Industry Surveys Broadcasting, Cable & Satellite Tuna N. Amobi, CFA & CPA, Consumer Discretionary Sector Equity Analyst OCTOBER 2014
Current Environment ...... 1
Industry Profile ...... 8
Industry Trends ...... 10
How the Industry Operates ...... 18
Key Industry Ratios and Statistics ...... 26
How to Analyze a Broadcasting, Cable, or Satellite Company ...... 28
Glossary ...... 34
Industry References ...... 38
CONTACTS: Comparative Company Analysis ...... 39 INQUIRIES & CLIENT SUPPORT 800.523.4534 [email protected] This issue updates the one dated April 2014. standardandpoors.com
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Topics Covered by Industry Surveys
Aerospace & Defense Electric Utilities Metals: Industrial Airlines Environmental & Waste Management Movies & Entertainment Alcoholic Beverages & Tobacco Financial Services: Diversified Natural Gas Distribution Apparel & Footwear: Foods & Nonalcoholic Beverages Oil & Gas: Equipment & Services Retailers & Brands Healthcare: Facilities Oil & Gas: Production & Marketing Autos & Auto Parts Healthcare: Managed Care Paper & Forest Products Banking Healthcare: Pharmaceuticals Publishing & Advertising Biotechnology Healthcare: Products & Supplies Real Estate Investment Trusts Broadcasting, Cable & Satellite Heavy Equipment & Trucks Restaurants Chemicals Homebuilding Retailing: General Communications Equipment Household Durables Retailing: Specialty Computers: Commercial Services Household Nondurables Semiconductors & Equipment Computers: Consumer Services & Industrial Machinery Supermarkets & Drugstores the Internet Insurance: Life & Health Telecommunications Computers: Hardware Insurance: Property-Casualty Thrifts & Mortgage Finance Computers: Software Investment Services Transportation: Commercial Lodging & Gaming
Global Industry Surveys
Airlines: Asia Foods & Beverages: Europe Pharmaceuticals: Europe Autos & Auto Parts: Europe Media: Europe Telecommunications: Asia Banking: Europe Oil & Gas: Europe Telecommunications: Europe Food Retail: Europe
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S&P CAPITAL IQ INDUSTRY SURVEYS (ISSN 0196-4666) is published weekly. Redistribution or reproduction in whole or in part (including inputting into a computer) is prohibited without written permission. To learn more about Industry Surveys and the S&P Capital IQ product offering, please contact our Product Specialist team at 1-877-219-1247 or visit getmarketscope.com. Executive and Editorial Office: S&P Capital IQ, 55 Water Street, New York, NY 10041. Officers of McGraw Hill Financial: Douglas L. Peterson, President, and CEO; Jack F. Callahan, Jr., Executive Vice President, Chief Financial Officer; John Berisford, Executive Vice President, Human Resources; D. Edward Smyth, Executive Vice President, Corporate Affairs; and Lucy Fato, Executive Vice President and General Counsel. Information has been obtained by S&P Capital IQ INDUSTRY SURVEYS from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, INDUSTRY SURVEYS, or others, INDUSTRY SURVEYS does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.
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Megadeals rock the industry landscape
Telecommunications giants are expanding their already vast reach in the media landscape. AT&T announced on May 18, 2014 that it would buy DIRECTV, the No. 1 satellite TV operator in the US, for $48.5 billion, as cellular growth slows down. AT&T is offering DIRECTV investors $95 per share, while the cash payment will be financed by asset sales, among others. We think this deal could further reshape the television industry, which has reached saturation and is being challenged by various video platforms that are increasingly taking up amid technological disruptions and shifting consumer preferences. With the planned merger, DIRECTV will deliver video to mobile, laptops, tablets, and other screens aside from television.
Concerns over decreased competition and DIRECTV’s control over the distribution of information hound the announced merger, with regulatory authorities also expected to investigate its impact on consumer prices. AT&T provides more than 11 million customers with high-speed Internet (of which almost 6 million are television subscribers), while its competitor, DIRECTV, provides digital television service to more than 20 million customers in the US. With the planned merger, AT&T will offer benefits to its approximately 100 million mobile phone customers, who will have access to DIRECTV video on their smartphones.
Critics fear that the merger will result in higher costs and less competition, and they have been scrutinizing how the consolidation could affect consumer cable television, broadband Internet, and wireless phone bills. Supporters of the deal, however, are positive on the potential outcome, amid a concurrent regulatory review of another historic pending merger between Comcast Corp. and Time Warner Cable—as further discussed below.
In February 2014, Comcast Corp. agreed to acquire Time Warner Cable for $45.2 billion in stock, combining the two largest cable companies in the US. Investors of Time Warner will receive 2.875 Comcast stock for each of their shares. Subject to regulatory approvals, the transaction is expected to close by the first half of 2015. The parties expect approximately $1.5 billion in operating efficiencies from the combination, which will be tax-free to Time Warner Cable shareholders.
Time Warner Cable, which has cable systems in areas such as New York, Southern California, Texas, the Carolinas, Ohio, and Wisconsin, will merge its products and services with Comcast Comcast will also acquire Time Warner Cable’s nearly 11 million managed subscribers through the merger, but Comcast will divest systems that serve about three million managed subscribers. Ultimately, Time Warner Cable will add a net total of approximately eight million managed subscribers, with Comcast ending up with a total of approximately 30 million managed subscribers.
Comcast and Charter reach pact on divestitures To win approval from the US Justice Department and the US Federal Communications Commission (FCC) for its planned $45 billion merger with Time Warner Cable, Comcast agreed to a three-way deal—including a divestiture of about 3.9 million video customers—with Charter Communications, Inc. According to the deal, Charter will buy out 1.4 million Comcast subscribers for $7.3 billion, and Comcast will divest another 2.5 million subscribers into a new publicly traded company to be owned by Comcast shareholders (two- thirds) and Charter (one-third). In addition, Comcast and Charter would swap approximately 1.6 million subscribers in different areas. This transaction would make Charter, which lost a bid to acquire Timer Warner Cable, the second-largest cable provider in the US. The deal is subject to conditions, including the closing of the Comcast-Time Warner Cable merger, as well as regulatory approvals.
M&A remains a major theme across the industry landscape According to Broadcasting & Cable (B&C), a trade publication, the first half of 2014 witnessed nine deals valued at more than $1 billion, twice the number of megadeals in the same period in 2013. On top of these announced deals are the AT&T-DIRECTV and the Comcast-Time Warner Cable transactions.
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PricewaterhouseCoopers (PwC), cited in Multichannel News in August that vigorous subsector activity early in the year should help fuel a healthy second half of 2014. The consulting firm also expects companies that are more traditional in the industry to continue seeking merger and acquisition (M&A) opportunities in nontraditional areas, such as technology companies.
Other relatively smaller deals could help sustain the pace of M&A activity across the industry. Aside from its deal with Comcast, Charter may also be exploring potential consolidation opportunities with smaller cable operators, such as Cable One, Mediacom Communications, and Suddenlink Communications.
Meanwhile, a recent spate of broadcasting and publishing spin-offs could provide another catalyst for further industry consolidation. Among the companies that have split their publishing and broadcasting operations are Gannett Co. Inc., The E.W. Scripps Company, and Tribune Media Company.
In 2013, Gannett Co., the publisher of USA Today and owner of 46 TV stations, bought Belo Corp., which owned 20 TV stations and two regional channels. In August 2014, Tribune completed the split of its 42 TV stations (under Tribune Media) and eight newspapers (Tribune Publishing). After selling its newspapers to Berkshire Hathaway in 2012, Media General split Young Broadcasting’s 12 TV stations in 2013 and plans to merge with LIN Media by 2015 to create the second-largest pure-play TV broadcasting group, with more than 70 stations.
Scripps (which owns 21 local TV stations) and Journal Communications (which owns and operates 14 TV stations and 35 radio stations) have agreed to merge their broadcast operations, and spin off and merge their newspapers. The newspaper company would be called Journal Media Group and will combine Scripps’ daily newspapers, community publications, and related digital products in 13 markets. This transaction is expected to close in 2015, subject to regulatory approvals.
Ernst & Young, a market research firm, has reported that an improving economy, particularly access to inexpensive capital and strong equity markets, keeps media and entertainment consolidations well oiled. Confidence in the industry seemed high in Ernst & Young’s report, as 51% of the executives surveyed said they plan to use debt as the primary source of deal financing in the next year, compared with 21% in 2013. In addition, 33% were confident about closing deals, compared with 23% a year ago, while 98% expected deal volume to be either flat or higher in the next 12 months. We think this optimism could further support the M&A outlook in the near term.
ADVERTISING OUTLOOK STILL HEALTHY BUT MIXED
According to data from Kantar Media, a market research firm, total ad spending rose 5.6% in the first quarter of 2014, to $34.9 billion. In 2013, ad spending totaled $140.2 billion, up 0.9% from 2012. This was the fourth consecutive year of growth in advertising spending, although the growth rate was extremely modest in 2013. It is important to note that half the growth in 2012 GROWTH IN TELEV ISION AND RADIO was due to the US presidential election and the Olympics. The top ADV ERTISING - FIRST QUARTER 1,000 marketers increased their ad spending steadily in 2013, after a Table B13: 2013-2014 large increase in 2012. CATEGORY GROWTH % CHG. ZenithOptimedia estimates that total US ad expenditures, boosted Television, totalIN TV AND 9.7 by the Winter Olympics and mid-term elections, will increase 4.8% Cable TV RADIO 6.2 to $175 billion in 2014, after rising 3.5% to $166.9 billion in 2013. Netw ork TVADVERT . 14.5 Spot TV 7.0 Zenith expects Internet advertising to drive growth in expenditures Spanish Language TV 18.0 going forward, supported primarily by mobile, online video, and Syndication–National 3.2 social media. Radio, total (2.4) Local Radio (4.7) In the first quarter of 2014, TV advertising increased 9.7% year on National Spot Radio 6.7 year, as cable TV spending grew 6.2%, and Spanish-language TV Netw ork Radio (5.4) grew 18.9%, while network and spot TV rose by 14.5% and 7.0%, Source: Kantar Media. respectively. Meanwhile, radio advertising (which includes local,
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national-spot, and network) dropped 2.4% in the same period compared with the prior-year period, according to Kantar Media.
TV upfront market sounds a cautious note We believe the recently concluded TV upfront market for the 2014–2015 broadcast season sounded a somewhat cautious note on the near-term outlook for television advertising. AdWeek reported on August 11, 2014 that total upfront dollar volume slipped 6.2% to $18.1 billion in 2014 from $19.3 billion in 2013, with cable dropping for the first time in four years to $9.7 billion, down 4.7% from a year ago.
For example, Fox network’s sales of upfront ads were down 10%–15% amid a softer than expected performance in the broadcast market. B&C, a trade publication, noted that overall broadcast ad sales in the upfront might have declined 5%–10%. Furthermore, Fox secured 2.5%–3.5% price increases on a CPM basis and sold 75%–80% of its ad inventory upfront.
Bucking the trend, however, NBCUniversal posted notable gains in a weak market, selling about $6 billion in advertising commitments across its broadcast, cable, and digital assets. More specifically, the NBC broadcast network notched more than $2.5 billion, up 11.1% from $2.25 billion in 2013. NBC’s broadcast ad prices, measured by cost per thousand viewers (CPM), were behind its rivals in previous years; but in 2014, NBC secured 7.5%–8% price increases. CBS and ABC fetched smaller price increases, albeit on larger bases.
In 2013, amid a sluggish economic recovery, the five US English-language broadcast networks received commitments between $8.6 billion and $9.2 billion for the 2013–2014 season, down from $8.8 billion to $9.3 billion in the 2012–2013 season. The combined upfront takes of networks like CBS, Fox, ABC, and the CW Network have plateaued over the last three years. Only NBC witnessed an increase in its advertising commitments, which totaled between $1.9 billion and $2 billion, up from $1.72 billion to $1.74 billion in the 2012–2013 season.
Digital outlets continue to gain share Digital advertising is continually becoming more important as an advertising medium. According to eMarketer, total US digital ad spending grew 15.7% to $42.58 billion in 2013, from $36.79 billion in 2012. This represented 25% of the US CROSS-PLATFORM USAGE total advertising spending in AVERAGE MONTHLY TIME the US in 2013, up from 22% NUMBER OF USERS (MIL.)--- SPENT (HOURS:MIN) --- in 2012. Table B14: US CROSS- Q2 2013 Q2 2014 % CHG. Q2 2013 Q2 2014 CHG. PLATFORM USAGE Watching TV in the home 282.7 284.4 0.6 146:37 142:38 (3:59) However, within the digital Watching timeshifted TV 167.1 175.2 4.9 12:35 14:13 1:38 arena, the growth is primarily Using the Internet on a computer 203.9 196.8 (3.5) 27:21 30:07 2:46 driven by mobile advertising, Watching video on Internet 149.8 145.5 (2.9) 6:28 10:35 4:07 which grew 120% to $9.6 Mobile subscribers w atching video billion in 2013 from $4.4 on a mobile phone 257.8 259.0 0.5 1:09 1:41 0:32 billion in 2012. On the other Source: Nielsen. hand, desktop advertising grew a mere 1.7% to $32.98 billion in 2013, from $32.43 billion in 2012. EMarketer forecasts mobile advertising to grow at a CAGR of 39% to reach $35.62 billion in 2017.
Political ads poised for new highs Borrell Associates, a provider of media research and consulting services, noted in its “2014 And Beyond Political Advertising Outlook” report that political advertising will reach $8.3 billion this year, half of which will be spent in August, September, and October. While candidates and parties spent only $25 million in the last presidential election, they are poised to spend 10 times more in the 2016 Senate races, according to the report. Videos, whether on cable or broadcast TV, are again expected to garner a lion’s share of the spending.
The New York Times wrote on July 27, 2014 that overall TV spots were up nearly 70% since the 2010 midterm congressional elections. The competitive areas in terms of advertising during the contests for Senate
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included Alaska, Colorado, and North Carolina, among others. An article from Cable Nation this year stated that political advertising on TV attracts most of the media consumption. Citing the Nielsen Cross Platform Report for the first quarter of 2014, the article reported that the average American watches nearly five hours of TV each day and spends about one hour on the Internet on either a computer or a smartphone. This implies that TV is still the dominant platform on which to consume content.
Radio recovery still generally subdued The radio industry’s total ad revenues fell 3% to $4.54 billion in the second quarter of 2014 from $4.68 billion in the same period a year ago, according to the Radio Advertising Bureau (RAB). The decline contributed to a 1.1% drop in the first half of the year to $8.33 billion from $8.42 billion in the prior-year period. The RAB attributed this decline to a drop in spot ad revenues, which fell 5% to $3.55 billion in the second quarter of 2014.
Among the categories that saw revenue declines were beverages (down 23%); communications and cellular (14%); concerts, theaters, and movies (11%); financial services (7%); insurance (13%); restaurants (15%); and retail (17%). On the other hand, the categories that saw revenue increase were home improvement (up 4%); professional services (3%); and healthcare (1%). Notably, a few smaller categories had substantial percentage gains: real estate and retirement communities (up 19%); auto parts and services (14%); and specialty retail (11%).
The RAB observed that a number of top 10 advertisers are operating in industries characterized by intensified competition for the biggest market share. Radio is a key component of advertising to solidify brands or introduce new products. In addition, the RAB was optimistic about stepped up political advertising spending on radio due to the battle for control of the Senate.
