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The Disney Channel, owned by Disney (NYSE:DIS), carries programming targeted at children and constitutes nearly 7% of our $37 Trefis price estimate for Disney’s stock. In comparison, Disney owned ESPN constitutes about 32% of the company’s value while channels like ABC Family and Lifetime each represent about 3% of the stock.

The Disney Channel airs popular programs, such as High School Musical and Hannah Montana, and competes with other children’s channels like Viacom’s (NASDAQ:VIA) Nickelodeon and Time Warner’s (NYSE:TWX) Cartoon Network.

The Disney Channel is ad free and makes money by charging a subscriber fee to its customers which are the cable companies and satellite companies (Comcast, Dish) that provide the Disney Channel to their subscribers. Historically, the Disney Channel’s fee per subscriber (per month) has risen from about 78 cents in 2005 to about 86 cents in 2009.

We expect this figure to continue to rise at historical rates and reach close to $1 by the end of our Trefis forecast period. We expect the Disney Channel’s fee per subscriber to trend based on the following factors:

1) High demand for Disney channel

The Disney Channel has household penetration of more than 96% in the US and caters to the audience in the age group of 6-11 years. The popularity of the channel among children helps Disney maintain pricing growth and charge a premium over competitors like Viacom’s Nickelodeon and Time Warner’s Cartoon Network.

2) Ad free quality content reduces unfavorable exposure of kids to offensive commercials

With complete ad free content and popular shows like High School Musical, Mickey Mouse and Hannah Montana, kids are exposed to content that can be better monitored by parents. This creates demand and confidence among parents who are concerned about the influence of advertising on children.

The Disney Channel’s fee is much higher when compared to its direct competitors. Disney’s fee of about 86 cents is twice that of Nickelodeon’s 44 cents and about five times that of Cartoon Network’s 17 cents. However, unlike Disney, its competitors also make money from advertising, and hence are able to lower their subscriber fee.

We believe that that with its strategy of quality content and no ads, Disney will continue to command a premium and sustain a 2% growth in subscriber fee.

For additional analysis and forecasts, here is our complete model for Disney’s stock.

Disclosure: No positions

Source: Disney Channel: Nearly 7% of Disney's Stock