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Iger: ESPN Isn’t Maxed Out

5/16/2011 12:01 AM Eastern

While carriage fees for its flagship
cable-sports network may be testing the limits for
distributors, The Walt Disney Co. CEO Bob Iger
said that ESPN hasn’t lost any clout and upcoming
bidding for the Olympic Games could provide
incentive to push those rates even higher.

On a fiscal second-quarter earnings call, Iger
was asked if ESPN, which has the highest monthly
carriage fees of any cable network (about $4.50
per month per subscriber, according to SNL Kagan),
has maxed out its leverage with affiliates
and whether that could be a disincentive for the
network to pursue rights for new sporting events
like the Olympics.

While major events like the Olympics would
definitely be a boost to advertising revenue, there is
ample room to grow affiliate fees already, Iger said.

RIGHTS AND REVENUE

“Between now and when the Olympics rights that
are being bid out occur, ESPN has a number of rather large
negotiations with distributors to engage in,” Iger said on the
call. “There are definitely opportunities for ESPN to address
its subscription revenue based on the general programming
offering that it has, which is both a collection of events, including
the Pac-12 college-sports conference or sports it has
already bought, and possibly sports that it may buy.

“I think it would be wrong to assume that the purchase of
an Olympics should only be looked at as a possible generator
of incremental advertising revenue,” he added. “It would
definitely generate incremental subscription revenue.”

Iger wouldn’t say which distribution deals are set to expire,
but ESPN’s agreements with Cox Communications
and Charter Communications, inked in 2004, could be
coming up for renewal in 2014.

ESPN, NBC and Fox are considered the top contenders
for the next round of Olympics TV rights. NBC outbid
ESPN for the 2010 Winter Games in Vancouver and the
2012 Summer Games in London, agreeing to pay about
$2.2 billion for the package. NBC has said it lost about $200
million on the Vancouver Winter Games.

Network executives are expected to travel to Lausanne,
Switzerland, June 6-7 to make presentations and submit
sealed bids for rights to the 2014 winter and 2016 summer
games, with an option for a package of four games through
2020, according to the Associated Press.

Iger said ESPN would look at the Olympics “seriously.”

“ESPN has also demonstrated a great ability to walk
away from opportunities that they didn’t believe made
sense from a bottom-line perspective, and they have also
demonstrated an ability to divest certain rights that they
feel weren’t driving the value that other rights could have,”
he added. “It’s going to continue to be a balance.”

ESPN has long been a driving force for Disney and in the
fiscal second quarter, nothing has changed. Overall,
revenue at the media giant was up 6%, to $9.1 billion,
in the period. Net income declined 1%, to $942 million.

At Disney’s Studio Entertainment division, revenue
dipped 13% and segment operating income was down
65% in the period. But cable and broadcast networks
performed well.

Cable, including Disney Channel and ESPN, grew revenue
17% in the period, to $2.8 billion, and operating income
increased 15%, to $1.4 billion, spurred by increased
advertising revenue and strong affiliate fee increases.

Ad revenue was up 23% at ESPN.
Broadcast, including the ABC Television Network,
grew revenue 4%, to $1.5 billion, and operating income
was up 36%, to $167 million.

NFL OVERHANG ‘MINIMAL’

Some investors have worried that a prolonged work
stoppage by the National Football League could put the
squeeze on ESPN, the home of Monday Night Football.

Iger wouldn’t get into specifics, citing confidentiality
agreements, but said that ESPN, by nature of its
other programming rights, is insulated from a prolonged
loss of games.

“We can only say that if there is a work stoppage of even
significant length, the impact to our bottom line should be
negligible,” Iger said. “That in part comes from a belief at
ESPN that if there is a loss of NFL games, there will be a
mad dash for male demos in other sports, particularly college
football, where ESPN has almost 300 games across its
platform, including ABC.”

Iger added that ESPN also has the ability to expand its
inventory of games by changing formats, which he said
could drive substantial increases in CPM rates from advertisers
concerned that they won’t have access to that male
demo through the NFL.

September