It may come as a surprise to the average television viewer, but the most valuable network on your flat-screen isn't one of the big three, CBS, NBC, or ABC, which reigned supreme in the pre-cable era. Nor is it Fox, which rose to dominance in the 2000's on the back of American Idol.
It's ESPN, the 24-hour sports network that began life in a small town in Connecticut, broadcasting second-tier events such as college soccer, wrestling, and Australian Rules Football. Now owned by Disney (NYSE:DIS), ESPN is worth more than $50 billion, according to Wunderlich Securities, and is estimated to bring in $4.5 billion in cash flow this year. In the media world, only 21st Century Fox, Time Warner, and Comcast have a greater valuation, and all three are made up of a broad range of assets that go well beyond the umbrella of a single network.
In this era of cord-cutting and video streaming, sports have proven themselves to be the only major segment of television that's invincible to DVR's and streaming services such as Netflix, making it incredibly valuable to advertisers, who can count on viewers' eyeballs being glued to the screen. ESPN's market power manifests itself in its monthly transmission fee to cable providers, which at $6.04, is more than four times greater than second-place TNT's, at $1.48, which notably is also major provider of sports entertainment. ESPN's competitive advantages are also apparent in its operating margins, which have come in at near 40% over the last five years.
So where does SportsCenter fit into the equation?
While live sports drive the most traffic to ESPN, SportsCenter remains the cultural and programmatic core of the network. When the network launched in 1979, SportsCenter was the first show aired, and it was the biggest driver of ESPN's popularity in the 1990's, before it had many of the broadcasting rights today, thanks to anchor personalities such as Craig Kilborn, Keith Olbermann, and Dan Patrick. Not only has the program often inspired a cult following but even its ads have at times.
Though individual episodes don't draw the audiences, that, say, an episode of American Idol does, SportsCenter has other advantages. The shows airs several times a day, often repeat episodes of earlier broadcasts, and reaches an average monthly audience of 115 million viewers, according to ESPN. The show is generally 60 minutes long, and the most-watched SportsCenter typically airs at 11 p.m., garnering an average audience of about 1 million viewers. Other episodes take up as much as 12 hours of the broadcast day, and are often rerun several times on ESPN2, giving SportsCenter a reach unlike any other show on television. The addictive nature of sports also ensures that some viewers will watch the same episode repeatedly, another unique feature of the show. The currency of sports news also ensures that ESPN can air a new episode every night and the show will never get old or reach its final season, unlike scripted shows or late-night talk shows, and the studio setting, ESPN's access to content, and the repeats help keep costs down.
SportsCenter is also the most popular TV show handle on Twitter, gaining 1.5 million retweets, favorites, and mentions in a recent week, yet another example of the many ways ESPN leverages the brand to connect with fans.
In the week between October 3 and 9, the most watched SportsCenters brought in 12.3 million viewers, based on Neilsen data, while no other single show on television brought in more than 9.5 million viewers. At TV's most profitable network, SportsCenter remains its most important show
More than hard numbers
It's impossible to break down SportsCenter's value or profitability to an exact number as the show is connected to so much else at ESPN, which is part of the genius of the network's business model. Unlike any of its competitors, ESPN has parlayed its success in broadcasting into several other channels, print media (ESPN the magazine), the web, radio, and mobile, engaging with its customers on essentially every available platform. About 70% of sports content viewed on mobile devices comes from ESPN , and the company's multi-platform model enables it to get much more mileage out of its content than any of its competitors. That's what leads to the eyepopping 40% operating margins.
Of course, ESPN's competition hasn't slowed down either. League-based networks from the NFL, MLB, and NBA, are pushing further into the mainstream, and ESPN clones such as Versus and Fox Sports 1 have been launched in recent years. Last year, much ado was made about a temporary ratings decline at the network, which ESPN pinned that on a weaker slate of NBA games. Interest in sports fluctuates as stories drive viewership and the success of major market teams can also have an effect ratings.
ESPN seems to have recovered handily from that misstep. The company recently locked down a deal to host an NFL playoff game for the first time in January 2015, and analysts expect the company's cable affiliate fees to rise by an annual rate of 8.5%, up to $8.34 by 2018. At a time when overall pay-TV subscribers are declining, that figure shows just how dominant ESPN has become.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Netflix, Twitter, and Walt Disney. The Motley Fool owns shares of Netflix, Twitter, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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