It might not be reflected in the sector’s stock price, but a new report by EY says the media and entertainment company is expected to produce some of the best profit margins of any industry.
Media and entertainment companies are expected to post average earnings before interest, taxes, depreciation and amortization (EBITDA) of 28%., EY, the business advisory service, says in its new report, Spotlight on Profitable Growth. Those margins have increased each year since 2011 and are expected to remain constant in 2015.
While digital appears to be a threat to more traditional media companies, digital media adoption and expansion into emerging markets is driving profitability.
“The evolution of the M&E industry continues to focus on the exploitation of digital distribution and finding new and innovative ways to reach and interact with the consumer,” says John Nendick, Global media and entertainment leader at EY. “With surging demand for content, M&E companies are growing their profitability through multiple consumer offerings, better knowledge of consumer tastes and preferences and continued international expansion.”
EY compares the M&E industry’s 28% EBITDA to the 27.8 for the S&P 500.
Within the M&E sector, the most profitable are cable operators, with a 40% margin in 2015. Next come cable networks at 36%; interactive media at 34%; information services at 30%; electronic games at 28%; conglomerates at 28%; Satellite TV at 25%; TV broadcast at 21%; film and TV product at 14%; consumer publishing at 13% and music at 13%.
EY credits high margin data and business to business services as helping the cable operators. They are able to increase prices despite competition from over-the-top services.
Cable networks benefit from digital licensing, affiliate fee increase and international expansion. Profit margins are being squeezed by rising programming costs and declining linear viewership. Ad revenues are also under pressure.