Radio advertising faces increased competition from satellite radio, as well as a growing array of digital entertainment outlets and mobile devices such as smartphones and tablets. In addition, over the next few years, we see increased competition for listeners from Internet radio services, such as Pandora. According to eMarketer, the Internet radio segment is expected to see considerable growth as consumers shift from terrestrial to streaming, as devices and platforms become more ubiquitous. The market research firm expects the number of monthly Internet radio listeners in the US to reach 159.8 million in 2014, up 8.1% from an estimated 147.8 million in 2013. It expects US Internet radio ad spending to reach $1.1 billion in 2014, up 13.5% from $970 million in 2013.
RETRANSMISSION REVENUES CONTINUE TO RAMP UP
Retransmission fees (i.e., the fees that cable and satellite providers pay to local TV affiliates for broadcasting their signals to subscribers) have grown rapidly in recent years and have become a crucial component of the revenue stream for TV broadcasters. Such fees are the main reason that local television has witnessed a major financial turnaround in recent years, with both market activity and valuation expanding materially in 2013.
In the long term, we expect retransmission revenues to accelerate over the next few years, thanks to more agreements being struck at progressively higher levels. In November 2013, SNL Kagan revised its year- earlier forecast upward, estimating that such revenues would reach approximately $3.3 billion in 2013, and would total $7.6 billion in 2019—a nearly seven-fold increase from about $1.14 billion in 2010. Kagan further forecasted that retransmission revenues would increase to $7.15 billion in 2018, versus a year-earlier projection of $6.05 billion.
STELA legislation mulls potential retransmission reforms In July 2014, the House of Representatives voted to reauthorize a law allowing satellite providers, such as Dish Network Corp and DIRECTV, to bring in TV signals from other markets when subscribers are not able pick up local stations. Renewal of the 2010 Satellite Television Extension and Localism Act (STELA), which is set to expire at the end of 2014, preserves the nation's pay-TV laws for another five years and ensures that 1.5 million Americans, mostly rural, will still be able to view distant broadcast signals.
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This issue has been a critical and disputed aspect of the Cable Act over the years. As advertising revenues decline and the price of sports rights soar, TV broadcasters have lobbied for higher fees to retransmit their network programming, which could affect consumers through higher monthly rates.
FCC VOTE STOKES FURTHER DEBATE ON NET NEUTRALITY
Protecting an open Internet recently resurfaced as one of the key regulatory themes, as the FCC recently voted to propose certain rules regarding the so-called Net Neutrality. Net neutrality pertains to the banning of Internet service providers (ISPs) from blocking or slowing down access to websites, but it may also let the ISPs charge content companies for faster data delivery to users.
The controversial proposals could see ISPs charging content providers, such as Netflix, more for premium or faster delivery of data. In other words, the proposal allows for paid prioritization. Critics argue that paid prioritization would not only increase costs for consumers, but would also make it more difficult for start-ups to enter the market. The proposed rules have been open for public comment for four months, starting in May.
Title II reclassification, still a long shot? Advocates of net neutrality, or an “open Internet,” are urging the FCC to reclassify Internet service providers as common carriers under Title II of the Communications Act of 1934. It is thought that Title II classification would allow the FCC to protect net neutrality by regulating against paid prioritization, also referred to as the “Internet fast lane.”
However, as mentioned by The Daily Dot on May 20, 2014, potential drawbacks of Title II include the fact that 80-year-old US common carrier laws related to telecommunications are not suited to today’s dynamic technologies and broadband companies. Although these laws were updated in 1996, how the Internet would develop was as yet not fully understood.
Wireless spectrum AWS-3 auction on deck for November With ongoing efforts to free up spectrum available for wireless services, the FCC on March 31, 2014 made the largest amount of spectrum for mobile broadband available for auction since the 700-megahertz (MHz) band was auctioned in 2008. The set flexible-use rules for 65 MHz of spectrum in the AWS-3 band include the 1695-1710 MHz, 1755-1780 MHz, and 2155-2180 MHz bands. This mix of spectrum block meets the needs of both small and large wireless providers. Wireless companies benefit from access to these bands as consumer demand for mobile data grows. The FCC’s action resulted from years of coordinating with industry stakeholders and federal agencies to make 40 MHz of the AWS-3 spectrum available for commercial use.
In July 2014, the FCC set a reserve price of about $10.6 billion for the airways it will take to the AWS-3 spectrum auction late this year. The 1695-1710 MHz license reserve will be priced at approximately $580 million, and the paired 1755-1780 MHz/2155-2180 MHz licenses at approximately $10.07 billion, according to the FCC’s Wireless Telecommunications Bureau.
SUPREME COURT RULING PUTS KIBOSH ON AEREO
The US Supreme Court ruled in June 2014 that television streaming service Aereo had violated copyright laws. Since March 2012, Aereo had captured broadcast signals via mini antennas and transmitted these to its subscribers (less than 500,000 as of June). The company’s subscribers had paid a monthly fee to stream and record broadcasted programs using their mobile gadgets, computers, and Internet-connected televisions.
Not surprisingly, ABC, Disney, CBS, NBC, and others had filed a lawsuit against Aereo, charging it with copyright infringement, and asking for preliminary and permanent injunctions. Another lawsuit filed by PBS, Univision, Fox, and others charged Aereo with copyright infringement and unlawful competition. Because the networks do not receive any retransmission fees from Aereo, they claim the company has no right to the copyrighted content it transmits.
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The Supreme Court ruling appeared to be a victory for the broadcast networks, which argued that Aereo’s business model was tantamount to stealing their content. This comes at a difficult time for major broadcasters when viewers are canceling pay-TV subscriptions and shifting to cheaper streaming channels. In July 2014, Aereo paused its operations as it contemplated its options.
DISH maps blueprint for new online video services Dish Network Corp. (DISH) is leading in the race to offer online video services, as it gears up to offer an Internet-run streaming service, also known as over-the-top (OTT) services. In March 2014, DISH announced an agreement with Walt Disney Co. to be the first to offer an Internet-based competitor to cable TV through online Disney Channel, ABC, and ESPN.
While working on price and packaging, DISH also plans to align with other major cable networks toward a launch of its OTT offering. In August 2014, DISH announced a multiyear contract renewal with the cable programmer network A+E for an Internet TV service. Separately, in September 2015, Verizon Inc. announced its own plans launch a new OTT service by mid-2015, with other pay-TV operators also expected to follow.
Following DISH’s agreement with Disney, Sony Corp. reached an initial pact in August with Viacom Inc. to stream the media company’s programming. Apple has not been able to win the rights to sell cable networks’ channels a la carte instead of bundling them together, and Intel sold its $500 million TV-streaming service to Verizon Communications after halting the program. Verizon was considering a national online-TV service, said Bloomberg, and others are expected to follow. We think that, over the next year, a continued evolution of OTT offerings could profoundly reshape the dynamics of the television landscape.
CAUTIOUS OUTLOOK AGAINST THE CURRENT MACROECONOMIC BACKDROP
After a significant valuation run-up in recent years, S&P Capital IQ maintains a cautious near-term outlook for the broadcasting, cable, and satellite universe, against the current macroeconomic backdrop. Potential tailwinds include a continued steady (but slowing) advertising rebound and a growing stream of retransmission and syndication revenues BROADCASTING & CABLE STOCK PRICE INDEXES for broadcasters; relatively healthy cable and satellite subscriptions; and a current (December 30, 1994=100)Chart H04: (Aug. 31, 2009=100) BROADCASTING wave of M&A activity that is supported by 800 280 & CABLE STOCK relatively healthy balance sheets and 700 PRICE INDEXES 245 favorable capital market conditions. 600 210 Conversely, potential tailwinds include 500 175 increased audience fragmentation due to 400 140 changing consumer preferences, potentially 300 105 disruptive technologies from emerging 200 70 digital platforms, lingering concerns with 100 35 “cord cutting,” and some regulatory overhang, particularly as related to Net 0 0 2007 2008 2009 2010 2011 2012 2013 2014† Neutrality. We note that Standard & Poor’s Economics (which operates S&P 1500 Composite index (left scale) separately from S&P Capital IQ), as of Broadcasting index (left scale) August 2014, projected US real gross Cable & Satellite index* (right scale) domestic product (GDP) growth of 2.1% in *New index created August 2008. Prior to that point, cable companies were 2014, a moderate slowdown from the included in the Broadcasting index. †Data through September. Source: S&P Capital IQ Indices. 2.2% growth in 2013. However, consumers’ disposable income has been constrained by higher payroll taxes in 2013, and the outlook for employment remains relatively weak. Beyond some pending issues related to fiscal and monetary policies, we think that recent economic data (including the latest monthly jobs report, as well as data on consumer and business investment spending) appear to underscore the continued sluggishness (and potential fragility) of the economic recovery.
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Our TV advertising outlook partly reflects the current trends in the scatter ("spot") advertising market for broadcast and cable networks, and what we noted as relatively moderate levels of advertiser commitments at the 2014–2015 "upfront" market for the television networks. Despite some potential signs of a pullback from some ad buyers, we see relatively healthy demand for ad inventories across several key categories, such as automotive, financial services, pharmaceuticals, and telecom.
We also look for some favorable comparisons in 2014 on political advertising for local TV stations, as well as the Winter Olympics. Also, several TV station groups and networks should benefit from a continued major ramp-up of retransmission payments from pay-TV providers, as affiliate contracts come up for renewal over the next several years. However, we expect radio advertising to remain relatively subdued, although digital revenues should continue to be a bright spot for broadcasters.
We think a recent Supreme Court decision on Aereo, a start-up streaming platform, eases an overhang for television broadcasters. On the regulatory front, we see uncertainties related to a pending FCC "incentive" auction aimed to shift a portion of the incumbent TV spectrum reallocation to wireless broadband providers. However, valuations have been supported by recent M&A activity, including a series of recent acquisitions by Sinclair, as well as recent and/or pending broadcasting spin-offs by Tribune, Gannett, and E.W. Scripps.
Recent years have seen increased pressures on pay-TV subscriber growth, amid increased popularity of broadband video outlets (also known as "over-the-top"), such as Netflix and Hulu, as well as the so-called TV Everywhere services (e.g., HBO GO). We expect continued penetration of high-definition (HD), video- on-demand (VoD), digital video recorders (DVRs), and other advanced offerings, against an intensifying "battle of the bundles." With many cable providers expected to reach advanced stages of all-digital migration in 2014, we also see a continued focus on product enhancements through ultra-fast broadband speeds and next-generation wireless offerings.
In addition, the continued proliferation of Internet connectivity has spawned an array of "smart" applications and multi-media devices to provide consumers with a seamlessly integrated experience across video, data, and voice services. With newer offerings joining the likes of Apple TV, Roku, Google's Chromecast and others, we see a growing field of established and upstart companies alike that are increasingly joining an intensifying battle for control of the living room.
Meanwhile, valuations have been supported by a new wave of strategic M&A activity in the US pay-TV market—in many cases driven by the need for greater scale—most recently including the pending combinations of Comcast and Time Warner Cable, as well as AT&T and DIRECTV. This follows notable deals such as Comcast/NBCU, Time Warner Cable/Insight, and Liberty/Charter. We could see a further reshuffling of the competitive deck following the FCC's AWS-3 spectrum auction in November, which is expected to draw other key players like DISH Network.
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An industry backdrop of mergers and splits
The past two decades have seen several rounds of industry consolidation in the broadcasting, cable, and satellite universe, gaining impetus with the Telecommunications Act of 1996, and subsequent rounds of regulatory easing of media ownership rules by the Federal Communications Commission (FCC). While a handful of industry behemoths wield control over a disproportionately large share of the industry’s assets, the universe remains somewhat fragmented (with individual companies of all sizes), creating further opportunities for industry consolidation in the years ahead, in our view.
Companies have sought horizontal economies of scale that have the same or similar lines of businesses in deals called the “merger of equals.” Recent examples include Comcast’s pending acquisition of Time Warner Cable; AT&T’s pending purchase of DIRECTV; and Gannett Co. Inc.’s acquisition of Belo Corp. for $2.2 billion in December 2013. Other similar deals over the past five years include Nielsen Media Research’s acquisition of Arbitron Inc. in September 2013 ($1.3 billion); Charter Communications Inc.’s acquisition of Optimum West in June 2013 ($1.6 billion); Time Warner Cable’s acquisition TELEVISION & RADIO MERGERS & ACQUISITIONS of Insight Communications Co. in 2012 ($3 TELEVISION billion); Cumulus Media Inc.’s acquisition of 20 350 Citadel Broadcasting Corp. in 2011 ($2.3 16 280 billion); Cablevision Systems Corp.’s deal for Bresnan Communications in 2010 ($1.4 12 210 billion); and Scripps Networks Interactive Chart H02: Inc.’s acquisition of the Travel Channel in 8 TELEVISION & 140 2009 (about $1 billion). RADIO 4 70 MERGERS & Conversely, companies may seek vertical combinations through the acquisition of assets 0 ACQUISITIONS 0 2002 03 04 05 06 07 08 09 10 11 12 13 14* in distinct, but potentially complementary, areas of the industry’s value chain. Examples RADIO include Tribune Co.’s December 2013 25 5000 acquisition of Local TV Holdings LLC for $2.7 billion; Comcast’s acquisition in March 2013 20 4000 of the remaining 49% stake in NBC Universal for $16.7 billion (it purchased the initial 51% 15 3000 stake in 2011); Cablevision’s acquisitions of 10 2000 the Newsday newspaper for $650 million and Sundance Channel for $496 million (2008); 5 1000 and News Corp.’s $5.6 billion purchase of Dow Jones (2007). 0 0 2002 03 04 05 06 07 08 09 10 11 12 13 14* Despite such consolidation, we note that corporate splits, spin-offs, asset swaps, and Transaction volume (Bil. $, left scale) strategic divestitures remain a part of this Number of stations (right scale) *Data through August. industry’s landscape. Examples include Source: BIA/Kelsey. Gannett’s pending spin-off of its publishing business; a pending merger of the combined broadcast businesses of The E.W. Scripps Company and Journal Communications Inc. and a concurrent spin-off of their combined publishing businesses; CBS’s conversion of its North America outdoor advertising business into a real estate investment trust (2014); Liberty Media’s spin-off of Starz Entertainment (2013); Cablevision’s spin-off of AMC Networks (2011); Time Warner Inc.’s spin-off of Time Warner Cable Inc.
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(2009); DISH Network Corp.’s spin-off of EchoStar Corp. (2008); a separation of Belo Corp. and E.W. Scripps (2008); and a separation of Viacom Inc. and CBS (2006).
