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