uploads///Revs distribution by component Media Networks segment

Disney’s Media Networks: Affiliate Fees and Advertising Revenues


Sep. 24 2015, Updated 5:06 p.m. ET

Revenue by component

In the previous part of this series, we discussed The Walt Disney Company’s (DIS) Media Networks segment and the revenue share of the Cable Networks and Broadcasting businesses. In this part of the series, we’ll look at the affiliate fees and advertising revenues for Media Networks.

Disney’s Media Networks segment derives its revenues primarily from affiliate fees and advertising. Affiliate fees are the carriage fees paid per month per subscriber by MVPDs (multichannel video programming distributors) like Comcast (CMCSA) and Dish Network (DISH).

Disney expects domestic cable affiliate fees to be a bit below expectations but nearer to the high-single-digit range in fiscal 4Q15. This change in estimate has been mainly due to subscriber losses for ESPN.

Disney has stated that it has lowered its estimate for Cable Networks operating income from high-single digits to mid-single digits on a compound annual basis between fiscal 2013 and 2016. It’s due to ESPN’s subscriber losses and impact of foreign exchange rates.

As the above chart indicates, a significant chunk of revenues for Disney’s Media Networks segment, around 51%, came from affiliate fees in fiscal 3Q15. Disney’s Media Networks segment had affiliate fees of ~$3 billion in fiscal 3Q15, rising 4% from the same quarter last year.

The growth in affiliate fees was largely due to high carriage fees charged by Disney and an increase in subscribers for the SEC Network launched in August last year. The domestic affiliate fees for the Cable Networks business rose by mid-single digits in fiscal 3Q15.

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Distribution revenues

The Media Networks segment’s SVOD (subscription video on demand) revenues rose by a phenomenal 32%, to $694 million, in fiscal 3Q15. Distribution revenues are earned by program sales to SVOD operators like Netflix (NFLX). This indicates that Netflix is more of an important customer for Disney than a competitor.

You can get diversified exposure to Disney by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY), which holds 6.96% of the stock.


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