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Disney’s ESPN Kept Struggling in 2015 on Subscriber Losses

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ESPN’s subscriber losses

The Walt Disney Company’s (DIS) ESPN remained a worry for investors in 2015. ESPN is part of the company’s Media Networks segment. A significant component of the Media Networks segment’s revenues is affiliate fees and advertising revenues.

Affiliate fees are under increasing pressure due to pay-TV operators’ loss of subscribers. Subscriber losses are a worry for ESPN because, according to the contractual agreements with its distributors like Dish Network (DISH), affiliate fees are amended if subscribers drop below a certain level.

Disney’s ESPN earns much of its advertising revenues through sports programming, especially live sports. Disney had stated in its fiscal 3Q15 earnings call that 96% of all sports programming is live.

As the chart below indicates, ESPN lost 3 million subscribers from fiscal 2014 to fiscal 2015. In fiscal 2015, ESPN had 92 million subscribers, down from 95 million subscribers in fiscal 2014.

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Cost pressures are also on the rise for ESPN

ESPN holds the broadcasting rights for almost all big US sporting events, including NFL games. As a result, ESPN can charge a lot for advertising on its telecasts. But sports telecasting rights are an expensive business. According to a PricewaterhouseCoopers report, the cost for sports telecasting rights is expected to rise at a compound annual growth rate of ~5.3% between 2015 and 2018. It’s anticipated to be $19.3 billion in 2018.

ESPN is facing severe competition for those rights from 21st Century Fox’s (FOXA) Fox Sports and Comcast’s (CMCSA) NBC.

Disney makes up 1.4% of the iShares S&P 100 Index ETF (OEF). OEF makes up 3.5% of the consumer sector.

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