Disney Gains From ESPN Video and Digital Deals

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Disney ( DIS ) reports Q3 earnings later this week, and this will give us the opportunity to update our forecasts.  In particular, we will look for greater details around Time Warner's ( TWC ) recent video and digital content deal struck with Disney that provides Time Warner with greater access to Disney Channel, ABC and ESPN content.

ESPN accounts for 30% of Disney's stock by our estimates driven by fees for sports programming that networks like Time Warner Sports, Fox Sports, owned by News Corp ( NWS ), and CBS Sports, owned by CBS ( CBS ), carry. Given high demand for sports content that ESPN controls, we expect to see average subscription fees rise further.

If our estimates for ESPN's fee per subscriber rise to $5.00 by 2016 versus $3.63 as we currently forecast, this would increase our price estimate of $37.44 by 6%.

ESPN is the Largest Driver to Disney Stock

As we have noted before, ESPN is the crown jewel to Disney's media business. By our estimates, it represents $22 billion in market value - greater than the Disney Channel, ABC Family, A&E History, SOAPNet and all other shows combined.

Since ESPN has a near monopoly on sports content, the average fee for sports content has climbed steadily over the past several years.  We estimate that current fee per ESPN subscriber is around $3.32, which is over 3x higher than Disney Channel average fees.

Due also to greater demand for high definition TV (HDTV), we could see higher demand for premium sports content. We wrote yesterday about increasing competition among service providers for HDTV content and concluded that content providers like Disney possess greater pricing power than networks that carry the content like Dish Network ( DISH ) or DirecTV (DTV).

Given ESPN's rich content and its ability to push through better pricing agreements like the Time Warner deal, average subscriber fees could rise ahead of our estimates. If these fees rise from $3.63 to $5.00 by 2016, we see additional 6% in our price estimate.

Our complete analysis for Disney's stock is here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CBS , DIS , DISH , NWS , TWC

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