Thursday, February 21, 2013

ESPN Rates and Revenues Update

Terms of Time Warner Cable's 2010 deal with ESPN are coming out, and are reaffirming it's dominance among cable network revenue producers.  The information came to light when revealed in court earlier this week as part of the Dish vs. ESPN lawsuit, and reflect the contract terms from September, 2010.  While the terms may have changed or been renegotiated, it's unlikely that the rates have been reduced.
  Under the 2010 agreement, the affiliation fee for ESPN would reach $5.40 per Time Warner subscriber per month by the middle of 2013, reaching $7 per subscriber (per month) in 2017, and $8 around 2020.  Looked at in terms of annual fee inflation, ESPN's price would increase about 6.5% annually.  Dish sought information about Time Warner's deal with ESPN because it's supposedly the lowest rates for ESPN carriage rights.  In other words, that's the minimum and the costs for other multichannel providers may well be higher.
  ESPN currently reaches about 100 million U.S. TV households, almost all through some multichannel service that's paying for the rights to carry ESPN.  Applying those per sub monthly fees over a year for 100 million subs, and you quickly generate some serious cash.  The math suggests that ESPN will earn at least $6.5 billion from subscription fees this year, at least $8.4 billion in 2017, and around $9.6 billion by the end of the decade.  And those numbers don't include earnings from advertising or what's generated by the other ESPN brands.  ESPN clearly generates a lot of revenues and cash flow, even within the huge Disney empire.  In fact, these suggest that the analyst's assumption in the previous post (2011 revenues just under $4 billion) are on the low side.
  ESPN is the golden goose of TV, the gift that keeps on giving, the stock you wish you'd bought 40 years ago.  (Pardon the cliches). 

  At this point, the only thing that seems likely to dramatically change ESPN's revenues track is if the FCC mandated that multichannel video program distributors offer access only through a la carte pricing - that is, consumers would have to order and pay for each network/channel separately.  At $5.40 per month, that would push ESPN's price to $64.80 a year - but if ESPN wanted to keep their revenues level, the subscription price under a la carte would need to be much higher, to compensate for those choosing not to subscribe to ESPN, and to make up for lower advertising revenues resulting from the smaller audience reach.  That's the downside to a la carte pricing - you wouldn't have to "pay" for channels and networks you don't want, but you'd have to pay a lot more for the channels you do want.  Not even ESPN is that valuable - so such a move would almost certainly result in a sizable and significant decline in revenues.

Source -  ESPN Set To Pass $7 Sub Fee In 2017, TVBlog

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