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Spotlight on profitable growth 2013

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The media and entertainment (M&E) industry outperformed several cross-industry stock market indices in terms of profitability since 2009.

Our study examines actual earnings before interest, taxes, depreciation and amortization (EBITDA) within the M&E industry for 2009 to 2012 and estimated EBITDA for 2013. Specifically, our analysis measures and compares EBITDA dollar growth as well as EBITDA margins.

For the first time in five years, the media and entertainment industry is expected to outperform the major cross-industry indices in 2013. Overall revenue and EBITDA dollars have continued to climb steadily for media and entertainment companies, while many other industries are continuing to struggle through a difficult economic period.

EY - Spotlight on profitable growth 2013

Sector highlights

EY - Spotlight on profitable growth 2013

Cable continues its lead in EBITDA margins.

  • Cable operator margins are expected to be around 41% in 2013 — the highest among all the M&E sectors — as a result of continued growth in high-margin data customers. Cable operators incur significant capital expenditures, and, consequently, high depreciation and amortization (D&A). Cable operators continue their lead in profitability, partly because EBITDA excludes D&A charges.
  • Due to a dual revenue stream of advertising and subscription fees, the cable networks sector is expected to have the second highest EBITDA margins of 38% by the end of 2013.

Interactive media benefits from rising online ad spend.

  • Interactive media companies are seeing strong growth from increase in online advertising spend, combined with rising revenues from non-advertising sources (including subscriptions, premium content and microtransactions).
  • The EBITDA dollars for the sector are expected to grow by a combined annual growth rate (CAGR) of 22%, the highest among all the M&E sectors.

The electronic games sector continues to benefit from rising users on digital platforms.

  • Social and casual games on digital platforms are driving EBITDA dollar growth of the electronic games sector.
  • Electronic game companies’ EBITDA dollars are expected to grow at a CAGR of 14%, second only to the interactive media sector.

Conglomerates gain from improving ad spends and greater content consumption.

  • A combination of higher advertising spend (particularly in emerging markets), greater consumption of paid content (spurred by growth in mobile devices), and continuing cost controls are driving the EBITDA dollar performance of conglomerates. Businesses such as cable networks and TV broadcast are driving EBITDA dollar growth. Others, such as publishing and music, are facing structural challenges.
  • Conglomerates are expected to grow their EBITDA dollars at a CAGR of 9%.

Satellite TV EBITDA dollar growth steady despite rising programming costs.

  • Continuing cost controls and improving revenues are expected to boost EBITDA dollar growth and lead to relatively steady EBITDA margins in the satellite TV sector, despite rising programming costs.
  • The sector’s EBITDA dollars are expected to grow at a CAGR of 8%.

TV broadcasters continue to attract advertisers.

  • Advertisers still value the ability of TV broadcasters to reach a large audience, despite the continued rise of competing platforms.
  • EBITDA dollars for the TV broadcasting sector are expected to grow by a CAGR of 9%.

Film and TV production studios benefit from digital.

  • Increasing revenues from paid digital platforms such as Amazon, Hulu, Netflix and YouTube channels are driving studios’ EBITDA dollar performance. At the same time, studios are cutting down production costs by releasing fewer films.
  • The sector’s EBITDA dollars are expected to grow by a CAGR of 11%.

Content and information services face challenges in traditional media.

  • Newspapers and magazine companies continue to face headwinds from declining advertisement and subscription revenues. On the other hand, business information services companies are reporting stable revenues and margins.
  • EBITDA dollars for the sector are expected to grow by a CAGR of 2%.

Music sector witnesses early signs of turnaround.

  • Growth of licensed digital music services and paid digital downloads are driving the music sector revenue and EBITDA dollar growth. In 2012, global music revenues increased for the first time since 1999.
  • The sector’s EBITDA dollars are expected to grow by a CAGR of 1%.