) competes with other media conglomerates like News Corp (
), Time Warner (
), CBS (
) and Viacom (
) in a variety of businesses. These businesses include cable
networks, broadcasting networks, movie studio and consumer
We estimate that media networks, which includes both cable and
broadcasting networks, is the most valuable segment for Disney,
contributing about 63% of the company's value. Within this segment,
ESPN leads the way contributing close to 30% of Disney's stock
value, or roughly 47% of its total media networks value.
Our price estimate for Disney stands at $39.72
, implying 6% upside to market price.
What makes ESPN so valuable? A large portion of ESPN's value
comes from the National Football League (NFL).
NFL is ESPN's Driving Force
Media companies pay tremendous amounts for broadcasting rights
to the NFL, which is consistently one of the most watched programs
in the US. ESPN's agreement with the NFL spans 8 years (from 2006
to 2012) and amounts to $8.8 billion. Assuming even distribution
over the contract term, this translates to annual payments of about
$1.1 billion. Other broadcasters like Fox, CBS, and NBC pay
between $600 million and $700 million annually under their
agreements with the NFL. These deals are particularly valuable to
broadcasters due to stringent on-field advertising restrictions in
the NFL, as well as the league's widespread popularity in large
We estimate that operating costs for ESPN (excluding SG&A)
will amount to about $2.3 billion for the 2010 fiscal year, the
majority of which is attributable to programming and production
costs. To illustrate the NFL's value to ESPN (Disney's largest
individual product line), we note that NFL licensing payments
amounts to almost half of ESPN's total operating costs
(ex-SG&A) for fiscal 2010. If we were to make a blanket
assumption that ESPN's revenue breakdown is in line with its
operating costs breakdown, it could imply that the NFL is
accountable for almost half of ESPN's profit (or roughly 14% of our
price estimate for Disney's stock).
To put this idea in perspective, ESPN features a wide variety of
sports on its platform from football and baseball to NASCAR and
college sports. Even within football broadcasts and publications, a
large portion of ESPN's content comes from college-level
50% of SG&A costs is a lot to allocate towards one content
supplier, but the revenue hit could be much greater if ESPN were to
discontinue its NFL licensing agreements. Many subscribers might
even lose interest in the network.
You can see
the complete $39.72 Trefis price estimate for
Disney's stock here.