Over the years, a number of broadcasting and cable companies have also recapitalized through going-private transactions. Examples include Cox Communications (2004), Insight Communications (2005), Univision Communications (2007), Clear Channel Communications (2008), Hearst-Argyle Television Inc. (2009), Cox Radio Inc. (2009), RCN Corp. (2010), and TOP 20 TV STATION GROUPS—2013 Mediacom Communications Corp. (2011). (Ranked by 2013 revenues, in millions of dollars) REVENUES NO. OF NO. OF BROADCASTING OWNERSHIP CONCENTRATION COMPANY (MIL. $) STATIONS MARKETS 1. Fox 1,671.3 29 18 The four major English-language broadcast TV networks 2. CBS 1,502.1 30 18 in the US are ABC (owned by Walt Disney Co.), CBS, Fox 3. Sinclair* B021,344.7 Top 20 TV 162 78 (News Corp.), and NBC (Comcast). Two other English- 4. Gannett station1,303.9 groups 38 30 language networks, namely the CW network (a 50/50 5. NBC Univ ers al* 1,294.1 27 20 joint venture of CBS and Time Warner, resulted from a 6. Tribune 1,228.9 51 32 2006 merger of the former UPN and WB networks), and 7. A BC/Dis ney 1,020.3 8 8 MyNetworkTV (News Corp.), which also debuted in 2006. 8. Media General* 972.1 100 46 9. Hearst 726.0 36 26 Meanwhile, in the Spanish-language segment, three US 10. Univision 697.0 61 25 TV broadcast networks serve the Hispanic population: 11. Raycom* 614.3 43 35 Univision Communications Inc.’s Univision and Telefutura 12. Cox Media Group* 522.7 15 10 networks, and NBC Universal’s Telemundo network. The 13. Nexstar* 502.1 107 57 leading cable network targeting this demographic is 14. Scripps* 457.8 20 14 Galavisión, a subsidiary of Univision, which has launched 15. Meredith* 387.3 27 11 three cable channels: Univision Deportes, Univision 16. Gray Television* 344.5 68 41 Novelas, and Univision Noticias. 17. Post-New sw eek 261.2 5 5 18. Sunbeam 206.6 3 2 As of December 31, 2013 (latest available), the FCC 19. Journal 163.3 16 10 licensed a total of 1,388 commercial TV stations [1,030 20. Entravision 125.7 65 23 ultra-high frequency (UHF) and 358 very high frequency *Some stations managed for other netw orks. (VHF)], plus 396 educational stations. We estimate that Source: TVNew sCheck the top 10 station groups recently owned more than one- fourth of the commercial TV stations in the US. TOP TERRESTRIAL RADIO GROUPS—2013 (Ranked by number of stations) The FCC also reported 11,339 commercial radio stations NO. OF NO. OF (4,727 AM and 6,612 FM), plus 4,019 educational FM GROUP B07: Top 15STATIONS MARKETS stations. We estimate that more than one-fifth of the Clear Channel Communicationsterrestrial Radio 835 150 commercial radio stations were recently owned by and/or Cumulus Media groups 460 89 affiliated with the top 10 groups. The industry’s largest CBS Radio 126 27 player, Clear Channel Communications, operates nearly Entercom Communications 100 23 8% of the commercial radio stations. Salem Communications 103 39 Saga Communications 92 23 PAY TV: CHASING ECONOMIES OF SCALE Univision Communications 69 14 Radio One 54 16 Traditionally, the main categories of video providers in Beasley Broadcast Group 44 22 the US pay-TV market used to be cable and satellite TV Source: Company reports. providers—the multichannel video programming distributors (MVPDs). In more recent years, however, telcos such as Verizon Communications Inc. and AT&T Inc. have launched their own fiber-based broadband offerings and have become more formidable competitors in the pay TV space.
The cable industry comprises several thousand individual cable systems, the majority of which are owned by a handful of multiple system operators (MSOs). We estimate that the cable industry represents approximately 53% of the overall US pay-TV market of approximately 100 million subscribers—excluding emerging online video distributors (OVDs) such as Netflix.
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The two satellite TV providers, DIRECTV and DISH, meanwhile, reached approximately 34% of the US pay-TV market, while telcos, such as Verizon and AT&T, represent about 13% of the pay-TV market. The pay-TV market has seen several rounds of consolidation, most recently including the likely transformational Comcast-Time Warner Cable and AT&T-DIRECTV TOP 10 V IDEO SUBSCRIPTION SERV ICES—2013 transactions (as discussed in the Current Environment section of (Ranked by number of subscribers) this Survey). Among other notable M&A deals, Comcast acquired AT&T Broadband in 2002, adding 13.8 million SYSTEM OPERATOR SUBSCRIBERS subscribers (to become the largest US cable operator). In 2006, 1. Netflix 36,200,000 Time Warner Cable acquired Adelphia Communications, 2. Comcast Corporation 22,600,000 adding 1.8 million subscribers. Also in 2006, Suddenlink 3. Direc TV B05: Top US VPD 20,300,000 Communications acquired systems serving 1.2 million customers service providers 4. Dish Netw ork 14,100,000 (from Cox Communications Inc. and Charter Communications 5. Time Warner Cable 11,400,000 Inc.). In 2012, Time Warner Cable acquired Insight 6. Hulu 6,000,000 Communications Co., adding more than 750,000 customers. 7. AT&T 5,700,000 8. Verizon Communications 5,300,000 S&P estimates that the top four companies—Comcast, 9. Charter Communications 4,400,000 DIRECTV, DISH Network, and Time Warner Cable—account 10. Cox Communications 4,300,000 for more than two-thirds of the US pay-TV market in terms of Source: National Cable & Telecommunications subscribers. The top 10 (including Verizon and AT&T) Association. represent well over 90% of the total market. If Comcast completes its pending acquisition of Time Warner Cable, then only three companies would account for more than 60% of the US pay-TV subscriber base (after planned divestitures).
Meanwhile, ownership concentration for cable programming networks remains relatively high. Of the approximately 800 satellite-delivered networks, the FCC’s 15th Annual Report on Video Competition (released in July 2013) showed that nearly 200 of those were affiliated with either the top five cable operators or the two major satellite TV providers.
S&P Capital IQ (S&P) expects further technological advances, regulatory reforms (including broadband policy), and increased globalization to significantly influence a continued evolution of the broadcasting, cable, and satellite landscape in the next three years. These factors should help shape an increasingly competitive environment that requires innovative strategies from the key players.
The broadcasting space (television and radio) will likely face further challenges related to the secular impact of audience fragmentation and disruptive technologies (such as digital video recorder or DVR, video on demand or VoD, and online video streaming), as well as the near-term impact of increased regulatory surveillance. This comes against a positive backdrop of a continued ramp-up of complementary revenue streams (mainly from TV retransmission), as well as significant long-term upside for international licensing of syndicated TV programming.
The arrival of viable online video distributors (OVDs) could further shake up a mature US pay market, already facing an intensifying head-to-head “battle of the bundles” between traditional cable and satellite TV providers, on the one hand, and telcos’ fiber-based offerings on the other. Conversely, increased broadband connectivity, a shift to IP-enabled delivery of video programming, and a growing customer base of small and mid-sized enterprises offer some bright spots.
In the long run, an intensifying battle for control of the living room could alter the long-term dynamics of pay- TV competition. From Apple TV and Google TV to a growing array of other devices and gadgets from several upstarts such as Roku Streaming Player, we anticipate a continued proliferation of offerings seeking to provide consumers with a seamlessly integrated experience across traditional and on-demand platforms alike.
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4K TV USHERS IN AN ULTRA HD ERA
Also referred to as Ultra high definition (HD) or UHD, 4K TV offers four times the resolution of HDTV. TV screens are defined by the number of horizontal lines, which are 480 (for traditional TVs), 720 (for entry-level HDTVs), and 1,080 (for the best HDTVs). The 4K TV offers four times the resolution of a 1,080-pixel HDTV, considerably improving the picture quality.
The success of 4K TV, however, will depend on the speed of adoption of technology by both consumers and network providers. Further, networks and advertisers have to make huge investments to produce 4K content. According to a Huffington Post article dated March 11, 2014, although 60% of Americans have adopted HDTV, only 25% of the spots aired on TV are in HD. Given the slow speed of adoption to HD, which was introduced in 2009, it may be a long time before we see 4K TV progress in the market.
ACCELERATED CLOUD-BASED INITIATIVES
A cable makeover is in the pipeline, as cable networks are queuing up to improve user experience by providing new user interfaces, refurbishing program guides, and introducing interactive TV applications. This remodeling is a result of the pursuit for refinement and the pressure on the cable industry from other pay-TV operators offering similar channel lineup and price bundles, and over-the-top video counterparts providing more user-friendly interfaces.
Major cable operators Comcast, Time Warner Cable, Charter, Cablevision, and Cox are working toward offering new user guides that include user-friendly discovery features and interactive apps such as sports and weather. These cable operators are hurrying to make their content accessible on different mediums, such as TV, smartphones, and tablets, and to implement a look similar to that used by Netflix and other players.
In August 2013, Comcast and Time Warner Cable formed a joint venture called RDK Management LLC, which will manage the Reference Design Kit (RDK), a pre-integrated bundle of software that will support the next generation of IP-based set-top boxes, gateways, and video-enabled devices. Comcast, which developed the RDK, is currently using this software. Over 100 companies have signed licenses to include the software in their offerings since RDK’s launch in early 2012.
Cloud-based DVR deployment in nascent stage Cable companies are lining up to deploy their cloud-based services, which offer more storage and recording capability to their users.
On July 24, 2013, Cablevision announced that Optimum’s Multi-Room DVR would provide storage capacity of 300 hours for Standard Definition (SD) or 75 hours for HD, which is approximately three times more storage than the company had offered earlier. Optimum’s Multi-Room DVR allows users to record 10 shows at a time. Viewers can record and play back from any TV with a set-top box using this service for a monthly fee of $12.95. In addition, Cablevision subscribers can use smartphones, such as the Galaxy S4 or Galaxy Express, as a remote control. They can also watch content on their devices by using the company’s Optimum app.
Meanwhile, Comcast has fully deployed its cloud-based X1 platform across its cable footprint. The company recently announced an upgrade to the X2 cloud-based user guide (such as large video tiles and interactive personal interfaces, along with web and social media applications), which it plans to roll out in the near future after pilot testing. According to the company, the set-top box uses half the power, and is four times faster and three times smaller than the traditional set-top box.
In addition, in December 2013, Time Warner Cable (TWC) deployed a DVR-based application offering one terabyte of storage capacity. The application will convert cable channels into IP videos and send them to multiple devices, such as set-top boxes, connected TVs, and tablets. The deployment of the application is among a series of moves by TWC to increase its market share, as it faces increasing competition from products such as Hopper DVR from Dish Network.
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GOOGLE EXPANDS FIBER DEPLOYMENT
Google has made early progress on a new fiber network that delivers one Gigabit per second (Gbps) broadband service. By the fourth quarter of 2012, the average Internet speed in Kansas (where Google Fiber was introduced in 2012), according to “Akamai’s State of the Internet Report,” grew by 86% over the fourth quarter of 2011, higher than any other state in the US.
The company adopted a different approach in Utah, where it entered into a deal with iProvo, an existing fiber-based network owned by the city of Provo, to upgrade iProvo’s network to one Gbps, thereby getting each home on Provo’s network to use Google Fiber’s service. Further, Google roped in 25 local public institutions under its coverage and agreed to offer free 5-Mbps Internet service for seven years. This deal eliminated the requirement to set up an entirely new network.
In September 2013, Google entered into a deal with the city of Roeland Park, Kansas, to set up a network through which it will offer its one-Gbps broadband service and pay-TV service for a monthly fee of $120. In addition, Google Fiber has linked the first two fiber networks in Missouri and six fiber networks in Kansas. The company plans to connect homes in Austin, Texas, in 2014.
In February 2014, Google announced plans to expand to nine metro markets and 34 cities. It plans to bring its fiber network to the metropolitan areas of Salt Lake City, San Jose (California), Phoenix, San Antonio, Nashville, Atlanta, Charlotte and Raleigh-Durham (North Carolina), and Portland (Oregon). It would make a final decision by the end of 2014.
FIBER-TO-THE-HOME COMPETITION INTENSIFIES
Fiber-to-the-home (FTTH) networks, which provide broadband speeds of one Gbps and beyond, are available in over one-fifth of North American households currently. FTTH is witnessing exponential growth, as telephone companies are looking to intensify their competitiveness by offering faster Internet, along with television programming. In addition, broadband providers, in general, are readying themselves for ever-increasing consumer demand for faster networks and more bandwidth.
According to the FTTH Council, an industry trade association, Verizon Inc.’s deployment of fiber optic service (FiOS) in the US directed the sector’s strides toward FTTH. About 1,000 smaller operators in the US are now offering this service to their customers. Google launched its one-Gbps FTTH service in Kansas City, while Sonic.net and Paxio launched in California. Based on these developments, it can be inferred that FTTH is here to stay and will remain strong as telcos are trying to take the experience a notch higher.
According to a survey by market research firm RVA LLC and commissioned by the FTTH Council, the small and medium-sized companies that upgraded their networks to all-fiber reported an average annual operational cost savings of 20%, mainly due to reduced repair and maintenance expenses. The report also highlighted that the number of households with FTTH connectivity reached 10.4 million in May 2014, up 7.2% from May 2013. RVA projects that total North America investment in FTTH over the next five years will be around $18 billion, while the annual direct investment is expected to reach $4.7 million by 2017.
Both Verizon and AT&T Corp. are aggressively targeting cable and satellite TV customers in a battle to become the one-stop shop for all voice, video, and data feeds into homes and businesses, thanks in large part to the carriers’ multiyear transition to bandwidth-rich fiber technologies. Over the past five years, a rollout of fiber-based video and broadband offerings from the telcos has ratcheted the level of head-to-head competition in the US pay-TV market.
Verizon began offering video on its FiOS network in three markets in 2005. As of July 22, 2014, 18.5 million homes and businesses had access to Verizon’s FiOS; many of these also had access to FiOS video. The company had a 40.0% penetration rate (6.3 million customers) with its FiOS broadband service, and a 35.0% penetration rate for the video service (5.4 million).
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Meanwhile, AT&T has also completed much of its fiber-to-the-node (FTTN) deployment. In December 2013, the company’s broadband video service (U-verse), including U-verse TV, had been rolled out in part of AT&T’s operating territory with about 10.7 million customers. AT&T has announced that it plans to double the fiber network in the Austin area in 2014. By the end of 2015, the company plans to deploy the service to 33 million households, while increasing downstream Internet speed up to 75 Mbps.
CABLE CONSORTIUM ADVANCES ON WI-FI DEPLOYMENT
In May 2012, Comcast, Time Warner Cable, and Bright House Networks, along with Cablevision and Cox Communications, teamed up to interconnect their Wi-Fi services to provide their customers with free wireless Internet access outside the geographic areas of the individual companies. Such services would be offered under a new network name, CableWiFi.
In 2010, Cablevision, Comcast, and Time Warner Cable had entered into an agreement allowing their customers in New York City, Long Island, New Jersey, Philadelphia, and Connecticut to access Wi-Fi hotspots offered by each operator in those areas. However, the new agreement is more extensive and has a larger coverage area compared with previous deals. The new network has indoor as well as outdoor hotspots to serve areas such as malls, restaurants, parks, and beaches. To keep the service user-friendly, the new network allows subscribers to use the same sign-in process that they use when connecting to their local operator’s service.
To increase their broadband footprint and enhance their cable packages, the companies have deployed more than 250,000 Wi-Fi hotspots by mid-2014. Until now, cable operators were using Wi-Fi as a means to retain their current subscriber base. However, with cellular companies eyeing avenues of Wi-Fi offloading and the increasing proliferation of Wi-Fi–enabled devices, the cable companies are now looking to turn this platform into a potentially significant revenue stream.
OVER-THE-TOP VIDEO SERVICES CONTINUE TO EVOLVE
While Internet video delivered over broadband connections has been around for a while, we have seen an explosion in the popularity of these OVD (or so-called “over-the-top”) services. Consequently, a growing number of consumers have shown some inclination to drop their traditional pay-TV subscriptions, as they switch to OVD platforms such as Netflix—a phenomenon referred to as “cord cutting.”
