Can ESPN Keep Raising Prices With Competition Heating Up?
ESPN is Disney’s flagship franchise and constitutes close to 40% of the company’s value by our estimates. This implies that its business is worth around $40 billion based on our estimated $102 billion valuation estimate for Disney. How does ESPN generate so much value? We estimate that the network brought close to $11 billion in revenues for Disney in 2012. These include revenues from primary ESPN channel as well as its other sister channels, such as ESPN2, ESPNU, ESPNEWS, ESPN Classic and ESPN Deportes. ESPN has close to 100 million subscribers in the U.S., which is the case for many of the big cable networks. However, ESPN’s true value lies in the high fee per subscriber that it charges for its sports programming. This amount has increased from an estimated $3.65 in 2008 to $5.05 in 2012. The historical growth has resulted from multi-year programming contracts that specify annual fee increase, sustained high demand for sports programming, rising sports programming costs and ESPN’s market leading position. Going forward, growth in the subscription fee is likely to slow due to pressure from pay-TV service providers and expected competition from NBC and Fox, who are planning to launch nationwide sports networks to compete with ESPN.