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Spotlight on profitable growth 2011 - Survey results - cable networks, cable operators, satellite television, television broadcasting - EY - Global

Spotlight on profitable growth 2011

Survey results: cable networks,
cable operators, satellite television,
television broadcasting

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Cable network EBITDA dollar growth reaccelerated to 13% in 2010 — one of the higher growth rates in media and entertainment.

Cable networks

Cable networks' dual revenue model (advertising and subscriptions) makes them somewhat more resistant to economic downturns.

After slowing a bit in 2009, cable network EBITDA dollar growth reaccelerated to 13% in 2010 — one of the higher growth rates in the M&E group. In 2011, cable networks EBITDA growth is expected to fall slightly to 12%.

Meanwhile, EBITDA margins have risen steadily in the 2007-2011E period, and are expected to rise to an estimated 37% by the end of 2011.

Cable networks' ability to deliver niche audience segments is attractive to advertisers, and they are seeing healthy international growth as the number of multichannel households grows worldwide.

Additionally, cable networks are exploring alternative distribution methods, but they are doing so within the current pay TV ecosystem.

Cable operators

Cable operators continue to see a mixed operating environment. Although new technologies allow them to unlock their bandwidth, reduced housing activity results in fewer sales opportunities for them.

Cable operators saw EBITDA dollar growth fall in 2010, but it is expected to reaccelerate in 2011. EBITDA margins, meanwhile, are expected to be fairly steady in the 2007-2011E period.

All of the major US cable companies are losing basic subscribers. However, cablers are generally losing their least valuable subscribers, so the financial impact hasn't been that significant.

A potential threat to cable operators, so called over-the-top (OTT) video is getting a lot of attention. OTT video is television content that flows directly from the internet to TVs, without being packaged by a pay TV provider.

There is considerable debate on the potential impact of OTT on cable operators. OTT distribution is not expected to become a viable substitute for pay TV in the next few years. There is currently limited evidence of consumers replacing cable with OTT.

Satellite television

The direct broadcast satellite (DBS) sector has performed relatively well in recent years.

The 2007-2011E EBITDA dollar growth rate for the satellite television sector is estimated at 7%, with EBITDA margins staying relatively stable for the same period.

In Europe, the satellite operators are also performing well. Western European satellite operators generated €13.7 billion in subscription revenue last year, a 12% increase over 2009 and one of the strongest years since 2004.

However, some of the industry's advantages are eroding. Cable operators now offer similar advanced services, and they have rapidly increased the number of HD channels they offer. At the same time, the growth of online video has pushed cable operators to improve their VOD services.

Also, the overall multichannel video business is mature, so while DBS providers are still adding subscribers, they are doing so at a slower rate.

Television broadcasting

As a primarily ad-supported business, the economic downturn significantly impacted US television broadcasters' results, particularly at the local station level. Yet, there are signs of a turn-around.

This rebound has led to a sharp turnaround in EBITDA dollar growth. In 2009, the sector saw a 25% decline in EBITDA dollars, followed by a 31% increase in 2010. However, for the 2007-2011E period, EBITDA dollar growth will remain fl at, largely reflecting the severe ad downturn in 2008-2009.

In the US, broadcasters are generating increased subscriber fees or "retransmission" fees from cable companies. These are expected to grow into a meaningful revenue source.

This is a very positive development for TV networks and their affiliates because retransmission cash goes straight to the bottom line, giving a boost to long-term EBITDA dollars and margins.

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