Forbes: The Behemoth of ESPN

Why ESPN Is Worth $40 Billion As The World's Most Valuable Media Property - Forbes

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The engine that makes Disney go.

ESPN is worth $40 billion according to a research report this summer from Wunderlich or barely ten times earnings before interest, taxes, depreciation and amortization of $3.9 billion. Disney as a whole is currently worth $84 billion (Hearst owns a 20% stake in ESPN with Disney owning the rest). The CapCities purchase worked out great for Disney, but only because of the growth of ESPN, as the value of ABC has deteriorated dramatically over the past 15 years. Wunderlich figures that the ABC Network is worth $1.7 billion, or just 4% of ESPN's value, and the ABC Station Group another $2.6 billion.

The reality is that there is not another media property in the world worth as much as ESPN because no media asset delivering content generates close to as much money. Wunderlich pegs the value of the Disney Channel, which is one of the most valuable channels and has the third highest affiliate fees, at $10 billion. It is even uglier in print. The current market value of the New York Times is $1.3 billion. The only media companies in the world worth more than $40 billion are News Corp. ($58 billion) and Comcast ($96 billion). The value of News Corp. is spread out among dozens of media assets, while Comcast derives most of its value from being a cable provider.

There are fears that spending on sports rights fees will crimp ESPN's profitability going forward as competition heats up from Fox Sports and NBC Sports. ESPN recently agreed to double the annual rights fees it pays for Major League Baseball and last year reached an eight year, $15.2 billion deal to broadcast the National Football League.

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There are two key factors at work which explain why ESPN has become such a boon for Disney. First is the fact that with the advent of DVR and delayed viewing, traditional programming that Disney and ABC have relied on are struggling to generate reliable growth in advertising revenue. The other is the fact that the four major over-the-air broadcast networks are in almost as steep of a decline as we see in traditional print media. Consumers have many more choices for news and entertainment programming and the dent in the legacy media's business model is difficult to overcome.

Sports programming breaks the mold, and no one really foresaw what would happen when Disney bought ABC and ESPN in 1996. At the time, satellite TV was a nerd's gadget and Al Gore was still inventing the internet. Eisner et al really did think that ESPN and Mickey Mouse could somehow find a synergy that would make the merger work for both brands.

It didn't.

Sports programming is almost always watched live, even if it's DVR'ed. For traditional comedy, drama or other programming, the DVR is used to watch shows while skipping through commercials. For sports programming, the DVR is used to save "The Game" for later enjoyment. People still watch it live and therefore still get inundated with auto, alcohol and leisure industry advertising.

Hence, ESPN has grown into one of the largest and most powerful brands in any broadcast medium and there doesn't appear to be any slowing down.

Disney is valued at around $84 billion. With ESPN at about half that amount, the World Wide Leader could grow to dominate what is arguably the US' most recognizable brand.