ESPN Set To Pass $7 Sub Fee In 2017

by David Goetzl, Feb 19, 2013, 5:37 PM

For help with its massive NFL rights bill and likely re-upping with the NBA, ESPN can continue to count on hefty per-subscriber fees that look to cross the monthly $7 mark in 2017. Based on distribution in 100 million homes, that $7 amount would give it an annual take of about $8.4 billion in affiliate fees alone within five years.

ESPN’s current deal with Time Warner Cable calls for it to receive more than $5.40 a sub a month starting in the middle of this year; then passing the $7 mark in 2017; and closing in on the $7.50 mark the following year. The deal calls for an annual increase in the 6.5% range.

By the end of this decade, ESPN is set to collect just about $8 a sub a month.

Time Warner Cable serves 12 million homes, but if ESPN’s deals with other operators follow the same general pricing model, total sub fees covering 100 million homes should pass $9.5 million by the end of the decade.

The details (which may have since been altered) of the Time Warner Cable deal that was announced in September 2010 became public at a trial Monday, where Dish Network is suing ESPN charging it with violating “most favored nation (MFN)” agreements. MFN deals look to guarantee an operator the same effective rates as other distributors.

But it is not as simple as if one operator pays $7 for ESPN, another pays the same. The trial in New York federal court makes that abundantly clear with ESPN witnesses offering insight into how operators can choose various options, giving them what would amount to effectively the same rate as what another pays.

Dish believes that with multiple ESPN networks such as ESPN Classic and ESPN Deportes, ESPN violated MFN provisions that had it paying more than other operators. ESPN argues that when all sorts of calculations are taken into consideration such as what tiers networks are placed on, how many subscribers they have, any launch or marketing support given and other factors, then the numbers show that Dish has been made whole.

Testimony can get weedy as ESPN senior vice president Justin Connolly and former ESPN financial executive Travis Hutcheson showed in parrying with a Dish attorney. One of Dish’s claims is that it paid more to offer Spanish-language network ESPN Deportes than DirecTV, Time Warner Cable and Verizon — violations of MFN clauses.

For DirecTV, Dish argued that a 2007 deal between ESPN and DirecTV covering Deportes carriage in Puerto Rico and the U.S. Virgin Islands had DirecTV paying $0.08 a sub, while Dish was paying $0.35.

The same numbers applied, Dish argued, to another deal for Deportes carriage covering a few markets in 2007. With that agreement, Time Warner Cable was paying $0.08 a sub, while Dish was paying the $0.35.

A later agreement had Verizon paying $0.11 to carry Deportes in 2010, while Dish was paying $0.41. But, in a sign how complicated MFN agreements can get, Hutcheson testified Verizon got the lesser price because it agreed to pay more for the flagship ESPN network. (Dish is paying $0.47 this year for Deportes.)