December 13, 2011

Cable Networks Are Doing Just Fine, Thank You Very Much

A recent report from SNL Kagan was all sunshine and roses for cable networks. The "Economics of Basic Cable Networks, 2011 Edition" report illustrates that a big part of that good news derives from the networks’ ever-increasing revenues from affiliate fees. However, that's bad news for cable providers.

In 2010, networks negotiated $24.9 billion in license fees (or affiliate revenues) from multichannel providers. While that's cutting into the bottom line for operators, companies like Comcast can play both sides of the fence because, in addition to distributing video, they also provide content.

In an amusing 180-degree turn, one of the first things Steve Burke said when he transitioned from Comcast to NBC Universal (as president/CEO) was that he was going to doggedly pursue retransmission fees. “Retransmission consent dollars is not a good thing for the cable side of Comcast, but it’s going to be a very good thing for NBCU,” Burke told investors at a Bank of America conference in September.

According to the new Kagan report, "Historically, there was a roughly 50/50 split between ad sales and affiliate revenues. However, the last two recessions halted ad-revenue growth, while affiliate fees (which have contractually obligated rate increases and are normally multiyear) have plowed ahead."

In 2010, cable network ad revenues of $19 billion were less than 42 percent of total revenues of $45.2 billion. But that's not to say ad revenues were bad.

"After a frightening two years for most of the media industry, the ad market saw a remarkable rebound in 2010," the report continues. "Cable networks were among the chief beneficiaries, with 2010 ad revenue growth of 9.4 percent. The sector weathered the economic storm better than others, with a revenue decline of only 0.9 percent in 2009 and an increase in 2008. Even with a down year in 2009, cable networks have grown their ad revenue at a respectable 5.9 percent clip over the past five years."

Cable-network ad revenues grew close to 10 percent in 2010, and Kagan forecasts strong double-digit gains for 2011, with slightly less momentum moving forward:

"Despite turbulence in the market and uncertainty about the economic recovery, ad buyers are coming back to cable networks in droves. Our outlook calls for full-year ad revenue growth of about 14 percent in 2011, softening to about 10 percent in 2012 and in the 8-percent to 9-percent range thereafter. The result is an 8.9 percent CAGR between 2011 and 2015 for ad revenue, while affiliate revenues are forecast to soften with 7.5-percent average growth during the same period."

-Linda Hardesty