News Corp (NASDAQ:NWS) is buying Disney’s (NYSE:DIS) 50% stake in ESPN Star Sports (ESS), a joint venture between ESPN and News Corp that operates several sports networks in Asia under ESPN and Star Sports brands.  This marks an end to a 16-year partnership between the two companies. The natural question is why is News Corp doing so? There could be several reasons ranging from the profits that sports programming offers to growth potential in international markets, especially the Asia-pacific region.
The success of ESPN has demonstrated the attractiveness of sports programming. In the U.S., where the sports market is developed and mature, ESPN has been able to significantly raise its fee per subscriber as well as ad pricing each year, and thereby maintain its revenue and profit growth. And its dominance in the U.S. market is so strong that other sports networks don’t even come close. News Corp perhaps wants to replicate this success in emerging markets such as Asia by leveraging the brand of its joint venture with ESPN.
- Print Media To Weigh On News Corp’s Earnings
- Why Is News Corp Investing In Augmented Reality?
- How Much Will News Corp’s Digital Real Estate Revenues Benefit From The Diakrit Acquisition?
- News Corp Earnings Takeaways: Foreign Exchange Headwinds A Drag
- News Corp Earnings Preview: Print Media To Remain A Drag On Results
- News Corp Dabbles Into Different Segments To Restore Profitability
Further, News Corp is looking to be the sole beneficiary of future growth in Asia, which will facilitate the growth of sports programming market. As Asian economies develop and the standard of living improves, demand for high quality sports coverage will increase driven by increased interest among viewers given the right marketing.
As emerging markets develop, there will also be a fierce competition among pay-TV companies as we have witnessed in the U.S. This is going to bid up the sports programming carriage fee, thus benefiting News Corp. Additionally, the development in Asia will facilitate more world class venues for big games such as the Olympics, tennis, soccer & other international tournaments, which will directly benefit the sports networks.
Our price estimate for Disney stands at $23.10, implying a premium of about 20% to the market price.Notes:
- UPDATE 2-News Corp buys Disney stake in Asian sports JV, Reuters, june 6 2012 [↩]