How ESPN Is Affecting Disney’s Rumored Interest In Netflix
Disney (NYSE:DIS) has been witnessing a slowdown in its media networks division of late, of which ESPN forms an integral part. ESPN continues to lose subscribers, having lost around 3 million subscribers in the last three years. Accordingly, Disney is looking at prospective acquisitions to help secure the future of the struggling segment. There has already been speculation about the company possibly acquiring Twitter (NYSE:TWTR), most likely to take advantage of the company’s live-streaming platform considering successful start of its Thursday Night Football live stream. Another company that Disney is rumored to be interested in is Netflix (NASDAQ:NFLX).
ESPN Is Important To Disney
- Disney Stock Has 2x Upside If It Rises To Pre-Inflation Shock Highs Of $202 Per Share
- Disney Stock Could Rise Over 2x If It Recovers To Pre-Inflation Shock Highs
- Will Slowing Streaming Growth Impact Disney’s Q3 Results?
- Disney Stock Could More Than Double If It Recovers To Pre-Inflation Shock Highs
- A Deep Dive Into Disney’s Streaming Operations After A Tough Q2
- What To Expect As Disney Reports Q2 Results?
ESPN is one of the most valuable networks in the world, with an estimated valuation of $50 billion. Per our estimates, the sports channel contributes 26% of Disney’s value. 
ESPN is dependent on its subscription fees, from which it derived more than 60% of its revenues in 2015. The network also has the highest affiliate fees of any channel, which are paid by cable operators and consequently passed on to customers. At $6.45 per subscriber, its average subscription fee is by far the highest among all of Disney’s channels, with TNT being the next highest at just $1.65 per subscriber. Recently, the sports giant has been losing subscribers due to significant cord-cutting, as a result of a rise in over-the-top (OTT) service providers.
With this visible shift in viewership to online content, it makes sense that Disney would be interested in over-the-top platforms such as Netflix or live-streaming platforms such as Twitter’s. In order to stem ESPN’s subscriber losses, the company needs to distribute its content through alternative viewing platforms. For the same reason, Disney announced the purchase of a 33% stake in Major League Baseball’s BAMTech unit in August.
Sports rights are a major driver of ratings, as they don’t have a lot of original content to show other than live sporting events and analysis. ESPN has been scooping up broadcasting rights for major sporting events in the hopes that it will help boost its subscriber base, with its major rights listed below:
How Would Netflix Affect ESPN?
The two companies already work together to an extent, since Netflix is now the exclusive pay-TV host for Disney’s new movies released in and after 2016. However, a Netflix acquisition would really benefit Disney due to its nearly 80 million paid subscribers, which make it the undisputed distributor of OTT content. If a deal were to materialize, then Disney could get an ideal streaming platform, and could potentially stream sports content direct to customers without the requirement of a cable subscription. Disney could use this member base to strengthen ESPN’s value in the long run and showcase Disney TV’s content in front of large global audience.
Although Disney is currently valued at $148 billion, any deal would come at a massive price, as Netflix has a current market value of about $45 billion. Irrespective of whether the deal happens in cash or stock, it would have a significant impact on Disney’s earnings and balance sheet. Disney could also have to pay huge premium to Netflix in the event that a bidding war occurs.
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)