A Look At News Corp’s Upside If Fox Sports Became More Like ESPN
News Corp (NASDAQ:NWS) owes about 39% of its value to its cable networks with Fox Sports leading the way. We estimate that Fox Sports constitutes about 17% to News Corp’s value, which makes it the single most important channel for the company. However, compared to what ESPN does for Disney (NYSE:DIS), this is little.
Sports programming is lucrative and is attracting media companies and service providers to make investments. For example, NBCUniversal, owned by Comcast (NASDAQ:CMCSA), decided to re-brand its sports channel to NBC Sports Network and last year won rights to four Olympic games through 2020, worth $4.4 billion.
Given the incentives, Fox Sports will consistently attempt to follow ESPN’s steps. What if it actually succeeds in doing so? Let’s take a look at this scenario, and what it means in the context of News Corp’s value.
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Let’s assume that by the end of our forecast period, Fox Sports is achieving what ESPN is doing now. How could this impact News Corp?
It means that the sports channel will be charging about $4.70 per subscriber per month for its programming by the end Trefis forecast period, almost double of what we currently forecast. It also means that it will have a much higher penetration of pay-TV households, at around 97% – similar to that of ESPN.
If that happens, Fox Sports will be generating a lot more profits than it currently and implies about 15% upside to our current price estimate for News Corp, with Fox Sports’ value contribution to News Corp increasing to about 30%. Interestingly, this contribution comes out to be similar to ESPN’s contribution to Disney. We estimate this using our modifiable charts above and keep in place our margin and content cost assumptions you can see in our interactive charts.
Our price estimate for News Corp stands at $23.10, implying a premium of little less than 15% to the market price.
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