also grew 6% in primetime demo while MSNBC was up 3%. However, MSNBC saw solid growth in daytime lineup, up 17% in total viewers. ^[2] There were some big stories in July, including the Iran nuclear deal, Donald Trump, Greece and the Confederate flag, which resulted in higher ratings for cable news networks. Fox News is a widely reached network with 90% penetration among U.S. pay-TV households, and we believe it will continue to maintain such high figure owing to its popularity.

• Trefis has a $39 price estimate for 21st Century Fox’s shares, translating into a $81 billion market cap. This is roughly 20% ahead of the market price of around $33 seen over the week.
• We estimate the company’s 2015 revenues to be around $30 billion for earnings per share of $1.70, compared to consensus of $1.71, according to Reuters.

CBS

CBS’ (NYSE:CBS) Showtime network stated that September will mark Mayweather’s last fight and if the boxing champion decides to fight more, Showtime will be interested in extension of the deal. The network has sold stellar 10 million pay-per-view access for five fights. ^[3] If Mayweather does decide to continue to fight and extends a deal with Showtime, it will surely be a big positive for CBS. Currently, CBS’ cable networks generate around $4 billion in revenues and we estimate them to grow to over $5 billion over the next few years.

• Trefis has a $60 price estimate for CBS Corporation’s shares, translating into a $29 billion market cap. This is roughly 10% ahead of the market price of around $53 seen over the week.
• We estimate the company’s 2015 revenues to be around $14 billion for earnings per share of $3.60, compared to consensus of $3.60, according to Reuters.

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1. Disney CEO says ESPN will eventually be sold straight to consumers, The Verge, July 27, 2015 [↩]
2. Cable News Ratings: MSNBC Stops the Bleeding, Fox News Jumps to No. 2 in All of Primetime Cable, The Wrap, July 28, 2015 [↩]
3. Showtime exec insists September will be Mayweather’s last fight, GMA News, July 29, 2015 [↩]