Kagan: ESPN Sub Fees Continue to Soar; Could Reach $5.56 in 2013

Sports rights are one of the biggest factors in the increase of license fees for cable networks. As the industry leader in sports coverage, it should come as no surprise that ESPN continues to dominate in license fees as well. In fact, ESPN-affiliated networks accounted for three of the top 10 networks in license fees for 2011.

Most recently, ESPN announced the extension of its contract with Major League Baseball through the 2021 season for an estimated $5.6 billion, or $700 million a year, over the course of the eight-year contract. This, among numerous other contracts — ACC, Wimbledon, Pac-12, etc. — ESPN has inked over the past few years, will ensure the network will continue to generate ever-increasing license fees.

Other sports-affiliated networks that landed among the top 20 networks for license fees in 2011 include TNT and TBS, which have benefited from Turner Sport's distribution deal for NCAA basketball, NFL Network and college sports-focused networks FOX College Sports and the Big Ten Network.

Sports networks continue to be a point of contention both among subscribers and industry insiders. As license fees for sports networks continue to climb higher, industry analysts have questioned the sustainability of these increases. In response, some providers have created sports-free packages at a reduced rate.

And regardless of whether or not sports rights will create a point at which consumers will be unwilling to pay for increasing bills, we believe ESPN will continue to reach new heights with its license fees. We project that 2012 marks the year in which ESPN will breach the $5 license fee mark. In addition, for 2013, we expect the network to command a $5.56 license fee, almost double that of the next highest license fee for the year — ESPN 3D with $2.79.

In 2013, we forecast that there will be five different networks that will command license fees of more than $1. Four out of five of those networks will command those fees due to their costly sports rights. The one exception to the sports-affiliated networks is 3net, which is a dedicated 3-D network.

One reason why distributors are willing to pony up and continue to pay huge fees for sports content is that sports are still watched live for the most part and are therefore deemed DVR-proof. In the current advertising environment, live sports content is seen as a sure bet, especially with the elusive 18-to-35 male demographic. 

And as advertisers seek more return-on-investment metrics for their products and services, we continue to expect that license fees for sports networks will rise.