Too much TV isn’t a very good thing for the industry’s finances.
Analyst Todd Juenger of Sanford C. Bernstein found that original programming hours are way up—especially at kids networks—and the cost of all those shows is hurting network profit margins. And the unwatched programming goes to streaming video on demand providers like Netflix, which cuts into linear viewing.
From a corporate point of view only Time Warner and NBC decreased their original programming hours. The programming increases mostly correlated with lower margins at the TV segments of media companies, Juenger said, with Disney, Viacom and 21st Century Fox’s broadcast unit margins dropping by more than 100 basis points.
“We continue to see this as just one component of a vicious cycle of margin and return on invested capital compression for TV networks,” Juenger said in a report Wednesday. “Revenue gets pressured from decelerating affiliate fees (cord-cutting, cord-shaving, cord delaying– and eventually lower price increases) and declining advertising (lower TV audiences, lower ad intensity in on-demand, growing digital alternatives). Networks respond to declining audiences by investing more in content (which usually doesn't succeed in recovering audiences, and ironically leads to more good content ending up on SVOD services, which further drives down TV audiences…).”
Juenger doesn’t see—or endorse—a scenario in which TV execs react to the pressure on profits by cutting back on programming spending.
But for investors, this makes it difficult to pick a network in which to invest unless they’re able to figure out which one gets lucky and finds the next big hit.
Better for investors is to invest in a studio, such as Lionsgate, Juenger recommends.