Bidding for rights to the upcoming Olympic Games could present much more than an ad revenue opportunity for Walt Disney Co.'s flagship cable sports network, ESPN, and could also help drive the network's already industry-leading affiliate fees even higher, Disney's CEO, Robert Iger, told analysts Tuesday.
On a conference call with analysts to discuss its fiscal second-quarter results, Iger was asked if ESPN, which has the highest monthly carriage fees of any other 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. Iger said that while major events like the Olympics would definitely be a boost to advertising revenue, ESPN has ample room to grow affiliate fees.
"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 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. It would definitely generate incremental subscription revenue."
ESPN, NBC and Fox are considered to be the top contenders. 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 Disney will consider obtaining the rights for the games, but added that they also won't pay too much for them.
"While ESPN certainly intends to take a look at the Olympics seriously, ESPN's 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," Iger said. "It's going to continue to be a balance."
Regarding the current NFL lockout and the impact a potential work stoppage during the football season could have on the network, Iger wouldn't get into specifics, but said that ESPN, by the 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.
