Despite its struggles, ESPN has a number of levers it can pull to its advantage in upcoming affiliate renewal talks, according to MoffettNathanson.
The analyst firm spotted a few areas in which ESPN can push in order to get continued revenue growth. In particular, ESPN could launch an ACC Network and it could position itself to take advantage of its OTT plans with BAMTech.
MoffettNathanson expects ESPN’s launch of the ACC Network—due in August 2019—could have a positive impact similar to the network’s launch of the SEC Network in 2014. Citing SportsBusiness Journal reports, the firm estimates the SEC Network reached 60 million homes within a year and generated a profit of $210 million. In its first full year, EBIT for the network totaled $185 million and grew to $225 million in 2016.
“The ACC is expecting as much revenue in its first year as the SEC generated per school in 2014. We forecast a haircut to the SEC Network’s success with an assumption that the ACC Network will only be carried in states where their schools are located, representing about 40% of the U.S. households on the Eastern coast of the U.S. This leads us to project total revenues of approximately $220 million in its first year and $80 million in EBIT,” the firm wrote.
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The ACC could help ESPN and Disney the way the SEC did by offsetting a slowdown in Disney affiliate fee growth and profitability, the firm added.
Another upside for Disney and ESPN during the upcoming renewal cycle is Disney’s joint venture with BAMTech, which will be used to launch an ESPN direct-to-consumer service. MoffettNathanson expects the service could hit four million subscribers in the first four years—similar to CBS All Access’ growth trajectory—and that at a $10 price point, could provide an additional $480 million (or $335 million after the distributors’ cut is taken out) of subscriber revenue.
“As long as there is little to no overlap of the existing linear ESPN content on the BAMTech ESPN OTT offering, we expect essentially no cannibalization of the existing ESPN Pay TV subscriber base,” the firm wrote. “However, if content begins to spill over from existing channels, this will be an area worth monitoring closely.”
Disney and ESPN will have a number of opportunities to apply these strategies in the near future as many of the network’s affiliate agreements are coming up for renewal soon. Altice USA (the newly combined Cablevision and Suddenlink) is set to expire near the end of 2017, Verizon FiOS is set to expire next year and Time Warner Cable (now owned by Charter), AT&T U-verse and DirecTV all expire around 2019.