TIS17: Analyst Says TV Network Business in Trouble

Current model unsustainable in on-demand world, Bernstein’s Juenger says

INDIANAPOLIS – Sanford Bernstein media analyst Todd Juenger didn’t pull any punches at The Independent Show here Tuesday, telling a well-attended session that the current TV network model of high returns and higher price increases isn’t sustainable in an on-demand world.

Juenger has been a harsh critic of the existing TV model for years. At his TIS session he pointed out that the TV business, which has enjoyed some of the highest profit margins in modern U.S. business, may be in for a rude awakening.

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Juenger said that with 40% margins and a 30% return on capital, cable networks enjoy an unprecedented position, adding that he looked across the S&P 500 to find companies that had margins and ROIC comparable to TV networks. He found five.

“This is a very, very rare thing,” Juenger said. “Companies are not supposed to make that kind of money.”

Technology is the greatest disruptor to the business, as it has been in the past. And as in the past, that new technology has brought in new entrants that can deliver products more efficiently and cheaply, Juenger said, pointing to Netflix and other SVOD providers.

“The whole reason for being for networks is called into question,” Juenger said.

But the analyst said he doesn't see the emergence of virtual MVPDs as the answer, adding that according to his years of focus group research, so-called cord-nevers don’t want a thinner version of the existing model; they want an entirely new model.

“I don’t think there is anybody who wants these products on an incremental basis,” Juenger said of vMVPDS. “If the purpose of these services is to recapture subscribers that were lost, they’re not going to work.”