Iger, Rasulo Defend ESPN Fees at Investor Conferences
Disney executives defended the amount of money they charge distributors to carry ESPN and other pay-TV networks, during investor conferences Wednesday. Asked how Disney reconciles the need to preserve a pay-TV industry that’s affordable for 90 percent of U.S. households while also maximizing the value of its products, Chairman Bob Iger criticized distributors for complaining about the price of ESPN. “Distributors complain about the cost of the product and they do that more than selling the value of the product to their customers,” he told a Sanford Bernstein conference. “Usually if you have a distributor out there that has a pretty solid business model, they're out their extolling the virtues of what they're selling and not complaining about the cost."
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ESPN’s distribution fees get unfairly conflated with the rising costs of regional sports networks, Iger said. “If you look at the costs of those channels versus the rating they deliver and the amount of original programming they deliver,” ESPN looks like a good value, he said. In some markets, ESPN has higher ratings and more hours of original programming than that of all the area’s RSNs combined, he said. Disney Chief Financial Officer Jay Rasulo spoke along similar lines when the same topic was raised at a Nomura conference. “We know for a fact … that people who subscribe to ESPN are much more likely” to buy a pay-TV distributor’s three-product bundle of services, he said. “They are their best customers,” he said. “There’s a lot of talk about pricing and not enough about the value that’s being delivered.”
Consumers want ESPN, Iger said. He’s skeptical about the prospects for a sports-free tier of pay-TV channels being offered by distributors, Iger said. “People are interested in more variety and more channels than fewer.” Why single out sports programming, he asked. “Where does it stop, and why should the non-sports viewer be so served and not have to pay for sports?”
Disney is not “trying to kill the golden goose,” of the U.S. pay-TV industry with higher fees for ESPN and its other networks, Iger said. “We know we have increased rates,” and at the same time Disney has invested considerably in programming its networks, he said. “We have been very mindful that when we have increased rates that we are not pricing ourselves out of the marketplace,” he said. “I don’t think we have been reckless with our rate increases, and I think they have largely tracked the investments we have made."
According to data from SNLKagan, the average cost to carry ESPN in SD and HD for a distributor is $5.15 per subscriber per month. Its other networks such as ESPN2, ESPNews and ESPN Classic are have much lower rates, with ESPN2, its next most expensive sports network, fetching an average of 68 cents per subscriber per month, according to the SNLKagan figures.