How Disney’s Video Streaming Move Could Affect It Financially
Programming expenses a major component of ESPN’s costs
The Walt Disney Company’s (DIS) ESPN is part of the company’s Cable Networks business. In fiscal 3Q17,1 Disney’s Cable Networks business had revenues of $4.0 billion, a decline of 3% year-over-year. The Cable Networks business also saw a decline in its operating income of 23% year-over-year to $1.5 billion in fiscal 3Q17.
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A major reason for this downtrend in Disney’s Cable Networks business was higher programming expenses and falling advertising revenues at the ESPN network. The Cable Networks business had an increase in programming expenses of 14% year-over-year.
For fiscal 2017, Disney expects its programming expenses to grow an additional $600 million. Fiscal 3Q17 saw expenses of ~$400 million of this $600 million in total programming expenses.
The rise in programming expenses is due to the $24.0 billion sports programming deal with the NBA inked by Disney’s ESPN and Time Warner’s (TWX) Turner. This agreement came into effect in 2016 and should last through 2025.
Sports broadcasting rights fueling rise in programming expenses
Broadcasting rights to major sports events comprise a major part of programming expenses for sports networks. According to a Pricewaterhouse Coopers report and as indicated by the chart above, expenditures on sports broadcasting rights is expected to reach $19.3 billion in 2019.
Disney has followed a strategy of bidding for sports broadcasting rights for multiple sports events. According to Disney, the launch of ESPN’s direct-to-consumer service would offer the company an opportunity to further monetize its sports broadcasting rights.
- fiscal 3Q17 ended July 1, 2017 ↩