1999s saga: Slow and sad

Revenue-growth rates decelerate in broadcast TV, cable and radio, but Internet keeps rising
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Slower revenue and profit growth was the story for TV, cable and radio last year, according to a new report that crunched all the 1999 financial numbers for communications companies in the public sector.

The television broadcasting industry posted revenue growth of 7.4% (to $31.6 billion) in 1999. And while that's not bad, it's the lowest rate of growth the industry has produced in five years. From 1995 through 1999, the compound annual growth rate for the industry was 10.4%.

Revenue for the cable and satellite TV sector in 1999 climbed 14.2% to $45.5 billion. Double-digit growth is always good but for cable and satellite it was, like broadcasting, also well below the sector's five-year growth rate of 16.6%.

For radio it was the same trend: 1999 revenues were up 20% to $8.1 billion, but the growth was well below the five-year annual growth rate of 37.6%.

That's according to Veronis Suhler & Associates, the New York media investment banker and consultant, which just issued its annual Communication Industry Report. The report tracks all the 1999 financials for publicly traded communications companies along with a five-year trend analysis.

The results are in line with a forecast that VS & A issued last August that predicted slower growth for the broadcasting and cable industries from now until 2004 (B & C, Aug. 14).

Meanwhile, Internet revenue growth continued to soar last year. VS & A said the Internet sector continued to grow in 1999 at a pace that exceeded the annual growth rate for the last five years. Revenues for the sector last year totaled $9.6 billion, up 69%. The five-year average growth rate for the sector is 65%.

Broadcast TV

The report states that broadcasters benefited from a robust economy in 1999 that fueled a 4.4% gain in total ad spending, despite the fact that the industry was coming off an Olympics and midterm election year in 1998.

TV station revenues tracked by the report increased 10.2% to $7.4 billion, outpacing the TV networks, which posted a combined 6.5% revenue gain to $24.4 billion.

Operating income for the TV sector slowed dramatically last year, to a mere 0.7%, which VS & A attributed to declines at ABC and Fox as well as at numerous local stations around the country. By comparison, operating income for the TV sector was up 4.7% in 1998, while over the past five years, operating income has grown an average of 14.5%.

Operating-profit margins continued to shrink in 1999 as well, to 18.7% from 19.9% in 1998 and 20.9% in 1997. The total asset value of the public companies in the broadcasting sector was $75.7 billion, up 20% from 1998.

VS & A said that the four major networks each generated between $3.5 billion and $7.5 billion in revenue in 1999. ABC parent Walt Disney Co. generated the most TV revenue of any company, with $7.5 billion last year, up 5.2%.

General Electric's NBC ranked second with $5.8 billion (+9.9%), followed by CBS (now owned by Viacom), $4.4 billion (flat), then Fox, $3.5 billion. But Fox posted the highest-revenue growth rate at 14.2%.

Among TV station groups not owned by networks, Sinclair Broadcast Group posted the highest revenues last year at $733.6 million, up 17.5%, followed by Gannett, with $728.6 million, up 1%, and Hearst-Argyle Television, with $661.4 million up 62%.

Cable

In the cable sector, VS & A reported that publicly traded MSOs and satellite service providers like DirecTV posted $33.9 billion in 1999 revenues, up 16.3%, which equaled the five-year average growth rate for that sub-sector.

Cable and satellite networks posted revenues of $11.6 billion, up 8.3%. That was well below the group's 17.7% five-year average growth rate.

Total operating income for the cable sector dropped sharply in 1999, down 53% to $1.6 billion. VS & A said the declines were largely due to one-time charges to earnings taken by AT & T; the subtraction of gains of sales of assets by Time Warner; and losses racked up by DBS operators.

Operating-profit margins dropped to a five-year low for the cable and satellite industry, to 4.6%, down from 12.5% in 1995.

Looking just at service providers (excluding network-programming services), cable-system operators (MSOs) posted $27.8 billion in revenues last year, up 10.5%, below the sector's 11.8% five-year growth rate. Direct Broadcast Service operators posted $6 billion in revenue, up 55% but below the DBS five-year growth rate of 70%. DBS operating losses almost doubled to $907 million.

Cable MSO operating income rebounded somewhat last year, totaling $2.5 billion, essentially flat versus the previous year. But that's better than a five-year income-growth rate of-1%. In 1998, profits for the MSOs were down a combined a 21%.

