ESPN’s total sports hours may have peaked, and at least one analyst anticipated it will impact ad growth for the Disney-owned sports network.
Jefferies analyst John Janedis said that Jefferies Sports Tracker suggested that "core" live sports hours across ESPN's properties have peaked at around 3,000 over the past couple of years.
“Going forward, we expect hours to remain flattish, but with the abundance of sports programming/networks, we are concerned the availability of sports inventory could pressure sports advertising growth. We lowered our F18 and beyond cable network advertising to +2% vs. our prior +3%,” wrote Janedis in a research note.
While Disney’s film segment is in the midst of an astounding run, its cable network segment has been dragged down some by ESPN.
Cable Networks division’s revenues fell 2% to $4.4 billion and operating income decreased 11% to $0.9 billion in the latest quarter, a drop Disney blamed on a decrease in operating income on ESPN.
Specifically, ESPN was impacted by higher programming costs and lower advertising revenue, but received a partial boost from affiliate revenue growth. ESPN’s results were hurt by rate increases for NBA and NFL programming. Sinking advertising revenue was due to lower impressions and rates, which Disney said occurred partly because of a shift in the scheduling for some College Football Playoff games.
Janedis estimated that ESPN's sports rights account for close to 50% of cable network segment expenses, and over 80% of total production and programming costs for Disney. With NBA rights due to increase in 2017, cable segment programming and production costs will increase at an 8% rate this year, above historical levels.
“NBA sports rights costs will nearly double in F17 (to $1.1B) resulting in ~$600M of incremental costs. ESPN will cut other non-sports programming costs to manage to an 8% increase in segment programming & production expenses. In F18, however, we forecast sports rights to increase by a more modest $230M, with all in programming/ production costs up a total of 3%, or about the same amount,” wrote Janedis.