Wednesday, February 20, 2013

How big a deal is ESPN?

An earlier post on the DISH-ESPN conflict over rights fees got me wondering... Just how big a deal is ESPN?
  Some online checking suggests its quite a big deal for corporate owner Disney.  One financial analyst called ESPN "Disney's Reliable Cash Cow."  His look at Disney's annual reports suggests that the ESPN networks represent about 43% of Disney's operating income.
  According to the annual report, Disney's Media Networks business segment contributes about 46% of total revenues.  The next biggest sector, Parks & Resorts, contributes 29%.  Media Networks also reports the highest operating margin at 38%; in contrast, Parks & Resorts posts a 10% operating margin.  So looking at operating income, 67% comes from Media Networks.
  Looking within the Media Networks segment, Broadcasting networks account for 15% of operating income, and Cable networks 85%. comments from Disney executives and notes in the 2011 annual report suggest that ESPN accounts for roughly three quarters of Cable networks revenues.  If that same proportion holds true for operating income, that means that ESPN accounts for roughly 63% of Media Networks operating income, or about $3.93 billion (43% of total operating income of $9.13 billion).  Since the Cable Networks has an operating margin of 41% (much higher than any other Disney business segment), the estimates above are likely on the low side.
  And the Cable Networks and ESPN numbers are growing, with operating margins improving year-to-year, affiliate fees growing 9%, and advertising revenues up 14% (driven mainly by higher ad rates on ESPN's channels). Not to mention growing audience numbers.
This trend should continue. ESPN has contractual agreements with the world's greatest sports events, including NFL, NBA, and MLB games, Wimbledon, the Indy 500, NASCAR, college sports, and cricket. And to put the icing on the cake, ESPN recently renewed its contract to get the rights to 17 Monday Night Football games every year between 2014 and 2021. ESPN's great live sports and unmatched coverage should continue to reward Disney investors over the next decade.
That suggests ESPN will continue to be a reliable source for revenues, even with rapidly increasing rights fees for major sports that are resulting from the increasing competition from new & emerging sports cable networks.  (Fox, NBC, and CBS are all making major investments in content for their increased number of sports cable networks.)

Source - ESPN: Disney's Reliable, Cash CowThe Motley Fool

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