European cable finances improving; US prospects not so bright

SNL Kagan, Industry Leader for 25 Years, Expands Economics of Basic Cable Networks Coverage to Europe

LONDON, United Kingdom — SNL Kagan, the leading expert on the Economics of Basic Cable Networks (EBCN) in the U.S., has dramatically expanded coverage to include leading markets in Europe. Here are some key findings from their research on the major markets of France, Germany and the U.K., initially covering 60 networks with total 2014 net revenues (advertising, affiliate and other) of $14.4 billion and cash flow of $3.7 billion:

• In the U.K., total revenues increased at a compound annual growth rate (CAGR) of 3.1% over the past four years to $5.6 billion while programming costs fell at a CAGR of 0.8% to $3.0 billion. Cash flow increased at a CAGR of 11.4% to $1.6 billion while margins expanded from 29.4% to 30.5% during the same period.
• In France, total revenues grew at a CAGR of 0.9% over the past four years to $2.9 billion while programming costs rose at a CAGR of 6.8% to $2.0 billion. Excluding the substantial startup investment by a new premium sports network, cash flow declined at a CAGR of 1.5% to $406.3 million while margins contracted from 18.7% to 15.0% during the same period.
• In Germany, total revenues grew at a CAGR of 4.5% over the past four years to $5.9 billion while programming costs grew at a CAGR of 0.1% to $3.1 billion. Cash flow grew at a CAGR of 16.4% to $1.7 billion while margins expanded from 26.4% to 29.8% during the same period.

With the U.S. ad market slowing and programming costs rising rapidly, the financial prospects for U.S. cable networks are no longer as bright. Those circumstances have virtually every major media conglomerate looking abroad for opportunities. One key theme running across multiple markets which is consistent with the market in the U.S. is that the ad market is soft but sports rights and original programming costs continue to escalate rapidly, putting pressure on cash flow margins. This trend is unlikely to reverse anytime soon, which will likely cause more contentious carriage battles between multichannel operators and cable networks. This is one reason that we are seeing a lot of M&A activity in Europe. The more networks a media company has under its banner, the more leverage it gains with multichannel operators.