Comparing Disney to Naspers on the sports front

Walt Disney had results two sessions ago, it is not really a stock that we cover because we don't own any. No vested interest. But we do own Naspers and there is a comparison that I'd like to make with Disney. Disney announced that the Lone Ranger was a commercial disaster, personally I hope to watch the movie in seven years time when it is hidden on one of the outer movie channels. Or perhaps never. But it turns out that unfortunately Disney overspent on the Lone Ranger, and have projected that they could lose between 160 to 190 million Dollars, and as such they have provisioned for that. I love Disney, I think all kids probably do, their movies this year have been average after a string of real winners.


Disney owns ESPN, ABC, Hyperion and Disney channels in their media networks division. The Walt Disney studios segment holds the Marvel studios, Touchstone and Pixar divisions, as well as the Walt Disney studios motion pictures division. But ESPN is the best thing about Disney, at least we think so. As at the end of 2012 in the Disney annual report, ESPN, the main two channels had nearly 100 million subscribers overall. The description is actually given in the annual report:

"ESPN holds rights for various professional and college sports programming including the National Football League (NFL), the National Basketball Association (NBA), Major League Baseball (MLB), college football and basketball conferences, National Association of Stock Car Auto Racing (NASCAR), the Wimbledon Championships, US Open Tennis and the Masters golf tournament."

Three of the major four sports in America, plus motor vehicle racing, two tennis tournaments (the best ones I guess, French open is not there) and then the Masters golf tournament. Which is, I am told by golfers, the pinnacle of golf. The Green Jacket. I used to have a green jacket without a badge or locker or membership, but rather a very ordinary one. I looked like a gangster, and as such gave it away. I don't need to look like a gangster.

But back to ESPN, because that makes Disney more money than anything else, you can see that from the graphic below, which was taken from their annual report from last year. ESPN is 45 percent of revenues, but is an overwhelming 66.4 percent of profits. The only other meaningful contributor is the Parks business, which is 30.5 percent of turnover and 19 percent of profits. The film business is not that great, as you can see, 7.2 percent of profits, but nearly double that in turnover. Overpaid actors and actresses, but nobody seems to mind that, they are seemingly worth it! Imagine financial services business people turning up in flashy cars and flashy clothes to collect an award and then telling the whole industry how wonderful they are. Outrage! But sports people and movie stars, that is fine! That is another story altogether!





So there you go. Sports is everything to this business, Disney, the association may be princesses and more recently super heroes, but in truth gridiron football and baseball is where the money is! And they bought this in 1996, 80 percent of ESPN at least. The other 20 percent is owned by a crowd called the Hearst Corporation. Your memory will be jogged on the family name when I mention Patty Hearst, who was kidnapped by some crazies, the Stockholm syndrome! Wealth back then, as well as a well timed purchase of 20 percent of ESPN from RJR Nabisco. Cigarettes and biscuits, well I never!


So that is why I think that Naspers' DStv business is ok from this pending competition, from HCI. That competition is for SABC, I think. I have not yet seen the full boutique or offering of the 15 channels, but there is no sport. Soapies, news and movies. News would be new no doubt, but perhaps the soapies and movies will be old. No sport as far as I know. And live sport at that. The SABC show some of the PSL games delayed. You want to watch sport live. You don't want to watch it knowing that your friends or family have seen it already. And when you can replicate live sports for a full take on reality TV. It is reality TV, you have no idea what is going to happen yet. That is why I think that you should not worry just yet about Naspers, even though the future of watching your favourite team might well be in broadband and not through satellite. Someone is still going to have to own the rights to the sports broadcast, be it via the internet or cable/satellite TV.