On the cable network side, VS & A said that Time Warner and Viacom accounted for the lion's share-$9.2 billion-of the $11.2 billion in revenue generated by basic and premium cable channels in 1999. Time Warner's cable networks (CNN, HBO Cinemax, TBS, TNT, Cartoon and Turner Classic Movies) generated revenues totaling $6.1 billion, up 14%, with a 24% gain in operating income to $1.2 billion.

Viacom's cable networks (MTV, VH1, Showtime, The Movie Channel) posted revenues totaling $3 billion, up 16.8%, with a 25% gain in operating income to $932.4 million.

Radio

Operating-income growth continued to slow in the radio sector in 1999. The industry generated just over $1.4 billion in operating income last year, a gain of 11.4%. But that was about two-thirds below the industry's five-year profit growth rate of 34.3%.

About half of the industry's operating income-$741 million-was generated by Viacom's Infinity Broadcasting. Clear Channel was second with $189 million, followed by Cox Radio, with $118 million.

VS & A attributed the slowing profit growth in radio to higher charges for depreciation and amortization and asset write-ups resulting from acquisition activity. Profit margins for the sector slipped 1.4 percentage points to 17.4%.

But cash-flow growth for the radio industry remained robust, climbing 33% last year to just over $3 billion. VS & A attributed the strong gains to both revenue growth and operating-cost reductions. Again, Infinity was the leader, accounting for about one-third of the industry's cash flow with just over $1 billion in cash flow, followed by Clear Channel with $539 million.

Internet

On the Internet front, although companies continue to drive revenues to record heights, the sector also continued to gush red ink. Operating losses blossomed to $3.9 billion in 1999, more than double the $1.5 billion in losses for 1998.

VS & A attributes the losses to several factors, including the growing number of companies trying to make a go of it in that industry.

In addition, VS & A said, Internet companies have been struggling mightily to come up with profit-making business models. "Development of business models is time-consuming as well as expensive," the report states, "due to the costs incurred for research, development and implementation of necessary technological infrastructure."

In 1999, America Online was the leading Internet Service Provider (ISP) with $4.8 billion in revenue and operating income of $458 million. The second-ranked ISP last year was the Earthlink Network with $670 million in revenues and an operating loss of $195.7 million.

Among content providers, C/Net led with 1999 revenues of $112 million and an operating loss of $60 million. Second was ZDNet with revenues of $104 million and operating income of $1.2 million.

In its communications forecast issued last summer, VS & A predicted that online advertising will soar six-fold to $24.4 billion by 2004, surpassing cable advertising and growing at a remarkable 39.5% annually. In 1999, online advertising jumped 140%, to $4.6 billion, from $2.0 billion in 1998. VS & A said advertisers began moving from online banner ads to "permission-based" e-mail and other delivery mechanisms "in order to better measure effectiveness."


Broadcast TV (in billions)

<p> </p><p> <span class="small" id="d9e97-48-small">1999</span> </p><p> <span class="small" id="d9e102-52-small">Change 1998-99</span> </p><p> <span class="small" id="d9e107-56-small">1995</span> </p><p> <span class="small" id="d9e112-60-small">Annual growth*</span> </p>



Revenue



$31.6



+7.4%



$21.3



+10.4%



Profit



$6.0



+0.7%



$3.4



+14.5%


Cable/Satellite (in billions)

<p> </p><p> <span class="small" id="d9e181-117-small">1999</span> </p><p> <span class="small" id="d9e186-121-small">Change 1998-99</span> </p><p> <span class="small" id="d9e191-125-small">1995</span> </p><p> <span class="small" id="d9e196-129-small">Annual growth*</span> </p>



Revenue



$45.5



+14.2%



$24.6



+16.6%



Profit



$1.6



-53.00



%$3.0



NA**


Radio (in billions)

<p> </p><p> <span class="small" id="d9e265-186-small">1999</span> </p><p> <span class="small" id="d9e270-190-small">Change 1998-99</span> </p><p> <span class="small" id="d9e275-194-small">1995</span> </p><p> <span class="small" id="d9e280-198-small">Annual growth*</span> </p>



Revenue



$8.1



+20.0



%$2.30



+37.6%



Profit



$1.4



+11.4



%$0.43



+34.3%


Internet (in billions)

<p> </p><p> <span class="small" id="d9e349-255-small">1999</span> </p><p> <span class="small" id="d9e354-259-small">Change 1998-99</span> </p><p> <span class="small" id="d9e359-263-small">1995</span> </p><p> <span class="small" id="d9e364-267-small">Annual growth*</span> </p>



Revenue



$9.6



+69%



$1.3



+65%



Profit



-$3.9



-83%



-$77.9



NA**

*Average, 1995-99

**NA= Not available

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