Weak Ad Gains For Basic Cable, Higher Growth Forecast

While U.S. ad-supported cable networks' affiliates revenue growth has shrunk to meager gains in the last few years, they are forecast to rise by mid-single-digit percentage gains in the next five years -- largely because of better cross-platform measurement.

A new study estimates that ad revenue at basic cable networks grew 4.5% to $29.6 billion in 2016, according to S&P Global Market Intelligence’s SNL Kagan.

Those gains are forecast to almost double this year to 9.3%, with a 7.1% hike in 2018, followed by a return “to a more normalized rate of less than 5% in 2019 and 2020.”

Advertising revenue had a 1.6% ad gain in 2014 and an increase of 1.9% in 2015.

SNL Kagan believes gains in advertising can be partly attributed to new metrics: “We are assuming the industry gets a new widely adopted cross-platform measurement system in place in late 2017” from Nielsen.

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For more than a decade, basic cable networks' affiliate revenues have sharply outpaced advertising revenue gains.

For example, cable networks' affiliate revenue in 2015 gained 7.5% over 2014 to $37.58 billion. This compares to a 1.9% hike in 2015 in gross advertising revenue to $28.28 billion. Overall ad-supported cable network 2015 revenue grew 5.3% to $63.63 billion.

Research results indicate that the advertising growth rates of basic cable networks have been on a general downward trend since 2010 -- when cable networks posted a 9.9% hike over 2009 -- the start of the recession. In 2011, the rate was 9.5%; and it was 4.4% in 2012; 6.5% in 2013; 1.6% in 2014; and 1.9% in 2015.

Since 2005, basic cable networks have seen a drop in the share of dollars coming from advertising revenue -- 37.8% in 2015 versus 46.9% in 2005. At the same time, subscriber-fee revenue for those networks has climbed to 59.1% from 49.3%. Research shows that the "other revenue" category was at 3.2% in 2015; 3.8% in 2005.

SNL Kagan estimates that gross basic cable ad revenue will climb to $32.0 billion in 2020, with affiliate revenue rising to $49.2 million in three years.

In the first two quarters of 2016, AMC Networks, 21st Century Fox, and Scripps Network Interactive showed some of the strongest U.S. advertising revenue gains.

AMC was up 29% in the second quarter and 1% in the first quarter, while Fox improved 13% in the second quarter and 17% in the first; and Scripps gained 9% in the second and 14% in the first.

Time Warner cable networks grew 6% in the second quarter and 5% in the first quarter, while Walt Disney was up 5% in the second quarter and down 9% in the first. Discovery posted gains of 5% and 7% for the second and first quarters, respectively.

Two weaker cable TV groups in the first half of the year were NBCUniversal and Viacom. NBC cable networks were flat in the first two quarters, while Viacom was down 4% in the second quarter and 5% in the first.

SNL Kagan estimates established fully distributed cable networks are losing around 2% of their traditional linear TV subscribers per year.

1 comment about "Weak Ad Gains For Basic Cable, Higher Growth Forecast".
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  1. Ed Papazian from Media Dynamics Inc, January 24, 2017 at 4:48 p.m.

    Here are some interesting revenue estimates of our own to ponder, Wayne. If we confine ourselves to the broadcast TV networks and the basic cable channels, leaving out Local station fare, national syndication, PBS, pay cable, etc. the broadcast networks garnered only 23% of all viewing "impressions" while cable aggregated 77% in 2016. Taking "linear" ad dollars, however, which  were about $41 billion, the braodcast networks had a share of 39%, due primarily to their much higher CPM levels. But "other" incomes, including retransmission fees, syndication profit shares and digital ad sales for the broadcast networks and carriage fees plus digital ad sales for cable, totalled just over $50 billion and here---thanks almost entirely to their massive carriage fees---- the cable channels were dominant, garnering 85% of these revenues compared to a mere 15% for the broadcast TV networks. Counting all revenues, no matter how they were generated, the split was broadcast networks 26%, basic cable 74%. Which is why basic cable, despite its lower CPMs, is so profitable and why the broadcast networks are so happy that they own  many of the leading basic cable channels. The cable portion of their portfolios brings in the largest profits by far, and this will continue, despite relatively small losses in coverage due to cord cutting, for the foreseeable future.

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