Cable Operators

Content Investments Pay Off

8/19/2005 8:00 PM Eastern

Spending on cable and satellite television advertising increased 16.1% in 2004 to $18.93 billion, and is expected to grow at a rate of 12% per year to $33.6 billion in 2009, according to Veronis Suhler Stevenson.

Cable and satellite ad spending has been driven by higher ratings at networks, the growing availability of interconnects, continued investment in technology and programming and favorable CPMs when compared with broadcast television, the investment bank said in its 2005 Communications Industry Forecast.

According to Veronis Suhler, cable and satellite ad spending increased about 10% per year between 1999 and 2004. In 2005, the company expects that rate to rise to 14.6% to $21.69 billion.

Consumer Spending on Communications
(In millions)
Year Cable & Satellite Consumer Internet Home Video Consumer Books Recorded Music Newspapers
1999$37,225$7,896$16,610$18,087$14,585$10,822
200039,75211,61317,10018,01214,32710,896
200143,50616,34819,65617,92413,74511,135
200248,24220,64023,27618,84912,61511,399
200352,37324,47926,60619,52911,85511,470
200456,27627,92627,61519,76112,15411,375
200560,11631,18730,87720,35911,84911,176
200663,76734,88434,05420,57011,50211,038
200767,46738,53936,72721,25611,50510,928
200871,10642,40239,57221,49511,13510,867
200974,82945,84042,04821,90310,95310,840
Source: Veronis Suhler Stevenson 2005 Communications Industry Forecast
Advertising Spending
(In millions)
Year Broadcast Television Cable & Satellite Television Total Television
1999$37,751$11,624$49,375
200042,42013,78856,208
200136,64214,21450,856
200239,9934,73654,729
200339,55916,30455,863
200443,17618,92562,101
200543,98221,68665,668
200647,24124,25871,499
200748,24426,88875,132
200852,18529,74681,931
200953,25133,36186,612
Source: Veronis Suhler Stevenson 2005 Communications Industry Forecast

RATINGS MEAN DOLLARS

A rise in ratings for ad-supported basic cable during the period — ratings advanced 1.5 points to 30.9 in the 2003-04 season — is a major factor in the expected growth. That, Veronis Suhler said, is a direct result of investments in original programming. In contrast, pay cable ratings dipped 0.2 points in the same period to 3.4, mainly due to the absence of Home Box Office stalwarts Sex and the City and The Sopranos.

Veronis Suhler also predicts robust growth in consumer spending for cable and satellite, but much of that growth will be on the satellite side. The largest segment of the communications sector, cable and satellite consumer spending (including basic, premium and pay-per-view) rose 7.5% to $56.28 billion in 2004. Consumer expenditures on cable and satellite TV grew at an annual rate of 8.6% from 1999 to 2004 (from $37.2 billion to $56.28 billion), driven by basic rate increases, more original and local programming, the rollout of bundled services by cable operators, greater availability of digital cable and discounts on hardware and installation by satellite operators.

By 2009, consumer spending for cable and satellite is expected to reach $74.83 billion, according to Veronis Suhler.

Basic subscriptions for both cable and satellite rose about 4.4% in 2004 to 99.8 million and multichannel-TV penetration reached 92.1% of all television households, an increase of 2.5 percentage points over 2003. While most of that growth has come from the satellite sector, satellite subscriber growth is expected to decelerate in the future.

Despite the surging growth of DBS in recent years, wired cable still dominates the overall industry, with 69.9 million subscribers in 2004. Due to the sheer size of its subscriber base, cable has achieved only single-digit growth since 1999. Total consumer spending on basic-cable subscriptions increased 5.9% to $32.48 billion in 2004, due mainly to rate increases, and posted compound annual growth of 7.4% from 1999 to 2004. Total cable pay-per-view spending increased only 3.1% in 2004 to $1.15 billion, as a result of slower-than-expected acceptance of digital cable and VOD, offset by the continuing popularity of adult programming.

VOD MORE THAN DOUBLED

VOD showed strong growth of 123.9% to $318 million in 2004, but the installed base is still dwarfed by pay-per-view. Spending on cable pay-per-view grew 7.5% per year from 1999 to 2004. Expenditures on cable’s premium channel services rose 3.4% to $5.37 billion in 2004, and expanded at an annual rate of 2.2% from 1999 to 2004.

Total consumer end-user spending on cable and satellite television, including expenditures on basic, premium, pay-per-view and VOD services, is projected to increase 6.8% to $60.12 billion in 2005, and grow 5.9% annually between 2004 and 2009, to $74.83 billion. Growth will be spurred by cable rate hikes, the launch of more bundled services by cable and satellite providers, the rollout of new original and local programming, wider availability of digital cable and continued investment in new technology. The total number of multichannel subscriptions is projected to reach 110.5 million in 2009, rising 2.1% per year from 2004 to 2009.

The multichannel penetration rate in all TV households will increase to 96.6% in 2009 from 92.1% in 2004.

Wired cable subscriptions are expected to advance 0.7% annually from 2004 to 2009 to 72.5 million.

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