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Disney’s ESPN Holds Preliminary Talks for Web-Based TV

Disney’s ESPN Holds Preliminary Talks for Web-Based Pay TV
Walt Disney Co.’s ESPN is the most valuable channel on pay TV, garnering the highest subscriber fees of any basic cable network, according to researcher SNL Kagan. Photographer: Jonathan Alcorn/Bloomberg

Aug. 21 (Bloomberg) -- Walt Disney Co.’s ESPN sports network has held preliminary talks to offer programming on a Web-based TV service like those proposed by Google Inc., Sony Corp. and Intel Corp.

An Internet TV provider would have to pay as much or more than cable and satellite services, President John Skipper said today at ESPN’s campus in Bristol, Connecticut. He declined to specify the companies ESPN has spoken with.

A Web-based service would have to buy “the whole suite of products,” Skipper said. “We’re not going to offer one-offs.” The network includes the flagship channel, plus others such as ESPN2, ESPN News and mobile applications offered to existing pay-TV subscribers.

Access to ESPN would give new online TV providers instant credibility and a foothold to compete with established players like Comcast Corp. and DirecTV. The network is the most valuable channel on pay TV, garnering the highest subscriber fees on basic cable, according to researcher SNL Kagan.

Talks with alternative TV providers are exploratory and any new platform would have to offer a package of channels comparable to what other operators provide, according to Chris LaPlaca, a spokesman for ESPN.

To get deals done with ESPN and other networks, the new providers will have to guarantee minimum subscriber numbers and pay the associated fees even if fewer viewers sign up, David Bank, an analyst at RBC Capital in New York, wrote in an e-mail.

“They have to be ‘take or pay’ contracts,” said Bank, who has an outperform rating on Disney shares. “If you can’t sign that many up, you still have to pay.”

Biggest Business

Professional sports leagues won’t put a major event online only, Skipper said. They “all love to float the idea because there will be more competition for rights.”

Disney, based in Burbank, California, fell 1.2 percent to $61.14 at the close in New York. The stock has gained 23 percent this year, compared with 15 percent for the Standard & Poor’s 500 Index.

TV networks led by ESPN are Disney’s largest and most-profitable business, accounting for 46 percent of revenue and 69 percent of operating profit in the latest quarter, according to data compiled by Bloomberg. The sports network, 20 percent owned by Hearst Corp., has 98 million subscribers, according to Disney’s most recent annual report.

Dan Race, a Sony spokesman, declined to comment. The company is developing a Web-based pay TV service for its game consoles and TV sets, people familiar with the matter have said.

$100 Billion

Sony, Google, Intel and Apple Inc. are trying to obtain programming rights to win TV viewers from cable, phone and satellite companies. The tech giants plan to use existing cable, fiber and wireless networks, as Netflix Inc. does, to offer Web-based TV in living rooms and on tablets and smartphones.

The companies are seeking to grab a slice of the $100 billion a year in U.S. pay-TV fees collected by cable, phone and satellite providers. On average, U.S. viewers pay about $80 a month for programming bundles, with the revenue shared by broadcast and cable networks. The TV industry also collects $59 billion a year in ad sales.

Tokyo-based Sony recently reached a preliminary agreement with Viacom Inc. for access to programming such as Nickelodeon and Comedy Central, a person familiar with the matter said last week. Apple is also working on a TV service.

Jon Carvill, an Intel spokesman, declined to comment. Lily Lin, a spokeswoman for Mountain View, California-based Google, didn’t respond to a request for comment.

Sony American depositary receipts fell 1.5 percent to $19.66, while Intel, based in Santa Clara, California, retreated 1.6 percent to $22.17.

To contact the reporters on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net; Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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