Product and Service

Companies included in content maker - drama& film sector in video &audio goods and service industry primarily create TV programing and motion pictures and distribute by broadcast and paid TV, theatrical, physical media, and digital channels earning revenue from advertising, affiliate fees (including subscription), and release of films.


Demand for Product and Service

As indicated by the typical company data, the demand for drama& motion picture content from big channels (linear and OTT) and stream distributors has been strong and growing. However, relatively smaller channels based on linear distribution have been experiencing decline of subscriptions. Distributing their digital channels based on third OTT platform seems to be good way to gain viewers. However, it seems to not be able to offset the declining cable subscribers.

The Sector

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 programming 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 programming 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 re-transmission 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 continuously lose their viewers. Most of current TV channels companies will not benefit from continuously 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

It seems that demand for subscription for paid linear channels (drama and film) has been weak and presented a general downturn trend as indicated by declining number of subscribers for most of channels. To lower costs of subscribers and deal with declining demand for TV channels, the platform operators of distribution decrease bundles of channels, which caused large difficulties for many less attractive TV channels in maintaining their viewers. However, the more specific bundle of TV channels and the availability to subscribe for specific channel from digital platform helps stimulates demand for some of better channels from those who, otherwise, would not like to subscribe a bundle of channels from TV distributors. We have seen fast increase in subscription for some of smaller channels. However, for most of companies the growth from digital platform is too slow to offset their loss in linear cable platform. It seems that many companies depend on raising contractual rates for their channels to deal with declining subscribers.
In the downward trend of TV industry, companies’ revenue of advertising has declined accordingly as well.
There is a downward trend (except for China) in the industry of motion picture, which may be rooted to declining admissions of theatres in those regions.
The general decrease in subscription has hurt profitability of those TV channels makers in this sector. However, we have seen increasing margins for many companies in this sector in 2018 probably attributable to quick increase in consumers’ demand for video content and continuingly increasing subscription for their digital platform. The typical company in this sector has an about 44-47% gross margin in 2018 with a SG&A as percentage of sales of about 22% and operating margin of 24%.
The typical enterprise price/EBI ratio is 13 (12 months trailing).

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