More spending on broadcast.................................
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Blue-Sky Projections
Veronis, Suhler sees more spending for communications services just ahead
By Regina Matthews
Sunny skies are ahead for the cable industry, according to the latest report on the communications industry from Veronis, Suhler & Associates.
The New York-based investment banking firm that covers publicly traded communications companies predicts that consumer, business, institutional and advertiser spending on cable systems, DBS and wireless cable will rise at an annual average of 10.1% from 1996 through 2001.
That translates to about $55.4 billion in spending in 2001 vs. $34.3 billion last year, according to the report.
Only one sector is expected to surpass that rate of growth within the communications industry, according to the report: interactive digital media, including Internet-related services. It's expected to grow at an average annual rate of 17.3%, from about $8.5 billion last year to almost $19 billion in 2001, according to Veronis, Suhler.
Spending on broadcast TV is expected to grow at a 5% rate in the 1996-2001 period vs. the 7.3% growth rate it turned in between 1991 and 1996, according to the report. Total expenditures on broadcast networks are expected to rise about $96 billion - from around $34.4 billion in 1996 to about $44 billion in 2001, the report states.
Veronis, Suhler sees few clouds ahead for the communications industry, pointing to steady revenue flows and spending that will outpace the economy through 2001.
In fact, the report also projected that spending by advertisers could outpace consumers', creating a healthy environment for increasing cable's local and national ad sales revenue.
"As long as there's a stable economy and low inflation, advertising will continue to hum along," says John Suhler, a founding partner of Veronis, Suhler.
Despite that encouraging picture, the report predicts continuing audience fragmentation. It also states that cable networks, whose ranks will grow, will gain more viewers as broadcasters lose more.
Indeed, emerging cable networks are expected to be part of the catalyst that'll create stronger growth in ad spending by offering more opportunities to reach target audiences, the report concludes.
THE YEAR THAT WAS
Looking back at 1996, the Veronis, Suhler report pinpoints some recent cable industry trends that impact operators and programmers.
For example, the study states that acquisitions were the primary driver of revenue growth for operators last year: Cable system assets, which rose by $6.6 billion from 1992 to 1994, jumped by $19.4 billion in 1995 and another $20 billion in 1996.
Meanwhile, the easing of regulatory restrictions permitted rate increases, which, along with subscribership growth, helped boost revenues as cable operators were allowed to pass along cost increases and charges for adding more networks.
Veronis, Suhler found that average monthly cable fees rose at mid-single-digit rates in 1995 and 1996 - a vast improvement over 1994, when rates fell 4% after an FCC-mandated rate rollback.
Meanwhile, the rising costs of programming and marketing slowed earnings growth and eroded margins. At the same time, cable networks' increased use of original programming and a greater number of prominent sports events on cable raised costs for operators that carry the major cable networks faster than those MSOs could pass along those costs to subscribers, according to the report.
The survey also says that the cost of attracting new subscribers has risen as cable operators face the challenge of marketing to households that had previously rejected cable. Growing competition from DBS and wireless companies also has contributed to cable companies' growing costs, according to the report.
For cable companies, operating margins and returns on assets fell to five-year lows in 1996, with the rate of decline accelerating over the last two years. Consequently, while revenue growth has improved over the last two years, operating costs have grown even faster while margins have declined, according to the report.
On another front, Veronis, Suhler says subscriber growth, rising affiliate fees, ratings gains and more advertising spurred cable network revenues last year. The sector had 1996 combined revenues of $131 million, or a 10.3% gain over 1995.
As many of the major MSOs increased their channel capacity in order to pass along rate increases, they also boosted coverage and license fees for some of the lower-tier basic networks, according to Veronis, Suhler.
And while programming costs rose as companies financed more original programming and startup networks, those increases were more than offset by higher affiliate fees and increased advertising, the report says. Also, earnings soared as operating revenue rose 10.8% and operating cash flow rose 24.3% over 1995 totals.
Revenues at pay-per-view networks rose 22.9% last year, spurred by deeper hotel penetration and an overall increase in consumer travel and hotel occupancy rates, Veronis, Suhler says.
(November 3, 1997) |
