Investors have considered ESPN a darling media property, and the network’s success has been at least partially responsible for Disney’s 44% return in 2013. While media companies have experienced a broad increase in the value of their content, sports programming in particular has led in popularity and value growth. As we discussed in the previous part of this series, sports popularity along with the ability to bundle channels has enabled ESPN to demand higher fees from cable and satellite companies than any other network. However, ESPN has been able to leverage its popularity to rapidly grow revenue from other sources as well. Disney is a member of the PowerShares Dynamic Media Portfolio ETF (PBS), which seeks to provide exposure to an index of media stocks.
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Live versus time-shifted
Sports programming has an additional feature beyond its broad popularity that makes it appealing for media companies. In particular, the nature of sports and reporting on outcomes encourages viewers to watch the programming live rather than in a time-shifted format like DVR or on-demand. This feature makes sports programming attractive to advertisers, who realize viewers are less likely or able to skip advertisements while watching a sporting event.
The value for advertisers has allowed ESPN to charge increasing rates for advertising on the network. The result has been a nearly 90% increase in ad revenue for the network over the course of seven years. The ad revenue helps subsidize the cost of the channel and keep the fees charged to cable and satellite companies lower. However, the overall revenue that ESPN is able to deliver by appealing to both viewers and advertisers shows the value ESPN contributes to Disney as a whole.
The exceptional economics and trends for sports programming have produced ongoing positive results for Disney. But the same features have led to new dynamics in the media industry that may impact values in the future—a topic we’ll address in the following part of this series.