Throughout the last decade, there have been attempts at an a la carte cable television pricing model that would keep subscription costs down and allow consumers to select and pay for only the channels they watch and use. Senator John McCain took one further step on the path to a la carte subscriptions by introducing the Television Consumer Freedom Act in Congress. The introduction of the bill should worry shareholders of several media companies.
Cable fee leader
Perhaps no company would be hit harder by an a la carte subscription service than current leader ESPN, from parent company The Walt Disney Company (NYSE:DIS). ESPN, the most watched sports network in the world, commands north of $5 per subscriber. This is currently the highest non-premium channel fee. To make matters worse for customers, ESPN typically bundles its other networks (ESPN2, ESPNU, ESPN Classic) to subscribers, forcing them to pay for all of the channels. McCain also singled out two The Walt Disney Company (NYSE:DIS) assets in ESPN and ABC as media bullies who bundle channels.
The Walt Disney Company (NYSE:DIS) investors should be happy with the current cable system. In fiscal 2012, the company’s media segment made up $19.4 billion in revenue. This was the largest segment and made up close to half of the company’s total revenue ($42.2 billion). The segment also contributed the highest percentage of operating income ($6.6 billion), and made up more than double all of the other segments combined ($3.3 billion).
Despite being the potential biggest loser, I wouldn’t be worried if I owned The Walt Disney Company (NYSE:DIS) stock. With a portfolio that includes media, movies, theme parks, and video games, the company can push out revenue from other sectors. The company’s key assets of Marvel and Star Wars could also lead to higher subscription fees for channels it owns. The demand for ESPN will still be around in an a la carte mode.
Smaller media company
One small media company could see a negative impact from the McCain bill. Discovery Communications Inc. (NASDAQ:DISCA)
provides customers with Discovery Communications Inc. (NASDAQ:DISCA) Channel, TLV, Animal Planet, and others. The company also has joint ventures for the HUB channel and Oprah Winfrey Network. In the first quarter, the company saw revenue increase 7%. This was led by a company record in domestic viewership and increasing international revenue. Distribution revenue made up $308 million of the first quarter’s total $686 million. This is a company that counts on fees for its channels to operate its business. However, with strong viewing presences among males (Discovery Communications Inc. (NASDAQ:DISCA) Channel), women (TLC, Oprah Winfrey Network), and kids (HUB), Discovery Communications Inc. (NASDAQ:DISCA) should be safe in a la carte subscription.