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 unfavourable demand for subscribers, there are still companies that can keep their revenue growing positively by raising price.

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

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 also have seen some of companies in this sector have been able to raise price of advertising to improve their advertising revenue while the industry presents a downturning trend for most of companies in this sector.

The leaving of subscribers of paid TV channels made some of channels companies able to raise rate but also caused intensive competition among companies in this sector for programming quality, which may be the reason behind increasing programming costs.

Typical gross margin seems to be declining since 2016, which present an about 53% gross margin in 2018. With the SG&A as percentage of 26%, we see the operating margin is about 27% down from about 32% in 2015.

Looking for  multiples to help you make decisions in pricing of PE, M&A, or distressed debt transactions?

Please click the button below.