Players such as Netflix have given consumers the option to watch films and TV shows (both current and previous releases) on such platforms as Hulu, Amazon.com Inc.’s Video on Demand, Wal-Mart Stores Inc.’s Vudu, and Google TV. For example, Hulu, a hybrid ad-supported and subscriptions service, offers full TV episodes from its joint venture partners (Disney’s ABC, News Corp.’s Fox, and Comcast’s NBC). A host of new devices—such as Apple TV, Boxee, Roku, Sezmi, and TiVo—are also aiming to seamlessly integrate Internet-delivered content with linear TV programming.
By introducing new services or technology, these players are changing the dynamics of the OVD space. Netflix Inc., the market leader in the OVD services, has emerged as a major catalyst for further changes in the pay-TV market, in our view. Initially conceived as a DVD-by-mail service, the rapidly growing streaming video provider (which is believed to represent about 34.2% of US peak Internet traffic, as of the first half of 2014) offers thousands of movies and TV shows for streaming on over more than 100 devices (such as Internet-enabled TV sets and Blu-ray disc players).
However, with new players entering the space recently, the competitive landscape seems to be intensifying, with increased competition from Amazon, Hulu, and others. Nonetheless, Netflix is still leading the segment. According to Canadian research firm Sandvine Inc., Netflix had 34.2% of prime-time viewing Internet traffic in the first half of 2014, much higher than rivals such as Amazon (1.9%) and Hulu (1.74%). Despite the efforts of the other streaming providers to increase their share of the market, it seems that audiences still prefer Netflix. However, the main differentiator remains the content being provided by the companies. Netflix announced that it would spend $3 billion on content in 2014, and $6.2 billion over a three-year period.
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According to the latest NPD Group VideoWatch VOD Report, the number of viewers who watched TV shows using subscription video-on-demand (SVOD) services increased 34%, year over year, in the first quarter of 2013. The report also noted that Netflix outpaced other players with an 89% share of the total TV shows streamed in the first quarter of 2013, while Hulu Plus and Amazon Prime held just 10% and 2%, respectively. NPD noted that TV programming accounted for 80% of the streams. Further, about 67% of SVOD subscribers streamed only from Netflix (down from 76% in the first quarter of 2012), while 10% used both Netflix and Amazon Prime, and about 8% used both Netflix and Hulu.
Cable Nation reported in VOD’s Advantage: Quality Content, Consumers & Connections that 60% of homes in the US have VoD, an increase of 43% over the past five years. The report added that the average consumer spends about nine hours per month with VoD—a statistic that continues to grow.
The online space is all about the content these providers offer their viewers. Further, these providers are under constant pressure to refresh their content regularly, as viewers demand new content. Since more companies are joining the space, it is becoming increasingly expensive for these online streaming service providers to strike an exclusive deal with the broadcasters and cable operators. As a result, we are now seeing a trend of original content creation by these companies. The development of original series would enable these players to compete with cable networks such as HBO. In this area, Netflix also has taken a lead in creating its own original series, with other players such as Hulu and Amazon following. In this way, streaming service providers are shifting their image from that of a distributor to a programmer.
TV Everywhere progresses amid some challenges Cable programmers led by Time Warner, in collaboration with pay-TV providers such as Comcast, launched the TV Everywhere (TVE) initiative to facilitate on-demand access to subscribers’ favorite shows across multiple platforms (e.g., TV, PC, tablets, and mobile devices). This initiative came amid increased concerns with “cord-cutting” (as previously discussed) in the pay-TV industry. Under this initiative, authenticated pay-TV subscribers can access streaming videos of full-length episodes of a growing selection of TV shows and movies for no extra charge.
Since the first public announcement of the TVE initiative in 2009, the rollout of TVE has been delayed over the past five years by contract issues between networks and operators over distribution, but it saw growth in early 2014. According to an article published in August 2014 by Multichannel News, a trade publication, TVE is steadily improving as new technologies support smoother delivery of the service. The article reported that, based on Adobe’s report, total TVE authentication skyrocketed 246% in the first quarter of 2014 compared with a year ago.
We think that various factors attributed to the slow pace of adoption. According to a 2013 study conducted by GfK Media, a research firm, only 17% of pay-TV subscribers used the TVE service to watch video content online. Viewers said that the requirement to authenticate their pay-TV providers’ credentials to access content kept them from using these services. Another issue was that entertainment companies and TV providers seemed divided on who would offer content directly to viewers. As a result, both parties have been offering the content online separately through apps and websites. According to a 2014 study by GfK Media, 56% of consumers subscribed to cable, satellite, or pay-TV service say they use TVE, while 41% say they use a streaming service. However, 28% of TVE users in pay-TV homes are more satisfied with pay-TV than TVE, and 33% are not planning to change pay-TV providers.
The lack of marketing effort was another factor that kept the initiative from being widely accepted; hence the industry-wide marketing campaign in 2014. In addition, some players who previously were not willing to invest in marketing TVE have opened up to the idea. In March 2014, Dish Network entered into an agreement with Disney to offer its stations (ABC Family, ESPN, ESPN2, and Disney Channel) as a part of DISH’s Internet offering. It is a significant move by DISH to deliver “over the top” TV programming. However, in return, DISH has to shut down its AutoHop feature for three days after an ABC program is first aired. Meanwhile, Verizon is marketing its multiscreen services only to the subscribers that use Flex View, its VoD service; those viewers who are not using the Flex View service are unaware of its TVE option. According to Parks Associates, a market research firm, 21% of the pay-TV subscribers in the US were aware of the TV Everywhere service as of early 2014.
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Nevertheless, in the past year, the networks associated with the initiative have expanded the content offered through the TVE service. According to trade publication Multichannel News, the TVE component of AT&T’s U-verse TV streams content to about 20 devices and recently had a library of over 285,000 titles on the website, 7,900 titles for mobile devices, and 5,500 titles for tablets. Verizon, through its mobile app, provides 75 streaming linear channels to at-home Internet-protocol devices. In addition, since multiplatform audience measurement tools are still being developed, networks would prefer waiting, as they will not be able to quantify the success of their initiative.
Online video regulations still in catch-up mode Online video has emerged as an increasingly viable platform that continues to reshape the competitive dynamics of the traditional pay-TV universe. As OVDs such as Netflix Inc. and Hulu gain more popularity, S&P expects this trend to help influence new regulations affecting the universe of broadcasting, cable, and satellite companies in the years ahead.
Indeed, the Federal Communications Commission (FCC) has already begun to recognize the important role of the burgeoning OVD space in the policy framework. In April 2011, the FCC issued a Notice of Inquiry (NOI) regarding its 14th Assessment of the Status of Competition in Video Programming that, for the first time, broadened the inquiry to include emerging OVD players. In July 2012, the FCC released its 14th Annual Report on Video Competition, in which it covered the impact of OVD players on the US multichannel video program distribution (MVPD) sector.
In July 2013, the FCC released its 15th Annual Report on Video Competition, wherein it mainly focused on the development of the online video industry. In this report, the commission categorized entities in three groups—MVPDs, broadcast television stations, and OVDs. The report noted that the number of subscribers to MVPD services increased to 101.0 million households in June 2012, from 100.8 million at year-end 2010. However, during the same period, the market share of cable MVPD declined to 55.7% of total MVPD subscribers, from 59.3% at the end of 2010. Direct broadcast satellite (DBS) MVPDs witnessed an increase in their market share from 33.1% to 33.6% during the same period, according to the report.
Separately, a May 2010 NOI pertaining to the FCC’s quadrennial review of media ownership rules also signaled that the next review would consider the role of the Internet in the evolution of new business models, as well as access to audio and video content in the context of the FCC’s National Broadband Plan. When the FCC released its 2014 quadrennial regulatory review on April 15, 2014, it discussed ownership rules regarding both traditional media and the Internet. In June 2011, the FCC released five of 11 studies it commissioned as part of its review of the media ownership rules that encompass the local TV ownership rule, the local radio ownership rule, the newspaper/broadcast cross-ownership rule, the radio/TV cross- ownership rule, and the dual-network ownership rule.
In December 2011, the FCC issued a Notice of Proposed Rulemaking (NPRM) on media ownership rules, which intended to terminate radio/TV cross-ownership rules and ease the newspaper/broadcast cross- ownership rule. However, it proposed to retain the radio/TV cross-ownership rule in local markets. The agency conducted two rounds of comments for it. According to a minority report issued in November 2012, minority ownership was low. The finding of the reports attracted huge criticism and, therefore, the agency further delayed the vote on ownership rules. In February 2013, the agency announced that it would not go ahead with voting on ownership rules until an outside group assesses the effects on minority broadcasters.
We view the crucial role of online video in the emerging policy framework as further demonstrated by the regulatory conditions imposed on the January 2011 merger between Comcast and NBC Universal (NBCU) that, among other goals, aimed to promote competition between emerging OVDs and traditional MVPD. In that regard, the FCC stipulated that an OVD would be entitled to access Comcast-NBCU–affiliated content at fair market value and under such terms and conditions as may be applicable between Comcast-NBCU and an MVPD, or as may be comparable to a deal between an OVD and other content providers.
In addition, Comcast also agreed to abide by the FCC’s open Internet principles, codified by the FCC in December 2010. Predicated on the framework of network transparency and non-discrimination, the so- called net neutrality rules require that all broadband providers publicly disclose network management
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practices, as well as the performance characteristics, and terms and conditions of their broadband services. The rules also restrict such providers from blocking Internet content and applications, while prohibiting fixed broadband providers from engaging in unreasonable discrimination in transmitting network traffic, and mobile broadband providers from blocking competing websites or applications.
However, the net neutrality rules were challenged by Verizon and in January 2014, the US Court of Appeals (Washington, D.C.) stated that the FCC has the right to regulate broadband providers and upheld its transparency rule. However, broadband providers cannot be classified as “common carriers,” and, therefore, they have the right to manage traffic on their networks. The ruling enables them to prioritize content being delivered on their networks. Broadband providers can also charge content providers for speedy delivery to their customers.
INTERNET RADIO GOES MAINSTREAM
In The Internet Radio Revolution Has Arrived: Platforms, Services and Advertisers Reinvent Audio published in April 2014, market research and analyst firm BIA/Kelsey noted the emergent processes that paved the way for the Internet radio revolution. Innovations in platform, services, and advertising are contributing to the development of Internet radio streaming. BIA/Kelsey cited 2013 research on the percentage of listeners to each type of radio: AM/FM radio “over the air” (90%); Internet radio (53%); personalized online (39%); live streaming (27%); and on-demand music (18%). The firm also reported that in 2013, broadcast radio grabbed 90.2% of the total audio ad spending compared with 9.8% in digital radio. However, ad spending in broadcast radio is forecast to dip 88.3% in 2014 and 78.7% in 2018, while digital radio is expected to rise 11.7% in 2014 and 21.3% in 2018.
Owing to the shift in consumer listening behavior from terrestrial radio to streaming stations, the Internet radio audience is increasing, with user access from PCs to smartphones, in-vehicle entertainment devices, and other gadgets. According to market research firm eMarketer, the number of US Internet radio listeners rose 25.6% in 2010, 21.3% in 2011, 17.4% in 2012, and 11.4% in 2013. It estimates the number of US Internet radio listeners to grow 8.1% to 159.8 million in 2014. The impressive growth of Internet radio has led advertisers to use the medium, although growth of Internet radio advertising has been slow compared with other categories of digital ad spending. However, advertisers are attracted to Internet radio because advertising is the main source of revenue for this medium and it provides benefits such as in-stream audio ads. According to the latest data from eMarketer, Internet radio ad spending in the US was expected to reach $1.31 billion by 2016.
In a 2012 fourth-quarter survey by the NPD Group of US consumers in the 13–35 age group, the research firm found that 24% of the respondents listen to music on AM/FM and 23% on Internet radio. US music listeners have an increasing range of streaming services at their disposal. However, Pandora, with its free service, leads the group, with 39% of respondents using it, followed by iHeartRadio (11%), Spotify with its free version (9%), and Grooveshark (3%). Also joining the field is Apple’s iRadio, a free service that allows ad-skipping up to six songs (like Pandora). It has a library of 26 million songs, compared with nearly one million offered by Pandora and over 15 million by iHeartRadio.
The NPD Group also noted that there is a growing trend of listening to music over mobile phones, and it said that 56% of smartphone owners in the US listen to music on their smartphones. According to eMarketer, 70 million people listen to music on their phones and this number is expected to grow to 107.7 million by 2017. However, despite these positives, streaming services face challenges such as high licensing costs, limited ad inventory, and resistance from users to listen to ads. In February 2014, the NPD Group reported that 71% of the correspondents it surveyed said they listened to Pandora in the past week, while 15% listened to iTunes Radio.
Internet giants rev up streaming radio competition The streaming radio service sector is bracing itself to watch the tug-of-war between different players in the arena, as each of them jockey for the top place. Streaming services such as Pandora and Spotify, which have dominant positions in the market, are facing stiff competition from Google and Apple. The market saw Apple’s launch in September 2013 of iRadio, a free, ad-supported Internet radio streaming service, as a
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move to topple the market share of established players. After some protracted negotiations with Sony, Apple finally secured licensing deals with all the major music labels, clearing the way for the launch of its new service.
Google decided to enter the fray by announcing the launch of Google Play Music All Access in May 2013. It has finalized deals with Universal Music, Sony, and Warner Music Group—three of the four leading record labels. Google offered a 30-day free trial for the service and then charged $7.99 a month for those who signed up for it by June 30, 2013. For others, the service will cost $9.99 a month.
Meanwhile, Pandora took on this new competition by focusing on its personalization technology and fostering speed in automotive additions. In June 2013, Pandora announced that it has added over 2.5 million new users since the launch of its in-vehicle entertainment offerings. Noting that cars are the most popular place to listen to radio, the company stated that its service is available on over 100 models of such brands as BMW, Ford, and Toyota.
SECULAR AUDIENCE FRAGMENTATION STAYS IN FOCUS
As broadband connectivity becomes ubiquitous in the US, consumers are increasingly able to access content through various alternatives, such as the Internet, smartphones, and tablets, in addition to the traditional TV. While services such as DVRs and VoD have contributed to time-shifted viewing, the wide range US INTERNET RADIO LISTENERS* of mobile devices has eliminated the constraint of having to be at home to watch TV content. The 200 80 increasing number of available platforms has 175 70 provided consumers with more convenience and has 150 60 led to further fragmentation of the audience base. 125 50 In its Cross-Platform Report for the second quarter 100 40 of 2014, audience measurement firm Nielsen Media 75 Chart H03: US 30 INTERNET Research provides the latest data on the time spent 50 RADIO 20 by viewers on live TV and DVR playback, as well as 25 LISTENERS 10 online and mobile viewing. It also measures the time 0 0 spend by users on TV versus other media (such as 2012 2013 2014 2015 2016 2017 2018 the Internet and mobile) by age demographics to
Number of Internet radio listeners (Millions, left scale) gauge the shift in consumer preferences. Further, it compares the TV distribution source that viewers Percent of Internet users (right scale) select, such as broadcast, wired cable, satellite, and Percent of population (right scale) telco. In order to assess the impact of time-shifted viewing, the report measures data for live viewing *Internet users who have listened to online broadcasts of terrestrial and same-day viewing, as well as viewing within radio stations, online-only stations, or audio podcasts via any device at least once per month. seven days, 14 days, and 21 days. Source: eMarketer. All told, this report sheds some light on how audience fragmentation is increasing in the industry with the advancement of technology and shifting consumers’ viewing behavior, as users increasingly turn to time-shifted viewing for time management.
