Still, there are big questions about how aggressively ESPN can and should mine rapidly expanding digital media. It is exceptionally positioned to forge a lucrative path through paid premium content, interactive marketing and social marketing. But the Disney-owned sports giant is treading more lightly into these fields than many expected.
To date, ESPN has taken to heart the well-publicized instances of media players who have incurred the wrath of its affinity members when they tried to mess with their marketing, advertising, content and social relationships. Still, it is more imperative than ever for companies to explore and experiment prospects for addressable advertising and premium pay content. There is an economic bonanza in there somewhere.
ESPN has every reason to move cautiously. ESPN contributes $9.4 billion of Disney's total cable network revenues of $12.4 billion, and $3.6 billion of Disney's total cable network earnings of $4.6 billion in fiscal 2011, according to Morgan Stanley. It remains the single most valuable asset Disney inherited with its 1996 acquisition of Capital Cities/ABC.
As Comcast prepares to take 51% control of NBC Universal later this month, bidding for the 2014, 2016, 2018 and 2020 Olympic games U.S. televised rights will likely become the first, most raucous scrimmage for digital content. It could pay handsome dividends in new digital revenues to offset a suggested $4 billion price tag for domestic telecast rights of the four Olympics Games, sources say.
For many years, NBC molded its Olympics telecasts into a profitable and prestigious proposition by boldly raising the bar from broadcast to cable to streaming online video and mobile, where there remains plenty of fertile ground to explore. The intense universality makes the Olympics a special test case in new digital business models to counter increasing over-the-top TV and cord-cutting even at the country's largest cable systems operator.
Comcast could ambitiously puts its Canoe Ventures, TV Everywhere, Xfinity on steroids and other new features to work. Maybe Comcast will be able to take dual ownership of content and distribution to places Time Warner wouldn't go. For years, Comcast has been intent on becoming more of a sports force to be reckoned with on regional and national levels.
Because ESPN is uniquely positioned to attempt digital sports nirvana, Comcast may have to commit billions to maintain NBC's Olympics edge. While the MSO clearly is buying NBCU for its cable network booty, entertainment and news content generally are not yet commanding lucrative subscription and marketing strategies to support healthy new revenues stream.
Sports programming rights and values will only become more complex. Live sports is in the sweet spot of the nearly $29 billion advertisers are expected to spend online this year, although video's portion remands less than 10%, according to eMarketer. Sports encompasses all forms of digital content and functionality beyond live play -- from fantasy teams and video games and replays, to streaming data and news, smart phone apps, and specialized products.
Rapid changes in the advertising and media landscape are creating customer acquisition challenges that content such as sports can penetrate, according to JP Morgan's voluminous "Nothing Bu Net" report. It's the one form of content that adapts to all media devices and platforms, in any language.
The largest and most important revenues stream in the b-to-b marketplace are the fees paid by cable and satellite owners for the right to use their sports rights and other content. In the coming years, these affiliate fees will be a critical driver of sector revenue and a continuing source of antagonism between content owners and distributors.
But the advent of new devices and access options will yield new forms of "affiliates." Because ESPN's monthly affiliates fee is such a massive outlier -- ESPN claims 20% of the affiliate fee pot with only 5% of the viewing audience. Other outliers include regional sports networks like YES are also at the upper end of monthly affiliate fees, according to a recent report by Nomura Securities analyst Michael Nathanson. Time Warner's TNT has bolstered its overall value with an NBA contract for regular season games, All-StarWeekend and playoffs.
ESPN is adding more 3D offerings and digital interactive features and service that can only attract consumers and advertisers. ESPN's domestic sports costs are expected to increase by high single digits in 2011, which is higher than in recent years with its NFL, NBA, NASCAR and NCAA contracts locked in through fiscal 2013. The only "notable growth exception" could be US rights to the 2014 and 2016 Olympic Games, Nathanson said.
According to MAGNA, the NFL has more than 25% of all time spent viewing sports with its rights fees, representing nearly half of all total national television dollars spent on sports, or more than $5 billion. Every media outline in broadcast and cable, online and in mobile, in print and on radio is under pressure to devise ways to generate lots new revenues to collectively better offset those costs. ESPN has been negotiating a five-year, 5% cost increase renewal for the rights to Monday Night Football.
ESPN's cable affiliates will generate an estimated $6.4 billion and advertising revenues of $2.8 billion in 2011 compared to nearly $300 million in online and mobile income for a total of $9.4 billion in fiscal 2011 revenues and $3.6 billion in earnings, according to Morgan Stanley. ESPN will barely muster $325 million in online and mobile revenues by 2015. That's pathetic, given the attachment sports aficionados have to exploring their favorite teams, players and sports in every interactive way possible.
If Comcast or any other cross-platform media giant can pull off a digital interactive sports coup, they could chip away at ESPN's overall $60 billion asset value, comprising half of all Walt Disney Co. As conventional media continues to yield to and intertwine with the so-called new digital media, even ESPN's TV cornerstone will require shoring from new revenue sources and new affiliates that won't be local TV stations, national TV networks and cable MSOs.