Driven by high-margin high-speed Internet and commercial services, cable operators are expected to generate some of the largest profit margins in the media & entertainment industry in 2015, according to a report from accounting giant EY.
In its report, Spotlight on Profitable Growth, EY (formerly Ernst & Young) predicts that earnings before interest, taxes, depreciation and amortization (EBITDA) margins will reach 40% in 2015 for cable operators. Cable networks, which have been battered over fears of competition from over-the-top video services, nevertheless will post EBITDA margins of 36% according to EY, fueled by gains in digital licensing revenue and higher affiliate fees, partially offset by advertising declines.
Satellite TV services like Dish Network and DirecTV (recently acquired by AT&T) are expected to show lower margin growth, about 25%, in 2015, EY says.
TV broadcasters, expected to grow EBITDA margins 21% in 2015 should benefit from continued consolidation in the industry, particularly through higher retransmission consent fees, digital distribution growth and international syndication, EY says.
Other segments within the media & entertainment sector tracked by EY should fare as follows: interactive media, 34%; information services, 30%; electronic games, 28%; conglomerates, 28%; film and TV production, 14%; consumer publishing, 13%; and music, 13%.
Overall the Media & Entertainment segment is expected to grow EBITDA margins 28.3% in 2015, compared to 27/8% growth for the S&P 500 Index.
"The evolution of the M&E industry continues to focus on the exploitation of digital distribution and finding new and innovative ways to reach and interact with the consumer,” said EY Global Media & Entertainment Leader John Nendick in a statement. “With surging demand for content, M&E companies are growing their profitability through multiple consumer offerings, better knowledge of consumer tastes and preferences and continued international expansion."
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