DVR use continues to affect time-shifted viewing As TV viewers access increasingly personalized content when, where and how they want it, DVRs have increasingly become one of the primary catalysts of time-shifted television viewing. These devices, which enable consumers to record and store TV programming for viewing at a later time, as well as to pause live television, typically also embed the ability of viewers to skip commercials.
Traditionally, DVRs have been available as localized storage boxes deployed in consumers’ premises by pay- TV providers. By the end of the fourth quarter of 2013, DVR penetration in the US had reached 50%, according to Nielsen’s data.
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Nielsen’s Cross-Platform Report for the second quarter of 2014 showed a 12.9% year-over-year increase in the number of time-shifted TV viewers. According to Nielsen’s data, users spent an average of five hours per month on DVR playback, down from five hours and 10 minutes in the second quarter of 2013. The data also show a much smaller increase in the time spent on live TV, suggesting that DVRs are eating into live TV’s share. In the second quarter of 2014, users spent an average of 142 hours and 38 minutes per month watching live TV, down from 146 hours and 37 minutes a year ago.
Earlier, Nielsen’s second-quarter 2013 report had indicated that 11.6% of TV viewing now happens within seven days and another 1.1% beyond seven days, on a total-day basis. This time-shifted viewing has started affecting the ratings of the broadcasters and cable operators, especially in the “top 10 shows” category, according to Nielsen.
Rising DVR penetration had led to the creation of a new rating metric to capture the impact of time-shifted viewing on audience measurement. In 2007, in a shift away from its traditional ratings methodology capturing same-day viewership of TV programming, Nielsen launched a framework for “commercial ratings,” which began to include DVR viewing as many as seven days after the initial airing of the show. Consequently, increasing use of DVRs has made it difficult for the networks to assess the performance of a new TV season until all the data (within seven days and beyond seven days) comes in.
Today, viewers have many alternatives (on-demand or online) to watch a new TV show, which further complicates viewership measurement. According to a survey conducted in October 2012 by the CBS network to assess the medium used to watch a new show, 42% of the 2,000 viewers surveyed said that they saw a new show on live TV, down from 53% in the prior year. In contrast, the percentages increased over the same time period when these viewers were asked about other media they used: with DVRs, the percentage increased to 45% from 40%; with online streaming, to 12% from 4%; and with on-demand, to 11% from 2%. According to Nielsen’s data, the viewership numbers increased considerably for many dramas and sitcoms when delayed viewing is included.
Cross-platform audience measurement faces some hurdles In recent months, most of the major broadcast networks have experienced sharp audience declines, leading to lower ratings. Although traditional television viewing remains the dominant source of video content, more consumers are consuming video through online video and mobile devices. Therefore, it has become crucial for the networks to count the viewership from these new sources.
In the past, media companies and advertisers focused only on the viewers who watched live TV and considered overnight ratings. However, after the launch of DVRs more than a decade ago, the old methodology of measurement needed a change, as time-shifted viewing increased. In 2007, the ratings measurement changed to include viewership over three days (“C3” ratings). With time-shifted viewing intensifying, major broadcast networks believe that the current methodology ratings that count viewers who watch advertisements over three days, should be expanded to cover seven days. Advertisers however, do not support this change, as they believe that certain time-sensitive ads are irrelevant after several days.
Further, the advertisers require ratings for specific commercials. Rentrak Corp., a viewership measurement firm, launched its Exact Commercial Rating product in 2011 to measure the impact of specific commercials on live TV. The company has plans to include DVR playback and C3. Meanwhile, broadcasters are working with Nielsen and others to enable multiplatform measurements, which would increase their viewership numbers. In February 2013, Nielsen announced that it would start measuring online TV viewing in the fall 2014 TV season. It is currently testing audience measurement for mobile and tablets, and expects to include TV, DVD, VoD, and other online platforms by fall 2014.
HOW THE INDUSTRY OPERATES
Broadcasting, cable, and satellite companies generally seek to bring desirable programming to their audiences. However, they differ broadly in how they deliver this programming, and in how they derive their revenues. Terrestrial broadcasters generate the bulk of their revenues from advertising sales, whereas cable
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operators and satellite providers derive their revenues predominantly from subscriptions. Cable networks rely on various levels of combined advertising revenue and subscription fees.
For these highly regulated industries, the environment has evolved significantly since the inaugural Communications Act of 1934. Subsequent legislation, including the Telecommunications Act of 1996, has dramatically influenced the competitive landscape.
The images and sounds of over-the-air television signals are broadcast from station transmitters as electromagnetic waves, which then are captured by receiving antennas for dissemination to viewers. Educational and other noncommercial TV stations share the US airwaves with commercial stations. Under Federal Communications Commission (FCC) rules, commercial stations must broadcast at least 28 hours a week and at least two hours every day, though new stations may be allowed a shorter schedule.
The digital migration The national transition to digital television (DTV) broadcasting in the US was completed on June 12, 2009, as virtually all of the nation’s full-power TV stations switched from analog to all-digital broadcasting, as per the FCC’s mandate.
The digital conversion heralds a new era of sharper resolution and improved picture quality for consumers who have the necessary equipment to receive the digital signals transmitted by the broadcasters (aside from those who already subscribe to satellite TV or digital cable services). In addition, the conversion should provide further impetus for an increased adoption of high-definition (HD) programming. Though most viewers will receive more channels post-conversion, the FCC concedes that some Americans in very rural areas may have reception difficulties and that it may well take some years before they are able to view the same number of channels as pre-transition.
Networks and their affiliates Each of the three older English-language networks (ABC, CBS, and NBC) provides its station affiliates with about 22 hours per week of prime-time programming; the FOX network, established in 1986, programs 15 prime-time hours per week for its affiliates. The UPN and WB networks, both started in 1995, merged in September 2006, creating a new broadcast network called The CW, which airs 30 hours per week of prime- time programming. Univision Communications Inc. provides round-the-clock Spanish-language programming for its affiliates. Each of the broadcast networks mentioned reaches 90% or more of US broadcast markets.
In any given market, affiliate relationships are normally exclusive, and the contracts may run anywhere from two to 10 years, or longer. These agreements provide an affiliate with the right to air the network’s programs and commercials during a specified time period and, in most cases, the rights to preempt a certain number of hours of such programming each year. A station that exercises such rights must find alternative programming to fill the time slot, and the network may then offer such preempted programs to another station in the same market. Stations affiliated with the top networks (those with the highest-rated programs) benefit from higher ad rates. However, compared with independents or affiliates of the newer networks, these stations typically have less inventory to monetize; in some cases, they may be obligated to pay “reverse compensation” to the networks.
Source of TV station revenues Most TV station revenues come from advertising sales to local and national clients and, in exceptional cases, from network compensation. A station’s competitive position depends on its network affiliation, programming quality, management ability, and technical factors. Stations compete for ad sales with other media such as newspapers, radio, and local cable operators. A station sells the bulk of its commercial airtime through its local sales force, with a portion also sold on commission through national representative firm(s). Ad rates, measured in cost per thousand viewers (CPM), mainly reflect a station’s ratings, as well as other factors, such as demographics, inventory supply/demand, and competition from other media.
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Syndication market Regardless of network affiliation, most TV stations acquire some programming independently. Such syndicated programs may be original “first-run” shows, or “off-network” programs that have aired previously on a network. Typically, these shows are sold on a market-by-market basis.
A station may acquire the rights to air a syndicated show in a given market (and to the associated advertising revenues), with pricing that reflects the show’s perceived desirability and the number of times it is allowed to be aired under the contract. Alternatively, under a “barter” arrangement, the syndicator retains the bulk of the ad revenues, with substantially lower licensing costs to the station. A hybrid “cash- plus-barter” arrangement allows a show to be licensed with a specified number of presold ads.
Stations make substantial commitments for future access to syndicated programming, requiring advance purchases of an entire series—perhaps even before the number of episodes to be produced has been determined. There is no assurance that a successful network program will generate profitable off-network sales. License terms may run from one to five years; syndicated TV series may include an initial telecast, followed by subsequent reruns for a period of years, with full payment due before the end of reruns.
Upfront bazaar The upfront refers to the marketplace for advance sales of television airtime during an annual bazaar held each spring between sellers (broadcast/cable networks and syndicators) and media buyers (ad agencies acting on behalf of their clients). During the process, which takes place in New York and typically lasts about two weeks, the sellers present their stars and program line-ups for the season starting in the fall. Both sides then negotiate prices for specific shows and times.
The sellers may provide ratings guarantees for specific shows, with a commensurate obligation for “makegoods”—free airtime given to advertisers if a program falls short of guaranteed viewership. Buyers also may acquire certain options to cancel the contract within a specific period. Sellers typically commit the bulk of their inventory during the upfront; the remaining airtime is sold at prevailing spot rates during the year in the “scatter” market.
Commercial clutter In 1986, the FCC lifted a limit of six minutes of advertising per prime-time hour. While the networks initially observed self-imposed limits of six minutes in prime time and 12 minutes in other dayparts, the commercial clutter has since increased.
According to S&P Capital IQ estimates, the networks currently air approximately 17 minutes per hour of commercials during prime time, 21 minutes in daytime, 19 minutes in late night, and 18 minutes in early morning. Cable networks and syndicated programming also carry a relatively high commercial content, with nearly 19 minutes and 16 minutes per hour, respectively, during prime-time hours, and slightly higher levels during other dayparts.
TV audience measurement Nielsen Media Research Inc., a subsidiary of Netherlands-based The Nielsen Company, has provided national and local ratings for “live” television viewing in the US since the 1950s. Under its paper- or diary- based survey methodology, four times a year (during the TV “sweeps” periods), Nielsen conducts a poll of sample viewers in each market about their viewing patterns (including specific shows, times, and channels).
In 1987, Nielsen moved its entire national sample from the paper diaries system to an electronic measurement system; in 2003, it started to migrate its local sample to a new electronic system called a local people meter (LPM), which was rolled out in the nation’s top 10 markets at the end of 2006. In January 2006, Nielsen began reporting same-day and seven-day digital video recorder (DVR) playbacks alongside its live ratings. In summer 2007, Nielsen implemented the C3 currency, which measures commercial minutes combined with live viewing plus three days of DVR playbacks.
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CABLE TV MAKES INROADS
Cable television was developed in the late 1940s to provide television service to small communities that could not receive over-the-air signals due to difficult terrain or physical distance from broadcast stations. The service also helped improve TV stations’ reception in remote areas. Cable operators located areas that had good reception and built antennas there to receive television signals broadcast by the networks and local stations. Those signals were amplified, combined with locally originated programs, and then relayed to subscribers.
The service was slow to catch on at first. In 1950, cable systems served just 14,000 subscribers in 70 US communities. During the 1960s, interest grew as new technology increased the capacity of cable systems to carry up to 20 channels, though FCC restrictions on cable’s importation of distant signals affected growth. By 1970, cable served 3.9 million subscribers, representing 6.7% of TV households at the time.
Further advancements in the early 1970s allowed cable companies to transmit more than 100 channels over dual-cable systems. Still, attempts to wire the major urban areas in the early 1970s were largely fruitless, due mainly to prohibitive costs. Lackluster demand was also a factor, as most areas were already well served by over-the-air broadcast stations.
In the mid-1970s, however, demand increased dramatically with the advent of the first cable-only network: Time Warner Inc.’s Home Box Office (HBO), which distributed its pay-TV service to cable systems via satellite. HBO’s success spurred SELECTED CABLE INDUSTRY STATISTICS* other cable networks to enter the AVAILABILITY market. By the late 1970s, cable Digital penetration (% of basic video customers) 2011 84.0 customers could also elect to Cable high-speed Internet availability to US households (%) 2011 93.0 subscribe to Showtime, the DOCSIS 3.0 service availability (%) 2011 85.0 Disney Channel, the Playboy CUSTOMERS (MILLIONS) Channel, and others. Some Cable phone customers B06: Selected Cable 2012 26.7 networks were included with High Speed Internet customersIndustry Stats 2012 50.3 basic packages; others were Digital video customers 2012 46.8 offered for an additional fee. Cable video customers 2012 56.4 Subscribers to non-cable MVPDs 2012 46.1 By 1980, cable operators served 15.2 million subscribers, SYSTEM DATA Number of cable operating companies 2011 1,100 representing 19.9% of all TV Number of national video programming services/netw orks 2011 800 households. Several Schools served by cable in the classroom 2011 > 80,000 “superstations”—which, airing movies and major-league sports FINANCIAL games, are beamed to cable Annual cable revenues (residential) 2011 $97.6 billion systems around the country via Total advertising revenue 2011 $30.5 billion satellite—spurred demand for Annual franchise fees paid by cable industry 2011 $3.2 billion cable in US cities, as well as in Cable industry construction/upgrade expenditures 2012 $12.9 billion rural areas. By the early 1980s, E-Estimated. *All data latest available. MVPD-Multichannel video program distributor. most cities either were wired for Source: National Cable & Telecommunications Association. cable or were in the midst of franchising battles between companies seeking the right to wire them. By December 2012, cable operators served 56.4 million subscribers, representing about 43% of approximately 131 million US TV households (latest available), according to data from the National Cable & Telecommunications Association (NCTA).
The idea of targeting niche programming to specific audiences exploded during the 1990s with increased capacity after a buildout of fiber-optic cable. By the end of 1995, 139 cable programming services were available nationwide and many regional networks. By the spring of 1998, that number had ballooned to 171; it rose to 218 less than two years later. By the end of 2012, there were around 1,100 cable-operating companies, according to the NCTA (latest available).
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Broadband infrastructure buildout The Telecommunications Act of 1996 (discussed later in this section) spurred the cable industry to invest more than $160 billion in hybrid two-way networks of fiber-optic and coaxial cable as of the end of 2009. These investments allowed the development of newer broadband services, such as high-speed Internet access, and advanced video services like high-definition television (HDTV), DVRs, and video on demand (VoD). In 2004, the industry launched digital phone service, the rollout of which continues to accelerate.
Cable packaging For a monthly fee, cable TV operators provide their customers with a choice of service packages for various tiers of video and high-speed data service, which are typically marketed in conjunction with cable telephone service as part of a bundling strategy. This triple play (of video, data, and voice services) is usually offered at a discount from the standalone prices of these services. The two broad categories of video service are basic and digital. Cable operators typically offer data service at standard download speeds of up to 15 megabits per second (Mbps), with premium offerings that can top well over 100 Mbps.
Basic service includes local broadcast signals as well as public, educational, and government access channels. Most operators also offer an expanded basic service, including dozens of other widely distributed channels.
Digital packages typically are constituted from hundreds of additional cable channels, priced as a group rather than à la carte. Digital subscribers also may opt for premium channels, such as HBO and Showtime, as well as VoD, pay-per-view, DVRs, and HDTV.
