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News Corp Plans To Take On ESPN

Recent reports in the news mentioned that Rupert Murdoch's News Corp [NWSA] intends to start its own national U.S. sports network to try and unseat rival Disney's [DIS] ESPN (which holds the number one spot). According to the reports, people familiar with the talks said News Corp is assembling rights from carriers and sports organizations, and is considering converting its Fuel action-sports network to the new channel.

News Corp wouldn't be the only rival to ESPN. Comcast Corp. [CMCSA] had NBC Sports Network and CBS Corp [CBS] has CBS Sports Network. And News corp already has and handful of sports channels including Speed, Fuel, Fox Soccer, Big Ten Network, etc. Will the new national sports network be able to do what Comcast and CBS are already trying to do?

ESPN is able to capture higher affiliate fees from the pay-TV carriers than Comcast and CBS. There are few details and no official comments by News Corp, so everything is really up in the air at the moment, and the strategy is not clear. But based on the available information (from news reports) it seems that News Corp's main strategy is to get the rights to big games and sports events in order to attract viewers, so that they too can capture the higher affiliate fees. However, quality sports rights are very expensive. Getting the rights for big games is going to cost the company a lot of money, which would in turn potentially eat into the very profits they are trying to take from ESPN.

In my view, tapping into ESPN's margins is not going to be easy, as Comcast and CBS are probably well aware of. What ESPN does well, is it provide its viewers with quality franchise program/shows that air on a regular basis. Viewers watch the games and events, but also tune in regularly to ESPN for their favorite franchise programs that they follow (when games aren't on). Disney has always been able to attract and keep talent, and its no different with ESPN. Does News Corp realize this and are they going to try to reproduce ESPN's success? Will they be able to? It will be challenging. If asked if I want to work for Disney or News Corp, I'd answer Disney in a heartbeat. What other company allows you to release your creative juices, maximize your potential, have fun, and have a lot of wonderful people to work with? I can't confirm these type of claims from people who work for Disney, but likely its true and an integral part of their success.

Long term Disney presents great franchise & brand value. Network profits are very strong, as with consumer products, and parks. Changes to studio and interactive media, should eventually strengthen margins and numbers in those segments over time. Disney still looks attractive (price) at its current prices, trading below intrinsic value, with a P/E ratio around 16-17 as well. Although I wouldn't mind seeing a lower market price to add to it. Looking forward, its possible that we might see some short term negative news (regarding John Carter's impact on quarterly earnings), which might give investors a slight price dip opportunity (though it might not be a significant dip). However, if its impact is negligible, we might not see any price movements at all in that direction.

DISCLOSURE: I am long Disney
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