Competition Pushes Up Content Costs for ESPN

Walt Disney's ESPN has come to dominate the lucrative business of sports broadcasting by locking up deals with entities ranging from Major League Baseball to NASCAR. But renewing some of those deals won't come cheap. And with ad revenue down, that could put ESPN in a bind and have repercussions for its parent company. Since Disney acquired 80% of ESPN in 1995, the cable network has become one of the entertainment company's most valuable properties. ESPN is now the largest component of Disney's Cable Networks franchise, which delivered $4.1 billion in operating income in fiscal 2008, which ended Sept. 27. That dwarfed the $655 million in operating income earned by the Broadcast Networks, which include ABC, and was 49% of Disney's total operating income. ESPN is already feeling the impact of the recession. Its advertising revenue is declining even as costs associated with many of its rights deals increase on schedule. For the fiscal first quarter ended Dec. 27, revenue at Disney's Cable Networks division grew only 2% and operating income fell 12% from a year earlier to $517 million.