SATELLITE TRANSMISSIONS HIT PRIME TIME
Satellite signals are relayed from an uplink facility to transponders, which process and amplify the signals; the signals are then transmitted back to earth, down-converted to a lower frequency band, and finally disseminated to subscribers. While the origins of satellite technology may be traced to the 1940s, it was not until 1976 that HBO made history as the first programming service to distribute its content to cable affiliates via satellite. This was followed in 1977 by the CBN network—the first satellite-delivered basic cable service. During the mid- to late 1970s, independent local superstations—such as WTBS (Atlanta), WGN (Chicago), WWOR (Secaucus, New Jersey), and WPIX (New York)—also started transmitting to cable systems around the country via satellites. The mini-dish direct broadcast satellite (DBS) system was conceived by the end of the 1970s. There are now hundreds of satellite-delivered networks.
In the 1980s and early 1990s, the big-dish (C-band) satellite market began to take off. In 1991, PrimeStar debuted its service in North America, but this market peaked in 1995 at about 2.4 million subscribers. The mini-dish system was also being nurtured during this time; in 1989, UK’s Sky Television launched the world’s first commercial DBS service. In 1994, the former Hughes Electronics (which acquired PrimeStar in 1999 and later changed its name to DIRECTV Group Inc.) launched North America’s first high-powered DBS system, followed by EchoStar Communication Corp.’s Dish Network in 1996. Initially targeting rural areas with limited access to cable, DBS services took off, reaching nearly six million subscribers by the end of 1998; today, the two major DBS providers count over 34 million subscribers (as reported by the companies), and are continuing to grow at a fast pace.
DBS packages DIRECTV and Dish Network provide a similar programming breadth to digital cable, including base and higher-level all-digital packages, as well as premium and pay-per-view offerings. Like cable operators, DBS services offer DVRs and HD programming for an extra monthly charge; however, unlike cable, DBS services’ local HD offerings are optional. Both companies typically require a minimum two-year contract for new subscribers, with stipulated early cancellation penalties.
While DBS service offers a video-only solution, a bundled triple-play offering is also available in most US markets under cobranding partnerships between DBS providers and the regional Bell companies. DIRECTV has such an arrangement with Verizon Communications Inc. and BellSouth Corp., while EchoStar is in partnership with AT&T Inc. (AT&T acquired BellSouth in December 2006).
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Satellite radio, sans commercials The commercial success of DBS systems helped to herald the arrival of satellite radio. After winning FCC licenses in 1997, XM Satellite Radio Holdings Inc. launched the nation’s first digital audio radio service (DARS) in November 2001; this was followed by Sirius Satellite Radio Inc. in July 2002. Previously, in 1999, WorldSpace Inc. had launched an international satellite radio service; it currently serves Asia and Europe, among other international locations. In July 2008, after final regulatory approvals, Sirius and XM closed on their “merger of equals,” after which the name was changed to Sirius XM Radio. In January 2013, Liberty Media acquired majority control of Sirius XM Radio, which changed its name to Sirius XM Holdings Inc. in November 2013. As of September 2014, the company reached 26.3 million subscribers.
Sirius XM Holdings charges subscribers monthly fees for an array of programming. The company broadcasts over numerous channels—including music, sports, entertainment, comedy, talk, news, traffic, and weather—on a subscription fee basis through two satellite radio systems. It also offers music genres, as well as dance and classical music; advertising on non-music channels; and applications to allow consumers to access Internet services on mobile devices. New customers typically are required to prepay at least six months; subscribers get some discounts under family and multiyear plans.
TERRESTRIAL RADIO SETS THE TUNE
The term “radio broadcasting” refers to the transmission of over-the-air sound waves from amplitude- modulated (AM) or frequency-modulated (FM) stations. AM was the earliest standard for radio broadcast service, which applied to the first radio station licensed in 1921—well before the invention of the transistor in 1947. FM, with its higher-frequency bands, was patented in 1933.
Today, the old-fashioned radio is a fixture not only in homes, but also in cars and workplaces, and on the streets, beaches, and elsewhere—reaching 91.4% of persons aged 12 years or older in an average week, according to September 2014 report from the Radio Advertising Bureau (RAB), a trade group. According to the data from the RAB January 2014 factsheet, 59.8% of adults listen to radio in their car on a typical weekday, 17.4% at home, and 10.8% at work/other. On the typical weekend, 56.5% listen in the car, 22.4% at home, and 4.2% at work/other. Unlike TV, books, magazines, video games, or the Internet, radio does not demand a person’s undivided attention.
Radio station revenues Radio stations generate advertising revenues by providing programming, such as local news, talk, music, sports, weather, and traffic, serving the needs of their local communities. The programming can be produced in-house or acquired from syndicated networks (such as Westwood One Inc. or ABC Radio Network Inc.). Local advertising sales typically account for about 80% of a station’s revenues, with the rest of the revenues derived from national advertisers.
Advertising rates, measured in cost per point (CPP), generally reflect a station’s ability to attract targeted demographic audiences, as well as the relative demand/supply of radio in that market versus other media outlets. Ad rates are typically highest during the morning and evening commuting hours, usually 6 a.m. to 9 a.m. or 10 a.m., and 3 p.m. to 7 p.m., respectively. Most advertising contracts are short term, generally running for only a few weeks.
Formatting choices Each radio station typically provides programming content, or format (including on-air talent), which appeals to a targeted demographic group. The medium’s ability to target a specific demographic appeals to advertisers that need to reach narrowly defined audiences.
There are several dozen radio formats, including country, rock, oldies, bluegrass, news/talk, adult contemporary, sports, rhythm and blues, urban, jazz, and, most recently, “Jack,” which is an all-music variant randomly programmed from a playlist consisting of hundreds or thousands of songs. Formats are frequently used as a marketing tool, and they are constantly changing in response to competitive and demographic trends. A station may commit to programming a single format at all times, or it may switch between two or more formats at different times of the day or week.
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Radio audience measurement Arbitron Inc. (rebranded as Nielsen Audio in September 2013) has provided ratings for “live” radio listening in the US since the 1950s. Under its paper-based survey methodology, four times a year (once each season), Nielsen Audio conducts a poll of sample listeners in a given market regarding their preferences over a seven-day period, including which stations were tuned into, and where such listening occurred (e.g., home, car, or work). All US markets are covered at least twice a year (spring and fall), while the larger markets are covered four times per year.
After expanding to an additional 19 markets in 2009, Arbitron’s Portable People Meter (PPM) rating service—based on a device that detects inaudible codes embedded in radio broadcasts—had been deployed in the top 50 US markets by the end of 2011.
REGULATIONS CONTINUE TO EVOLVE
The Communications Act of 1934 replaced the Federal Radio Commission with the FCC, and it gave the new agency broad authority to regulate all communications services providers, including telephone and broadcasting companies. The Communications Satellite Act of 1962 and the Cable Television Consumer Protection and Competition Act of 1992 subsequently affirmed the FCC’s regulatory authority over cable and satellite companies, as well.
This authority covers key issues such as assignment of frequencies, licensing, ownership, signal carriage, and general compliance with the 1934 law. Subsequent amendments to the 1934 law spawned other legislation that established comprehensive national regulatory standards and guidelines, and allocated responsibility for enforcing federal regulations among the FCC and state and local authorities.
Cable laws: 1984 and 1992 The Cable Communications Policy Act of 1984, as amended by the Cable Television Consumer Protection and Competition Act of 1992, established the franchising authority of states and local municipalities over cable operators (discussed later in this section). Pursuant to the 1992 law, the FCC adopted regulations for the carriage of local TV stations’ signals by cable services; it required each station to elect either mandatory carriage (“must carry”) or retransmission consent once every three years.
Telecommunications Act of 1996 A key goal of the Telecommunications Act of 1996 was “to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.” The law dramatically altered the regulatory and public policy landscape for telecom services, mandated significant revisions to media ownership rules, established a national policy of promoting local exchange competition, and set standards for the relationships among telecom service providers.
FCC’s media ownership rules The 1996 telecommunications law liberalized the national broadcast ownership rules, eliminated the national radio ownership limits, eased restrictions on national TV and local radio limits, and retained local TV limits pending further FCC review. It also mandated that the FCC conduct a biennial review of media ownership rules (later changed to a quadrennial review).
In June 2003, the FCC adopted sweeping changes that significantly eased the media ownership limits. In June 2004, the revised ownership limits were stayed by a federal court, which remanded them to the FCC for further review—a decision that was upheld by the US Supreme Court in June 2005. In 2008, the FCC loosened the newspaper-broadcast cross-ownership ban, but upheld the current local ownership caps.
In August 2009, upon a challenge by Comcast, an appeals court vacated an FCC rule that imposed a controversial 30% horizontal cap (or nationwide limit) on the number of subscribers that may be served by a cable operator. Meanwhile, a vertical limit is set at 40% of channel capacity in any given market, reserving 60% for programming by nonaffiliated firms.
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In May 2010, the FCC officially launched its notice of inquiry for the next round of its review. In addition to evaluating the pre-existing media ownership rules, the FCC is expected for the first time to assess the role of the Internet, as well as the potential relevance of certain elements of the National Broadband Plan (e.g., access to audio and video content available over broadband) on these rules.
FCC M EDIA OWNERSHIP RULES CATEGORY ISSUE OLD FCC RULES APPROVED CHANGES IN 2004 National TV station Ow nership of Audience reach capped at 35% of Congress enacts 39% audience cap; audience reach cap multiple TV stations US TV households; 50% pow er UHF discount w ill sunset after digital discount applied for UHF stations TV transition ISSUE DESCRIPTION OLD FCC RULES CURRENT FCC RULES Local TV multiple Ow nership of tw o Duopolies permitted only if more Relaxed scale now permits ow nership (duopolies) TV stations in a than 8 separately ow ned TV duopolies in markets w ith 5 or more market (duopolies) stations remain in the market post- TV stations; Top 4 ban retained, but B01—FCC media merger, but banned for top 4 subject to case-by-case FCC ownership rules stations in market review /w aiver for markets w ith 11 Local TV multiple Ow nership of three Prohibited Triopolies now permitted in markets ow nership (triopolies) TV stations in a w ith at least 18 TV stations, subject market (triopolies) to top 4 ow nership prohibition Dual netw ork Ow nership of Mergers betw een ABC, CBS, FOX, No change (prohibition retained) ow nership multiple broadcast and NBC are prohibited netw orks New spaper/broadcast Ow nership of Prohibited; pre-existing combos in Specific combinations permitted in crossow nership broadcast stations 46 markets grandfathered since top 20 Designated Market Areas (TV/radio) + daily 1975 (DMAs); others subject to FCC new spaper in a review /w aiver market Radio/TV Ow nership of TV Limited by market size; up to 2 TV Limits dropped for markets w ith at crossow nership and radio stations in and 6 radio stations in markets w ith least 9 TV stations; tiered limits for a market 20 broadcast "voices" radio/TV/new spapers in markets w ith 4 to 8 TV stations Local radio ow nership Ow nership of Tiered scale permits up to 8 radio Tiered scale retained, subject to multiple radio stations in markets w ith at least 45 Arbitron's market measurements (vs. stations in a market stations, using signal (contour) old signal overlap system) overlap market definition Sources: SP Capital IQ; Federal Communications Commission information.
While the FCC is in the middle of conducting its quadrennial review of media ownership rules, it announced a proposal in December 2011 to ease the ban on cross-ownership rule. However, the FCC has not proposed any changes to the TV duopoly rules. In February 2013, the agency appointed an outside group to assess the effects on minority broadcasters and announced that it would not vote on the ownership rules until the study is completed. (See the “Industry Trends” section of this Survey for more information on online video regulation.)
Satellite Home Viewer Acts: 1994, 1999, 2004, and 2010 The Satellite Home Viewer Act of 1994 (SHVA) amended the Copyright Act of 1976 and initially established a compulsory licensing framework for DBS carriage of local TV stations.
The Satellite Home Viewer Improvement Act of 1999 (SHVIA) extended this framework for an additional five years and included certain amendments governing the carriage of local signals in local markets (“local-into- local”). As of January 1, 2002, a DBS provider was required to retransmit the signals of all local TV stations in a market, if it retransmitted the signal of any one station in that market. SHVIA requires each station to elect “must carry” or retransmission consent every three years. DBS providers may retransmit distant signals only to households that are unserved (i.e., households otherwise unable to receive such signals).
The Satellite Home Viewer Extension and Reauthorization Act of 2004 (SHVERA) required DBS providers to phase out distant signals in local-into-local markets, subject to certain exceptions for “significantly
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viewed” (popular) stations. SHVERA also requires a phase-out of “two-dish” plans and sets a new framework for DBS carriage of digital television signals. (A two-dish plan refers to customers that must have a second dish to receive local stations.)
The Satellite Television Extension and Localism Act of 2010 (STELA) extends SHVERA through December 31, 2014, renewing the license that allows satellite operators to deliver distant signals to subscribers who cannot access a local signal. STELA also resolves the “phantom-signal issue,” whereby cable operators may have had to pay royalties based on an incorrect number of subscribers for some areas.
State and local regulations Cable operators are subject to the jurisdiction of state and local authorities, which award franchises permitting a cable operator to serve a community. While specific terms vary, the franchise agreements— which typically run from 10 to 15 years and require the cable operators to pay franchise fees—contain provisions addressing such matters as basic service rates, systems upgrades, service quality, consumer relations, billing practices, and community-related programming and services. As providers of a national service, DBS companies are not subject to local franchising authorities, though they may be subject to some state and local regulations.
KEY INDUSTRY RATIOS AND STATISTICS
Gross domestic product (GDP). GDP, the broadest measure of aggregate economic activity, is the market value of all goods and services produced by labor and capital in the US. To arrive at GDP, four major expenditure categories are totaled: consumption, investment, government purchases of goods and services, and net exports of goods and services. Growth in the economy is measured by changes in inflation-adjusted (or real) GDP. The US Department of Commerce reports GDP data each quarter.
As with many industries, broadcasting, cable, and satellite companies are affected by the economy’s overall health. In general, advertising and other consumer discretionary spending tend to be cyclical in nature— rising during periods of healthy economic activity, due in part to higher disposable income and increased consumer confidence, and otherwise receding during economic downturns.
Real GDP declined 2.6% in 2009, and then grew 2.9% in 2010, 1.8% in 2011, 2.8% in 2012, and 1.9% in 2013. As of August 2014, Standard & Poor’s Economics (which operates separately from S&P Capital IQ) was projecting 2.1% growth in 2014 and 3.0% in 2015. It expected consumers’ disposable income to increase 3.6% in 2014 and 5.2% in 2015, following gains of 1.9% in 2013, 3.9% in 2012, and 3.8% in 2011.
Advertising spending. Total projected advertising spending can serve as an indicator of the general health of various media. It is also important to look into the health of the various categories to which various media outlets are exposed. For example, the outlook for entertainment and movie advertising will likely benefit radio, TV, and newspapers, but there will be less benefit for magazines. In addition, automobile, hotel, motel, and airline ads are bought across various mass media platforms, but fast food is pitched mainly on TV and radio. Projected market and media trends are reported in trade magazines, such as Advertising Age, Broadcasting & Cable, Radio Business Report, TVB News, and Variety.
Cost-per-thousand (CPM). This refers to the price of reaching 1,000 households with a television or radio advertisement. As a measure of cost efficiency, CPM is used to compare programs whose audience appeal differs, and it may be used as a gauge of pricing power for a particular broadcast medium.
Local and regional economies. The economic health of a geographic market is an indicator of advertising trends within that market. Similarly, the health of individual industries or industry segments will affect advertising trends in the regions where they are located. For example, a cutback in government defense spending would be likely to reduce employment levels in locales with heavy concentrations of aerospace companies. This, in turn, would affect rates of household formation, new home sales, auto sales, leisure
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spending, and so on. As economic hardships reduce consumer and business spending in a region, the level of advertising and the types of marketing used in that area also may change.
