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CPBJ Extra Blog

Disney (and ESPN) know they have us where they want us

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You never know what you're going to find when you start scrolling through a publicly traded company's earnings report.

Here at the Business Journal, we see dozens of them every three months. We’re square in the middle of what I like to call “Earnings Season” right now, so we churn out the highlights as much as we can about companies that are either based in the midstate or have major interests here.

This week I was perusing a random earnings report of a company that has nothing to do with the midstate, and I got angry.

Really angry.

It was Disney’s first-quarter fiscal year 2014 report that was released Wednesday. The company did quite well, increasing diluted earnings per share 34 percent over the same three-month period that ended Dec. 29, 2012. Bully for them, you say. That’s what big companies — especially Disney — do. They make money.

But then I read this sentence in Disney’s earnings report:

“Operating income at Cable Networks increased $325 million to $1.3 billion for the quarter due to growth at ESPN ...” and smaller growth at a couple other of its cable networks. Of all Disney’s properties, ESPN is singled out as one of the major reasons for the corporation’s growth.

And they grow by charging more money to cable companies for the rights to air the network.

Far and away on your cable/satellite bill, ESPN is the biggest, non-premium-channel expense. Your monthly statement isn’t broken out by channel, but just know from really hard-to-find numbers that ESPN and its networks make up about half of the cost carriage fees basic cable channels charge to your cable company.

Finally, cable companies are starting to grumble about the expense of carrying ESPN and its branches of sports networks.

ESPN isn’t the only one that’s responsible. Go back to that list, and most of the expensive cable channels are sports channels because of the live-viewing aspect of all of them. It’s just that ESPN is the most expensive, by a long shot, and the issue compounds with its additional channels. Live TV is more attractive to viewers and advertisers, and sports network carry the most live TV.

So while that simple sentence on an earnings statement looks like a throwaway statement, Disney execs are smiling from ear to ear, because they know this isn’t just a quarterly thing.

This is how it’s going to be going forward, every quarter, and we’re all at Disney’s mercy if we want the programming ESPN offers.

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