Finance

Study: Cable Leads in Profitability

EY Report Says Ops' 41% Cash Flow Margins Lead Peers 9/15/2014 3:30 PM Eastern
TakeAway

According to a report by consultant EY, cable operators will lead the media sectro with EBITDA margins of 41% in 2014.

Bouyed by high-margin broadband and commercial business products that continue to make up for a declining video business, cable operators continue to lead their media peers in terms of profitability, according to a report issued earlier today by consulting firm EY (formerly Ernst & Young).

 

According to the report, cable operators will lead the sector with 2014 EBITDA margins of 41%, followed by cable networks (37%), interactive media (36%), electronic games (29%), conglomerates (26%), satellite television (26%), publishing and information services (21%);  television broadcast (19%); film and television production (12%); and music (11%).

 

“We are seeing that digital is very much driving profits now, instead of disrupting it. Companies are figuring out how to monetize the migration of consumers to a variety of digital platforms, and this insatiable demand for content is fueling growth throughout the industry,” said Global Media & Entertainment Leader John Nendick in a statement.

 

In an interview, Nendick said while the sample used in the report included international as well as domestic cable operator and networks. And he added that EBITDA, which is more a measure of efficiency, does not include capital expenditures, which could affect the bottom line.

 

“Our experience to date has been to date that while there has been some minor subscriber reductions, or cord shaving, it hasn’t really moved the meter in terms of overall performance,” Nendick said in an interview.

 

Other highlights from the report include:

 

  •  Cable networks are seeing growth in affiliate fees, international syndication and digital

licensing which is spurring EBITDA margin growth making it the second most profitable

industry sector.

  •  Interactive media companies are driving their margins through innovation in search and

online video advertising combined with growth in premium video subscriptions.

  • Electronic gaming companies are seeing growth in profitability from the increasing

number of users on digital platforms.

  • Conglomerates are using their ability to spend on premium content to attract large

audiences and create a barrier to entry for smaller players.

  • Satellite television companies are maintaining cost controls to counter slowing

subscriber growth, however rising programming costs will adversely affect the sector’s

profitability.

  • Newspapers and magazines continue to see declining advertising and subscription

revenues. While digital revenues are growing, this only makes up a very small portion of

overall revenues.

  • Television broadcasters’ ability to reach a large, albeit shrinking, audience continues to

be valued by advertisers. Consolidation among broadcasters is expected to help them

sustain increases in retransmission fees.

  • Film studios are driving their profitability through increasing revenues from digital

platforms and investments in franchise-based films and higher-margin television shows.

  • The music sector is driving record growth in profitability from the expansion of licensed

digital subscription and streaming services, growth in music publishing and rising

smartphone and tablet penetration in emerging markets.

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