Economic information can be found in various newspapers and magazines. In addition, trade publications, such as Radio Business Report, and numerous trade organizations report on relevant trends in local and regional economies. (For a list of trade publications and organizations, see the “Industry References” section of this Survey.)
Population, income, and demographics. These statistics play central roles in both television and radio advertising, particularly when a market is highly segmented. The growth rate and size of key age groups and other categories (such as married couples, grandparents, or working mothers) can determine how much advertising money a segment will attract and which broadcast medium is best suited to reach that segment. Statistics on key groups are available from the US Census Bureau.
Ratings. An audience measurement metric, ratings are a crucial driver of advertising revenues for television and radio broadcasters, generally reported at periodic intervals by Nielsen Media Research Inc. and Nielsen Audio (formerly Arbitron Inc.), respectively. This metric is widely used by advertisers to gauge audiences. All things being equal, the higher the ratings for a program, the more viewers or listeners it draws, and the more revenues it should generate relative to its competitors.
Upfront sales. These are advance sales of television airtime on national broadcast and cable networks, and in the syndication market, before the start of the TV season. The remainder inventory is sold in the “scatter” market. Upfront market prices usually determine those in the scatter market because they influence forces of supply and demand. Thus, upfront sales are indicators of the health of television industry revenues in the coming year.
Upfront commitments may include ratings guarantees, which would entitle advertisers to “make good” airtime—free airtime that is given if a program falls short of expected viewership. Advertisers also receive cancellation options, the exercise of which would leave the sellers with more time to fill in the scatter market. Information about upfront ad sales generally can be found in such industry trade publications as Variety, Broadcasting & Cable, and Advertising Age.
CABLE AND SATELLITE
Average revenue per user (ARPU). A prime indicator of operating performance and pricing power, ARPU gauges the average monthly revenue generated for each customer unit. This may be computed for a particular service, such as digital cable or high-speed Internet access, or in total for a particular cable or satellite provider. Newer add-on services, such as digital video recorders (DVRs) and telematics (the wireless transfer of information), are considered drivers of ARPU growth; however, the measure would be adversely affected by promotional offers, as well as discounts due to bundled packages and family plan subscriptions.
Churn. A metric used to monitor the stability of a customer base, churn is the percentage of subscribers that terminate service with a cable or satellite provider on a monthly basis. Churn may be voluntary (e.g., due to service dissatisfaction or relocation) or involuntary (e.g., due to bad debt). The lower the churn, the less pressure there is on a cable or satellite provider to add new subscribers to generate revenues. Churn rates less than 2.0% and 2.5%, respectively, are better than average for cable and satellite providers.
Customer relationships and revenue-generating units (RGU). This measure applies to cable only. As defined by the National Cable & Telecommunications Association, customer relationships are the number of customers that receive at least one level of service (including voice, video, and/or data services), without regard to which service(s) the customers have purchased. RGU is the sum total of all primary analog video, digital video, high-speed data, and telephony customers, not counting additional outlets.
Homes passed and penetration. This measure applies to cable only. Also referred to as “footprint,” homes passed is an estimate of the number of living units that a cable system passes by. Penetration refers to the percentage of homes passed that subscribe to a service in a given area where the service is marketed. Cable
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operators aim to increase penetration through increased marketing. Declining penetration may be due to increased competition or market saturation; a low penetration may indicate future growth potential.
Net subscriber additions. A prime indicator of the success of a cable or satellite provider’s marketing programs, net subscriber additions is the number of new customers added, less customers that terminated service. It is typically calculated on a quarterly basis.
Subscriber acquisition costs (SAC) per gross addition. This measure applies to satellite only. A measure of operating efficiency, SAC is the total direct and indirect costs incurred to acquire each subscriber, typically including hardware, installation, advertising, and marketing expenses, as well as sales commissions, equipment subsidies, and retail incentives. SAC typically increases during the early growth phases, gradually declining thereafter.
HOW TO ANALYZE A BROADCASTING, CABLE, OR SATELLITE COMPANY
There is a common analytical underpinning for the broadcast, cable, and satellite industries because companies in each group aim to draw audiences to their programming. Nonetheless, the distinction among the various business models is important for a proper qualitative and quantitative evaluation.
Terrestrial television and radio broadcasters rely mainly on advertising revenues, which ultimately are driven by the ratings of the individual networks and stations. Therefore, these companies aim mostly to offer programming that appeals to a targeted demographic group.
Cable providers and satellite television and radio broadcasters also seek to provide desirable programming to their audiences. However, it is subscribers, not advertisers, who pay most of their bills. Therefore, the overriding goal of these companies is to attract and retain subscribers.
Broadcasting, cable, and satellite companies face a number of different qualitative issues, related to competition and market dynamics, which the analyst should consider in a thorough evaluation. Several of these issues are more generic, such as trends in the overall economy, as well as the different business models, structural characteristics, and regulatory environments for each sub-industry of companies. Other qualitative factors may be more localized, bearing directly on the type of product or service offered by a particular company or the market in which it operates.
Broadcast competition—local and national Television and radio broadcasters generally compete for advertising dollars with a host of other in-home and out-of-home mass media outlets, including cable, newspapers, billboards, and the Internet. Broadcasters experience different levels of competition for national, local, and regional advertising. The fortunes of any given broadcaster depend partly on its ratings and partly on competition from alternative media outlets.
Over the next five years, it is important to estimate the extent to which terrestrial television and radio broadcasters may be vulnerable to audience erosion—or open to new growth opportunities—with advancements in newer digital outlets, such as the Internet, MP3 players, wireless applications, video games, and perhaps satellite radio.
For a television or radio station, it is important to assess the size and economic vitality of the local and regional market in which it operates, as well as the competition for ad dollars within those markets. For example, if local advertising in Dallas is healthy, and the city’s economy is strong, the analyst may consider several pertinent questions. Has a rival station stepped up its marketing efforts? Are start-up suburban newspapers siphoning away a share of business? Is the local cable company garnering an increased share of the local market after upgrading its systems and shoring up its ad sales force? The analyst also should note that the overall health of a station is a function of the relative health of the network with which it is affiliated.
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Because broadcasters typically generate most of their recurring revenues from a few major advertising categories (typically automotive, restaurants, retail, pharmaceuticals, packaged goods, financial services, hotels, real estate, and entertainment), an assessment of trends in these categories is usually instructive. Such assessment should focus on trends across those sectors to which a given company may be exposed. Is the mix of advertisers diversified or heavily concentrated? Is a company exposed to the consolidation of department stores or wireless carriers? Are new car dealers following their customers to the suburbs? The analyst also should be alert to factors that diverge from overall industry trends, such as long-term demographic shifts in the US Hispanic segment that could benefit Spanish-language broadcasters like Univision Communications Inc.
Cable and satellite—market dynamics A thorough qualitative analysis of a cable or satellite company differs from that of a broadcaster because these sectors are both structurally and competitively distinct from the advertising-driven and heavily regulated broadcast industry. Cable and satellite companies compete for subscribers largely against each other and against other providers of communications and entertainment services to consumers and businesses.
The competition in the market for triple-play services has intensified, with cable, direct broadcast satellite (DBS), and the traditional phone companies all vying for market share. While the core video and voice services from cable and the regional Bell operating companies (RBOCs) are offered locally and regionally, each of the duopoly players in the DBS market—The DIRECTV Group Inc. and Dish Network—has a national video reach and marketing platform. Unlike DBS’s sole video product, cable’s triple-play platform can offer video, high-speed Internet access, and voice services. Several phone companies offer high-speed Internet access via digital subscriber line (DSL), with the RBOCs also providing both wireline and wireless voice services. Compared with the high-speed data and wireless voice markets, the video and wireline voice markets are relatively saturated.
The analyst should consider a number of other factors that could affect the competitive dynamics of each market in which a particular company operates. First, several markets are currently served by one or more competitors of the incumbent cable or phone company, in addition to DBS providers. For example, New York City residents can choose one or more services from DBS providers DIRECTV and Dish Network or from Time Warner Cable Inc., Cablevision Systems Corp., and Verizon Communications Inc., among a host of others. Second, DBS providers and the RBOCs, through cobranding alliances, offer bundled packages of video, voice, and data services aimed at competition with cable operators. Third, while some cable companies offer traditional phone services and others are in various deployment stages for digital phone service, the RBOCs are also deploying fiber-based video and broadband offerings.
Given these dynamics, the analyst should pose questions aimed at assessing market prospects for a particular company. Are the company’s markets exposed to undue competition? Are the demographic trends favorable? Are competitors increasingly resorting to aggressive price discounting? How does the quality of service compare with that of rival providers? Which companies are introducing stickier services, with differentiating features such as advanced video, enhanced portal, and unified messaging? Is a cable operator highly exposed to the DBS launches of local-into-local channels? Can digital phone service significantly enhance a cable operator’s bundling strategy? What is the potential impact of the DBS/RBOCs bundled offerings? Which markets are immediately exposed to RBOCs’ fiber-based competition? These and other pertinent questions should help the analyst to evaluate both a company’s competitive position and the potential for future gains or losses in market share.
The satellite radio industry is even more concentrated than DBS: Sirius XM Radio, the product of the merger between Sirius and XM Radio, completed July 2008, is the only player in this industry. While DBS relies primarily on retail distribution and direct sales, Sirius XM Radio garners most of its subscribers through the automotive original equipment manufacturer (OEM) and retail after-market channels. In addition, unlike pay TV, the relatively new satellite radio industry has no head-to-head competitor, with the combined company offering a breadth of paid all-digital audio programming channels unmatched by terrestrial radio services. Although Sirius XM Radio has a sizable inventory of channels on which commercials may be sold, it generates minimal advertising revenues.
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The analyst should consider the company’s positioning relative to traditional radio, portable music players, and online music services. Does exclusive programming help attract the younger demographic group targeted by the company? How does the quality of customer service compare to other delivery methods? Do broadband applications and portable devices resonate with subscribers? Are there ancillary services, such as video, local weather, and traffic, which could help subscriber growth? What is the longer-term market potential for advertising revenues? What counter-steps are being taken by terrestrial radio companies to stem the threats of newer digital platforms? The answers to these and other questions should help an analyst to evaluate the competitive position of Sirius XM Radio.
Rigorous financial statement analysis should be part of an effective review of any publicly traded company. Financial statement analysis offers important insights into a company’s current position and future growth prospects. The following discussion highlights some of the key considerations for the financial review of broadcasting, cable, and satellite companies.
Income statement analysis The income statement portrays the operating results of a company over a stated period. Trends in growth rates—and any aberrations from the norm—should be assessed. In particular, analysts look at revenues and operating costs, which factor into operating cash flow.
Revenue comparisons. Quarterly results should be compared with the year-ago quarter on a sequential basis (i.e., with the preceding quarter). Year-to-year changes reveal longer-term trends, while sequential fluctuations provide clues about sales momentum, seasonality, short-term events, and emerging trends.
Because advertising revenues are typically cyclical, they should be considered against the backdrop of the overall economic picture, noting that factors such as the Olympic Games and political spending can significantly affect overall ad spending in even-numbered years. A broadcaster’s revenues may depend on factors, such as ratings, exclusive network programming (such as the Olympics or the Super Bowl), and a station group’s exposure to political battleground states. Other exogenous and company-specific factors include audience demographics—which have helped Spanish-language broadcasters (such as Univision) to sustain strong revenue growth.
Conversely, the revenues for a cable or satellite company are more a function of its subscriber base. A useful measure for analyzing and comparing cable operators is revenue-generating units (RGUs), which include video, data, and voice services offered to a particular home. It is helpful to analyze other key indicators used by cable and satellite operators that factor into the level of reported revenues, including measures of average pricing (average revenue per user, or ARPU) and customer disconnects (known as “churn”). These parameters should factor into a separate analysis for each type of service. A higher ARPU should increase revenues, but it may indicate that the company is approaching the limit of its pricing power. ARPU may be hurt by bundle promotions (for cable) or by family plan and multiyear subscriptions (for satellite radio).
Key operating expenses. Among the major expense items for broadcasting, cable, and satellite companies are those related to programming, sales, and marketing. The analyst should compare these as a percentage of revenues, or on a per-subscriber basis, noting any factors that might cause variations within a peer group.
Programming expenses include costs related to content produced in-house, such as reality shows and local news, as well as costs related to programming from external parties, such as sports licensing fees, on-air talent, and syndication. Cable and satellite companies typically must acquire most of their programming from unaffiliated providers. We note that a distributor’s scale can affect its programming costs. Comcast Corp., for example, can use its leverage to negotiate major volume discounts unavailable to a smaller operator, such as Mediacom Communications Corp.
While broadcasters also incur sizable programming costs, they produce a fair amount of their own programming. The programming costs of a local station partly depend on its affiliation, which affects the
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number of hours of network programming that it can air each week. In addition, newer sectors, such as satellite radio, must spend heavily to ramp up programming during the early growth phases.
Sales and marketing expenses include costs related to ad sales commissions, advertising and promotions, subscriber acquisition costs (SAC), and retention and upgrade costs. Again, companies (even within the same sub-industry) may be subject to different levels of spending. For broadcasters, sales commissions, which are paid to a local sales force or a national representation firm, are typically a fixed percentage of the total ad sales—perhaps with some incentive component as well. On the other hand, satellite providers typically need to incur heavy SAC spending during the early years, or roll out newer offerings or upgrades, such as portable media applications and advanced digital boxes. SAC should then gradually abate over time, as consumer awareness grows and the subscriber base approaches critical mass.
For cable operators, marketing costs would include spending related to bundling promotions and to the launch of newer offerings in digital video and phone (such as Voice over Internet Protocol, or VoIP). The amount of such spending for a company would depend partly on the competition from rival providers across its various markets. However, the analyst should note that cable companies generally capitalize the cost of consumer premise equipment (such as digital boxes), which DBS providers typically expense on their income statement as part of SAC.
Earnings quality. Although all publicly traded US companies are required to report their results using generally accepted accounting principles (GAAP), several constituents in the broadcasting, cable, and satellite universe also disclose pro forma numbers, which exclude some unfavorable items. While some may claim that these pro forma earnings are more reflective of their actual operations, such measures may be closer to what other companies might call operating earnings. A relatively low earnings quality may be indicative of poor corporate governance.
Operating cash flow. Despite differences among broadcasting, cable, and satellite companies, a common measure of financial health typically used by capital-intensive businesses is growth in operating cash flow, or earnings before interest, taxes, depreciation, and amortization (EBITDA). As a proxy for operating cash flow, EBITDA may be computed by adding back depreciation and amortization charges to reported operating income. The growth trend in EBITDA may indicate where a company stands in its business plan or its ability to fund future expansion. The analyst also may compare a company’s EBITDA margins with those of its peers.
In recent years, EBITDA has gained wider acceptance as a financial measure, and it may be particularly useful for many companies that still have operating losses and negative free cash flow. Still, the analyst should note its potential drawbacks: it ignores the hefty interest payments and capital outlays that are necessary to support growth initiatives (such as digital upgrades or satellite expansion); furthermore, as a non-GAAP measure, it may be subject to manipulation.
