Disney's Amazing Star Wars Deal, Which Might Help Fill In Disney's Amazing ESPN Profit Hole

How did Disney buy Star Wars for only $4 billion?  I first saw this question asked by Kevin Drum, though I can't find the link (and I am not going to feel guilty about it after Mother Jones banned me for some still-opaque reason).  But Disney is going to release a new movie every year, and if it is anything like the Marvel franchise, they are going to milk it for a lot of money.  Plus TV tie-ins.  Plus merchandising.  Plus they are rebuilding much of their Hollywood Studios park at DisneyWorld in a Star Wars theme.

The answer is that this is the kind of deal that makes trading in a free market a win-win rather than zero-sum.  Lucas, I think, was played out and had no ability, or no desire, to do what it would take to make the franchise worth $4 billion.  On the flip side Disney is freaking good a milking a franchise for all its worth (there is none better at this) and so $4 billion is starting to appear cheap from their point of view.

By the way, Disney is going to need the profits from Star Wars to fill in the hole ESPN is about to create.  A huge percentage of the rents in the cable business have historically flowed to ESPN, which is able to command per-subscriber fees from cable companies that dwarf any other network. Times are a-changin' though, as pressure increases from consumers to unbundle.  If cable companies won't unbundle, then consumers will do it themselves, cutting the cable and creating their own bundles from streaming offerings.

ESPN is already seeing falling subscriber numbers, and everyone thinks this is just going to accelerate.  ESPN is in a particularly bad position when revenues fall, because most of its costs are locked up under long-term contracts for the acquisition of sports broadcasting rights. It can't easily cut costs to keep up with falling revenues.  It is like a bank that has lent long and borrowed short, and suddenly starts seeing depositors leave.   And this is even before discussing competition, which has exploded -- every major pro sports league has its own network, major college athletic conferences have their own network, and competitors such as Fox and NBC seem to keep adding more channels.


  1. Dan Wendlick:

    The irony is that ESPN has become the victim of its own original business model. The network was originally founded to broadcast University of Connecticut basketball games. The founders soon realized that they could rent a satellite channel on a continuous basis for less than the cost of the individual hours they had planned on. So they decided to fill out the rest of the time with the now legendary regional pro wrestling and Australian Rules Football, and a nightly highlight show.
    Now the technology has caught up to the point where you can build a viable network out of a single school or conference's games.
    It seems to me that ESPN now has more programming about sports (or even programs about programs about sports, in a continuing meta slide) than actual sports programming, with their seeming 18 hour a day repeats of a single hour of SportsCenter.

  2. morganovich:

    a simple analogy:

    an average cook might not every be able to get the value out of a $300 truffle.

    thomas keller might be able to make food worth thousands with it.

    if the average cook happens to have one, then we get a willing seller and a willing buyer both of whom win.

    society wins as well as resources flow to the place that uses them best.

    it's almost as if there is an invisible hand that... (well, you know)

  3. SamWah:

    It has been a very long time since I watched anything on ESPN. Can't say exactly, but 31-35 years or thereabouts.

  4. mesaeconoguy:

    I took a position in DIS because of this mis-valuation.

    Given all the hype about SW, I refuse to believe that any company with any preexisting revenue shortfall cannot make money, through all of the licensing and marketing this movie will generate.

  5. John O.:

    I really believe that ESPN is in dire straits if they can't get their ship righted. They need the advertisement revenues, but they've double down on hoping TV subscribers are going to keep their cable or satellite television. Their online components were greatly harmed by the fact that in order to watch most ESPN programming online you need to have a cable television subscription. That kind of lock-in is a huge error that can't be rectified until their contracts with cable providers expire which won't be for another few years at the earliest. To make matters worse, I really think that Fox Sports Networks will likely beat them to a viable live online sports streaming service. It might not start out well, but it already has so much potential it will only snowball once a league signs up for it.

  6. Ike Pigott:

    ESPN is already headed in the direction of the disruption. It essentially runs the SEC Network (out of Charlotte, in ACC territory,) and even runs the Longhorn Network for those Texas fans who just can't get enough of beating Oklahoma on the way to 4-8.

  7. Tim:

    ESPN's troubles are going to be the bellwether for professional sports leagues -- specifically the NFL. Each team gets $226m from sharing the broadcasting rights revenue. With ESPN's cable subscriber base falling, their revenue is rolling off. Each home that gets the ESPN platform earns Disney about $7-10. They've lost about 7m subscribers since 2013; between direct losses from fees and a lower advertising schedule, ESPN has lost about $900m in revenue.

    At a certain point what they spend for broadcasting rights will drop, revenue sharing will go down, and expensive NFL franchises will become unsustainable. The fact that a lot of games are basically crap is just making this problem worse. A 4-9 Detroit facing a 4-8 New Orleans on Monday Night Football isn't going to be a ratings bonanza.

    What happens to cities who've paid for expensive stadium construction when NFL team revenues take a haircut is left as an exercise for the reader.

  8. disqus_DCPbdeGXic:

    I'm rather surprised Disney doesn't spin off ESPN into a separate publicly traded entity. After all, right now it's a drag on Disney's stock price and spinning it off would provide the stock market a much clearer valuation of the future of the bundled sports package.