Amid an uncertain economy and a glut of content providers all fighting for eyeballs on TV and several alternative platforms, it’s sometimes interesting to take a step back and ponder the unbelievable strength exhibited by cable networks. Earnings released over the last couple of weeks have been stellar on the cable content side. And if that weren’t enough, SNL Kagan today released a study analyzing the “banner year” cable nets have been enjoying. In fact, the numbers suggest that “banner year” might even be an understatement: According to SNL Kagan, cable nets’ revenue increased by 12.6% in 2007 to $38bln. Ad revenue jumped 10.5% to $19bln, while license fees (affiliate revenues) soared almost 15% to more than $20bln. And guess what? Kagan expects the good times to roll right into this year, forecasting that ad revenue will rise 10.4% for all of 2008, despite an expected weakening in the second half of the year. That growth will be cut to 4.7% in 2009, recovering to 11.1% in 2010 on the back of a strengthening economy. “This year’s weak economy has resulted in extremely volatile ad markets with major advertisers scrambling to allocate budgets where they will get the most bang for the buck,” said Kagan senior analyst Derek Baine. “Companies that publicly report ad sales for their cable nets showed positive second-quarter results spanning a wide range from +1% to +28%. However, we expect to start seeing more negative numbers in the second half of 2008.”

On one hand, Kagan predicts much volatility and certainly a bit of a slowdown in 2009. But overall, these numbers are enviable. What would the broadcast nets give for these kind of ad growth rates? Of course, much of cable content’s strength also depends heavily on license fees (not really a factor for the broadcast nets unless you count recent efforts to collect fees through retransmission consent negotiations). For cable, those fees are well established. But it’s also important to remember that tension has never been higher among MSOs and satellite providers. The rancor now extends beyond expensive nets like ESPN. Distributors are increasingly antsy about any cable content ending up on non-cable platforms such as computers, gaming consoles, mobile devices, etc. Renewal negotiations with cable nets are becoming increasingly testy as distributors question whether fees they paid in the past should come down in light of all the new revenue cable nets are chasing in alternative platforms. Some of those platforms, after all, are free and ad-supported. And the license fees nets collect from distributors are being used to fund those ventures. Hmmmmm. Bottom line: Cable nets are in a Golden Age of sorts. But distributors are well aware of the good fortune out there. Don’t be surprised if they increasingly demand a piece of the action.

In the meantime, here are some other Kagan predictions to digest:

• Total industry multichannel subscribers are expected to grow 1.3% per year, roughly half the rate witnessed between 1998 and 2007.

• Total industry ad revenue is expected to increase at an annual rate of 8.1%, slower than the 11.6% posted over the previous decade.

• Total industry revenue is expected to grow 8.9% per year, with affiliate fees decelerating to a growth rate of 9.5% per year over the next ten years versus a 16.1% growth rate over the previous decade.

• Total industry cash flow is expected to grow at a CAGR of 10.8% per year, reaching almost $40 billion by 2017.

• The average industry cash flow margin is expected to rise from 36.4% in 2008 to 42.5% by 2017.

The Daily


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