The Real Disney – The Schumpeter column @ Economist (april 2013):
“Disney smartly gives its subsidiaries autonomy. The boss of ESPN, John Skipper (a former Disney executive), and Mr Iger (a former ABC sports producer) both love sports and speak often, but are 2,900 miles apart. Disney’s biggest contribution to ESPN has probably been its fat wallet, which paid for new sports rights and technology. ESPN was one of the first firms to offer live video on its website, and it has launched an application so cable subscribers can stream ESPN on mobile devices.
At Disney’s coaxing, ESPN experimented with brand extensions such as restaurants and mobile phones that pinged match results to subscribers, but both flopped. Not all brands, it transpires, can be trotted out to theme parks and toy shops. Disney learned this, and focused instead on new content and platforms. ESPN has a fleet of channels and websites aimed at specific audiences, such as Hispanics and women, as well as a magazine, and is savvy when it comes to mobile and online viewing.
ESPN’s muscular profits depend on three things. First, fans watch sports live: no one wants to see Monday Night Football on Wednesday. Because viewers cannot fast-forward through the adverts, advertisers pay more for slots on ESPN.
Second, ESPN offers spectacles you cannot see elsewhere. Rights to broadcast games are often exclusive. ESPN shows more sports, including baseball, car-racing and poker, than any other network. SportsCenter features some of America’s sparkiest sports commentators, whose banter is as irreverent as an English football chant, minus the swearing. (Keith Olbermann, an over-the-top political pundit, used to be one of them.)
Third, ESPN pioneered “affiliate fees”, which cable operators pay for the right to carry each network. In 2013 ESPN will probably earn $6.6 billion from them, more than three times what it makes from ads, according to SNL Kagan, a research firm. Because it has so many exclusive sports rights, ESPN has been able to haggle its fee up to $5 per subscriber, per month: far higher than any other network’s. These fees are more predictable than ad sales, which is why investors are such fans of cable networks.”
The complete article