The media and entertainment industry is expected to have its most profitable year in close to a decade, but some sectors are performing better than others.
Cable operators are the media and entertainment industry’s top performer in terms of profitability, followed by cable networks, according to a new report by consulting firm EY. Time Warner Cable (NYSE:TWC), Charter Communications (NASDAQ:CHTR) and Virgin Media (NASDAQ:VMED), among others, are expected to achieve 41 percent margins by the end of 2014. Cable networks like AMC Networks (NASDAQ:AMCX), Discovery (NASDAQ:DISCA) and Starz (NASDAQ:STRZA) are projected to hit 37 percent.
The outlook is not as positive for film studios, which are expected to have just 12 percent margins in comparison. Their revenue will rely on profits from digital platforms and franchise-based films, according to the report.
The 10 media and entertainment sectors are expected to average 28 percent profit margins in 2014 – a figure greater than the major stock market indices. For instance, the S&P 500 Index is expected to have an estimated profit margin of 27 percent. The industry is also expected to outperform the London Stock Exchange’s FTSE 100, the French CAC 40 and Japan’s Nikkei.
“We are seeing that digital is very much driving profits now, instead of disrupting it,” John Nendick, global media & entertainment leader at EY, said in a statement. The industry’s earnings were measured before interest, taxes, depreciation and amortization (EBITDA). They have increased every year since 2010.
“Companies are figuring out how to monetize the migration of consumers to a variety of digital platforms, and this insatiable demand for content is fueling growth throughout the industry,” Nendick added.
Still, the media industry has its share of struggles. Newspaper and magazine industries have seen a decline in advertising and subscription revenues. Digital revenues may be going up, but they represent a small portion of overall revenues, the report says.
Jobs in the film and sound industries have been on the decline – 19 percent in the last two years, according to figures from the U.S. Bureau of Labor Statistics through August 2014. This is partially due to poor summer box office sales and production incentives for producers to make films outside the U.S., Variety reports.
In terms of profitability, the cable operators and networks are followed by interactive media, 36 percent; electronic games, 29 percent; media conglomerates, 26 percent; satellite TV, 26 percent; publishing and information services, 21 percent; television broadcast, 19 percent; film and TV production, 12 percent; and music, 11 percent.