Rising programming costs for Disney’s ESPN
The Walt Disney Company (DIS) stated during its fiscal 1Q17 earnings call that it expects its programming costs at Cable Networks to be ~16.0% higher year-over-year. That rise in programming costs is in line with the company’s expectations of an ~8.0% rise in programming costs for fiscal 2017.
Disney’s Cable Networks had revenues of $4.4 billion in fiscal 1Q17, a fall of 2.0% year-over-year. In fiscal 1Q17, Disney’s ESPN had higher programming costs as a result of its programming deals with the NBA (National Basketball Association) and the NFL (National Football League). The NBA entered into a sports programming deal with Time Warner’s (TWX) Turner Network and Disney’s ESPN in October 2014 for $24.0 billion. The agreement came into effect in October 2016 and should last through 2025.
Disney said in an earnings call that it expects this NBA deal to drive $600.0 million of its programming expenses. The company also said during its fiscal 1Q17 earnings call that it expects programming costs to rise for ESPN in fiscal 2Q17. These costs should rise due to the three college football playoff games that were broadcast in 2Q17, as well as the additional programming costs as a result of its programming deal with the NBA.
Reason for rising programming costs
Live sports programming is a lucrative revenue stream for media companies. However, it’s an expensive business since sports broadcasting rights are expensive. Even established incumbents such as Disney’s (DIS) ESPN are facing intense competition for rights from Twenty-First Century Fox’s (FOXA) Fox Sports and Comcast’s (CMCSA) NBC.
As the above graph shows, according to a PricewaterhouseCoopers report, the cost for sports telecasting rights is expected to rise at a CAGR (compound annual growth rate) of ~5.3% between 2015 and 2018. It’s expected to be $19.3 billion in 2018.