As indicated by the typical company data, the demand, from paid TV subscribers, for the channels that companies provide in this sector has been weak and declining primarily due to changes in viewing habits while contractual rate has been rising.  While demand for their local TV channels’ broadcasting and retransmission to cable network seems to be strong the revenue from advertising has been shrinking. The revenue from film has been decreasing.

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. Generally, the demand, from consumers, for video content has been very strong and quickly increasing. However, the increased demand mainly has come from digital platform (streaming or OTT) or concentrated on a few of major linear channels. Therefore, we have seen that most of multiple channels of TV platform have been losing viewers generally and those channels that are able to provide better and higher quality content may be seeing increasing viewers in TV and digital platform in total.

2. For TV channels that lose subscribers of TV platform but still are able to generate high quality content, it seems that going to the third party OTT platform for their channels or focusing on only providing content to stream distributors can help maintain or grow their revenue.

3. Increasing content assumption led increasing investment in production of content and more content makers and the intensive competition for subscribers and increasing concentration among distributors/channels pushes programing costs up and reduce profitability of current content/channels providers (paid TV channels; broadcasting channels

4. Deep segmentation may help increase revenue of more popular paid TV channels due to larger concentration of subscription fees(as indicated by increasing contractual rates) but the resulted increase in the programing costs and distribution costs, together with deceasing ability to raise rates and loss of more subscribers, eventually hurt those companies’ profitability and lower their cash inflow.

5. Affiliates fees earned from broadcasting distributors seem to increase due to more retransmission fees earned but will not be expected to continue in long run.

6. Revenue of advertising on TV platform seems to have been decreasing.

7. There is a downward trend globally (except for China) in the industry of film content in the past several years.

Causes behind the trend

1. Changes (from TV to internet) in consumers’ viewing habit and increasing accessibility to internet video content (more choices dilute demand for current companies) may be the major reason for changes in TV industry.

2. Less viewing time of TV caused decreased demand for high costs’ multiple channels subscription.

3. Increasing demand for high quality content and reduced costs of subscription resulted from technology availability to digital subscription help bring more viewers for some of small but specific content providers.

4. Less TV viewers of channels and increasing competition from digital advertising decreased advertising revenue of content makers.

Industry Future

1. As downward trend in this industry continues, many TV channels companies may continuingly lose their viewers. Most of current TV channels companies will not benefit from continuingly increasing demand for video and subscription and advertising revenue get hit most by the changing habit of consumers. However, for those better channels and some of specific channels including sports channels, a growth in revenue may be expected.

General Financial Performance of Companies In the Sector

Generally, companies in this sector have experienced weak demand, especially from cable subscribers, for their channels. However, some of major channels providers seem to still be able to raise contractual rate to offset the declining subscribers. We have also seen companies to benefit from increased affiliates fees paid for their channels’ broadcasting and retransmission.

It seems that advertising revenue presents a downturning trend for most of companies in this sector and revenue from licensing their film and TV series content presents a similar trend as well.

The leaving subscribers of paid TV channels caused intensive competition among companies in this sector for programming sources (for examples, sports events), which may be the reason behind increasing programming costs. At the same time, while increasing contractual rates help offset the impacts of lower number of subscribers these impacts eventually hurt profitability of those companies that heavily depend on subscription of paid TV as indicated by decreased cash flow (EBI) in 2018. The impacts seem to be minor for companies that more depend on affiliate fees from broadcasting because of increased affiliate fees and re-transmission as indicated by increased cash flow in 2018.

Typical gross margin seems to be declining since 2016, which present an about 37% gross margin in 2018. With the SG&A as percentage of 16%, we see the operating margin is about 22% down from about 24% in 2016.

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