Marginal growth a very good thing for media companies


ChartAccording to a study from EY, big media and entertainment firms are going to enjoy hefty profit margins when 2014 goes into the books. It noted continued demand and sustainability for the broadcast sector. However, digital is a prime growth driver.

EY is looking for margins in the 28% range. The prediction is the best for the M&E sector in some time and puts the sector ahead of many others.

John Nendick, Global Media & Entertainment Leader at EY, commented, “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.”

Added Tom Connolly, Global Media & Entertainment Transactions Advisory Services Leader at EY, “The higher levels of free cash flow generated by broader consumer access to content through more robust networks coupled with increased availability of low cost credit and a growing confidence in the sustainability of profitable digital platforms is enabling M&E companies to pursue expanded deal activity that supports EBITDA and geographic growth – be it M&A to enhance scale and market leverage, or the strategic benefits of divestitures and spin-offs of non-core assets.”

Key points from the study included:

* Cable is a margin leader on data and BTB services, and is picking up higher affiliate, licensing and syndication fees.

* Internet companies are growing in the search and video advertising arenas

* Pricy premium entertainment is driving conglomerate growth and putting pressure on smaller competitors

* Satellite is getting squeeze by higher program costs and slow subscriber growth

* Digital is growing for newspapers and magazines, but not fast enough to make up for advertising and subscription declines

* Broadcast’s mass audience, despite erosion of some of that mass, is still wanted by advertisers and consolidation is expected to help support retransmission income

* Studios are relying on franchise movies and high margin television content

* Music’s gains are in licensed digital subscriptions and streaming, plus an increasing presence on mobile platforms.

RBR-TVBR observation: Just like a smart investor spreads the risk, smart broadcast companies will spread their operations over a variety of platforms, all the while protecting the broadcast franchise.

Doing the latter, in our humble opinion, involves sustaining its local dominance. It is the key asset in the broadcast arsenal that other media cannot reproduce effectively, and it must be the foundation upon which all other ventures are based.

Any cash pulled in from broadcast competitors piece of pie is all to the good, so we say go for it!