Balance sheet and capital structure A balance sheet is a snapshot of a company’s assets, liabilities, and net worth as of a particular date. With the heavy debt and equity funding amassed by several of these companies in the wake of telecom deregulation, a review of the balance sheet has become more important to aid the analyst in evaluating a company’s capital structure and its impact on valuation.
In conducting this review, the analyst should assess a company’s underlying financial health, its financial flexibility, and its ability to continue as a going concern. An analysis of the leverage ratios—like those typically conducted by credit rating agencies to determine creditworthiness—is usually instructive. A company’s creditworthiness (as indicated by Standard & Poor’s credit rating) may be important in evaluating potential stock price appreciation. Not only could subpar leverage ratios jeopardize a company’s ability to meet its recurring interest payments, but they could also limit the company’s ability to make opportunistic acquisitions—and, potentially, return capital to shareholders through share repurchases and/or dividends.
The most widely used leverage measure is net debt (long- and short-term debt, minus cash) divided by EBITDA. Several companies in this Survey currently fall somewhere between 3.5X and 4.5X; a ratio above
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5.0X could pose major balance sheet constraints. Another measure is the EBITDA/interest ratio, which shows the interest coverage cushion in operating cash flow. Several of these companies fall between 3.5X and 5.5X; a ratio below 3.0X could significantly limit a company’s financial flexibility.
Several valuation techniques, such as discounted cash flow (DCF) analysis, are commonly applied to broadcasting, cable, and satellite companies. However, choosing among other conventional valuation methodologies—such as those based on earnings and subscriber projections—may depend on a particular company’s business model or its stage of development.
For example, a start-up company may be valued for its licenses based on future market potential, as compared with established companies with a similar business model. Over a period of years, as a new company moves from sustained losses and negative cash flow to increased earnings and positive cash flow, the number of valuation methods also should increase.
Relative value The price/earnings (P/E) ratio is one of the popular valuation measures typically used for broadcasters, most of which have an earnings track record. A company’s P/E ratio may be compared with the relevant S&P sub-industry indexes (Broadcasting and Cable & Satellite) or with a broader market index (such as the S&P 500 Composite). The analyst also may assign a benchmark P/E multiple to forecast future earnings to arrive at a future price, which is discounted back to the present and compared with the stock price, to determine whether a stock is overvalued or undervalued. Well-positioned companies with high earnings quality generally should trade at a premium to the benchmarks.
The P/E ratio can be compared with the estimated long-term earnings growth rate for an individual company, to arrive at the price/earnings to growth (PEG) ratio. To forecast growth rates, many analysts begin with the potential rate at which a certain market’s revenues can increase. For companies that may be more than a year away from profitability, growth rates can be measured in terms of revenues or subscribers, noting that these rates may be highly divergent. Then, considerations are made regarding potential market share gains or losses. For example, a Spanish-language broadcaster, such as Univision, may sustain higher growth rates than the industry. A company’s shares may be undervalued if the PEG ratio is significantly less than 1.0, and if, after careful analysis, the analyst concludes that the fundamentals are healthy.
A similar analysis, also typically used for more established companies, is based on the price/free cash flow (P/FCF) multiple. Free cash flow (for equity holders) is calculated as operating cash flow (net income plus depreciation and amortization, plus or minus the decrease or increase in working capital), minus capital expenditures. Again, the P/FCF multiple can be benchmarked to historical, sub-industry, or broader market multiples to derive a target price, which is then compared with the current stock price.
Another common relative valuation ratio is the enterprise value (market capitalization plus net debt) divided by EBITDA. While this measure can be applied to established companies, it also is typically used for those that still have operating losses and negative free cash flow. For companies such as Viacom, with significant cross-platform businesses, it may be necessary to use different multiples for the individual constituent parts. For cable and DBS companies, another commonly used variant is the enterprise value per subscriber multiple. Again, it may be necessary to make some adjustments to ensure an apples-to-apples comparison. For example, cable companies such as Comcast and Cablevision also have significant content assets, which the analyst should value separately and isolate before any peer comparisons can be made.
Discounted cash flows While the relative valuation methodologies discussed previously are quite common, in the end, the valuation of broadcasting, cable, and satellite companies is similar to any other business; it is an exercise in forecasting and discounting cash flows. The analyst’s objective is to obtain a free cash flow estimate for the total enterprise, which is the free cash flow to the equity holders plus the interest payments to debt holders.
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S&P Capital IQ frequently uses discounted cash flows to derive the intrinsic values of companies in this universe. In general, the intrinsic value of a company’s common stock equals the present value of its free cash flow to the equity holders. Using DCF methodologies also helps the analyst to avoid the potential pitfalls associated with relative valuation; for example, an overvalued stock could appear attractive because it is being compared with another stock that is even more overvalued.
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Affiliate—A station that carries a network’s programming, but is not owned by the network. Stations owned by networks are called “owned-and-operated” (O&O).
Analog—The conventional transmission system that uses signals of varying frequency or amplitude; can be susceptible to noise interference. (See Digital.)
Bandwidth—The overall capacity of a transmission system, measured in bits per second (bps) for digital lines and hertz (Hz) for analog lines.
Barter—A compensation arrangement between a television (TV) station or a network and the owner of a syndicated program: the owner of the show splits the associated ad revenues with the network or the station on which the show is aired.
Bits per second (bps)—A measure of the speed by which information is transmitted over certain electronic media. A “bit” is a single binary pulse of information; megabit per second (Mbps) is about one million bps; kilobit per second (Kbps) is 1,000 bps.
Broadband—High-speed Internet access, whether wired or wireless, with data transmission systems carrying multiple signals simultaneously.
Broadband satellite service (BSS)—A radio communications service that transmits or retransmits broadcast signals via space stations.
Broadcast—A signal transmitted to all user terminals in a service area.
C3 currency—A Nielsen TV ratings currency agreed to by the “Big Four” networks (ABC, CBS, FOX, and NBC). It measures commercial minutes, combined with live viewing and three days of DVR playback data.
Cable modem—A broadband access device that enables a computer to transmit data over a cable line; speeds range from 512 Kbps to more than 10 Mbps.
Cable television (CATV)—A delivery system over a network of coaxial or fiber-optic cable that gives subscribers hundreds of video channels. A cable system includes the headend, trunk lines, feeder lines, and drop lines.
C-band—The portion of the electromagnetic spectrum allotted for satellite transmission in the four-gigahertz (GHz) to eight-GHz frequency range. (See Ka-band and S-band.)
Churn—A measure of subscriber turnover for cable and satellite operators.
Coaxial cable—Copper cable that is run by cable TV companies between a community antenna and subscribers’ homes and businesses. (See Fiber-optic cable.)
Cost per thousand (CPM)—The price of reaching 1,000 households or viewers with an advertisement; the cost of the airtime by the number of persons. As a measure of cost efficiency, CPM is also used to compare different programs.
Customer relationships—The number of customers that receive at least one service (such as voice, video, or data) from a cable operator.
Dayparts—Segments of a broadcast programming schedule, including “early morning” (6 a.m. to 9 a.m.), “daytime” (9 a.m. to 4 p.m.), “early fringe” (3 p.m. to 5 p.m.), “early news” (5 p.m. to 6:30 p.m.), “prime time” (7 p.m. to 11 p.m.), and “late night” (11 p.m. to 6 a.m.).
Designated market area (DMA)—A distinct TV coverage market as determined by Nielsen Media Research Inc. The US is divided into 210 DMAs.
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Digital—A transmission technology where information is encoded as binary language (“bytes”), in separate “bits” of 0 and 1. (See Analog.)
Digital subscriber line (DSL)—A broadband technology used to increase the capacity of copper phone lines; speeds range from 144 Kbps to two Mbps.
Digital television (DTV)—A new transmission system that replaced conventional analog TV broadcasting on June 12, 2009. DTV provides higher resolution and sound quality than analog, and freed up parts of the broadcast spectrum for public safety communications (police/fire/rescue); some of the spectrum will be auctioned to companies that can provide consumers with more advanced wireless services (such as wireless broadband).
Digital video recorders (DVRs)—Devices that allow viewers to record and store hours of TV programs on a hard drive for later viewing; also called personal video recorders (PVRs). DVRs also allow users to skip commercials, and to replay, pause, rewind, and fast-forward live TV programs. Cable and direct broadcast satellite providers offer DVRs for an extra monthly charge.
Direct broadcast satellite (DBS)—Satellite TV systems in which subscribers (or end users) receive signals directly from high- powered geostationary satellites orbiting 22,300 miles above the Earth. Signals are broadcast in digital format at microwave frequencies. Also known as “mini-dish” systems, DBS systems are the descendant of direct-to-home (DTH) satellite services.
Downlink—The portion of a satellite circuit extending from the satellite to the user terminal. (See Uplink.)
Drive time—Radio’s equivalent of TV’s prime time: the primary hours for audiences and advertising sales. “Morning drive” is 6 a.m. to 9 a.m. or 10 a.m.; “afternoon drive” runs from 3 p.m. to 7 p.m.
Fiber-optic cable—System using very thin glass fibers to transmit light waves. Fiber-optic cable carries more information than coaxial cable or conventional copper wire, with greater speed and less electromagnetic interference. (See Coaxial cable.)
Fiber-to-the-home (FTTH)—Generic deployment of fiber-optic cable from a telephone switch directly into users’ homes. Variations include fiber-to-the-node (FTTN) and fiber-to-the-premise (FTTP).
Footprint—The coverage area of a cable system, broadcast, or satellite signal.
Headend—The central distribution point for a cable TV system, where video signals are received from satellites and broadcast TV stations, amplified, converted to appropriate channels, and rebroadcast through the cable system.
Hertz (Hz)—A unit of frequency equal to one cycle per second; used to measure electromagnetic waves. One megahertz (MHz) equals one million Hertz.
High-definition television (HDTV)—Digital transmission that offers higher resolution than DTV or standard-definition TV.
Ka-band—The portion of the electromagnetic spectrum in the 20 GHz to 30 GHz frequency range allotted for satellite transmission. (See S-band and C-band.)
Ku-band—The portion of the electromagnetic spectrum in the 12 GHz to 14 GHz frequency range allotted for satellite transmission.
L-band—The portion of the electromagnetic spectrum in the one GHz to two GHz frequency range allotted for satellite transmission.
Local market agreement (LMA)—An arrangement in which a TV or radio station in one market is responsible for programming and/or ad sales of a station in another market. The subordinate station remains responsible for FCC regulations.
Local people meter (LPM)—An electronic recording device attached to a TV that Nielsen uses for local TV audience measurement (“ratings”).
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Makegood—Airtime given free of charge to compensate an advertiser for shortfalls on minimum ratings guarantees for specific network programs; may also arise from station error, preemption, or a programming change.
Microwave multi-distribution system (MMDS)—Also known as “wireless cable,” MMDS distributes signals using microwaves, which are picked up by a home receiver and then redistributed via internal wiring.
Modem—A device or program that enables a computer to transmit data over, for example, telephone or cable lines.
Multicast—A simultaneous broadcast of multiple transmissions (or “streams”) of digital programs or data content.
Multichannel video programming distributors (MVPDs)—Cable and satellite TV providers.
Multiple system operator (MSO)—A cable operating company that owns and/or operates systems in more than one market.
Must-carry—Mandatory carriage of a local TV signal by cable or DBS. Once every three years, the FCC requires each station to elect either “must-carry” or “retransmission consent.” Weaker stations typically opt for “must-carry.” (See Retransmission consent.)
National spot—Advertising market where national advertisers, such as General Motors or IBM, buy ads in selected local markets through local media.
Network—A broadcast entity that airs programming and sells commercial time nationally via affiliated and/or licensed local stations. Examples are the NBC television network, the ESPN cable network, and the ABC radio network.
Off-network syndication—Network programs sold as reruns in the syndication market; they typically ran in prime time when first released.
Orbital slots—The orbit locations of satellites, usually stated in degrees.
Pay-per-view—Cable or DBS service in which subscribers pay individually for programs such as movies and special events.
Pay TV—Any subscription-based TV services, including analog and digital cable and satellite. Also called “premium channels” on cable, for which subscribers pay extra fees; examples include HBO, Showtime, and Starz.
Penetration—The percentage of households subscribing to a given service.
Podcasting—A method of distributing multimedia files, such as audio programs or music videos, over the Internet for playback on mobile devices and personal computers.
Portable people meter (PPM)—A beeper-like electronic device carried by users for out-of-home radio and TV measurement.
Preemption—A broadcast of TV programming obtained by an affiliate from sources other than the network. Affiliates typically receive rights to preempt a certain number of hours of network-supplied programming each year.
Prime time—Peak viewing hours, during which networks televise their most high-profile programming. In the Eastern time zone, prime time lasts from 8:00 p.m. to 11:00 p.m., Monday through Saturday, and from 7:00 p.m. to 11:00 p.m. on Sunday.
Rating/share—Used by Nielsen as measures of TV audiences. “Rating” is the percentage of TV households viewing a program; “share” is the percentage of all households viewing TV at that time. For local stations, one rating point equals 1% of the total households in a station’s DMA; one share point equals 1% of a DMA’s households tuned to a specific show. For national networks, one rating point equals 1% of US TV households (115.9 million homes). A program with a national rating/share score of 3/9 was watched by about 3.48 million (0.03 x 115.9 million) households, or 9% of the TV audience at the time.
Retransmission consent—Requirement for cable operators to obtain consent of a commercial TV station owner before broadcasting their local signals. Once every three years, cable providers must negotiate terms of carriage with TV stations that elect retransmission consent (instead of “must-carry”).
36 BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 INDUSTRY SURVEYS
Revenue-generating units (RGUs)—Cable subscriber metric that counts all analog, digital, data, and phone customers, excluding additional outlets.
Satellite—A space vehicle in a fixed orbital location about 22,300 miles above the Earth, which receives communications signals from one point on Earth and retransmits them to multiple reception points.
Satellite master antenna television (SMATV)—A broadcast service typically sold to a housing complex or hotel. Cable channels are received via satellite and distributed to the units by coaxial cable.
S-band—The portion of the electromagnetic spectrum in the frequency range of two GHz to four GHz allotted for satellite transmission. (See C-band and Ka-band.)
Scatter—Network airtime purchased after the start of the broadcast season, at prevailing spot rates that differ from those negotiated during the “upfront.” (See Upfront.)
Signal—The images and sounds transmitted by broadcast, cable, and satellite.
Spectrum—The airwaves, licensed by the FCC, over which images and sounds are transmitted by broadcast, cable, and satellite; may be analog or digital.
Spot sales—TV or radio commercial time sold on a market-by-market basis, as opposed to nationally. Also refers to the ad market for local TV stations (versus the market for broadcast networks). “Local spot” ads are placed directly in a station’s local market, while “national spot” ads are placed through rep firms or agencies.
Spots—Ads or commercials (e.g., “30-second spot” or “60-second spot”).
Sweeps—The periods in February, May, July, and November during which TV audience measurement firm Nielsen Media Research most closely tracks and reports national and local ratings; figures are reported by households and by demographics. The sweeps ratings are important for advertisers and broadcasters, which use them to set advertising rates based on the audience delivered.
Syndication—A method of distributing radio, TV, and cable programs on a market-by-market basis, mostly aired during periods other than prime time. Such programming may be “first-run” shows made specifically for this market, or “off-network” series that have aired previously on a major network.
Transponder—Component of a satellite that receives a signal from the earth, processes and amplifies it, and retransmits it to another location on the earth.
Upfront—An annual spring bazaar for the advance sales of airtime on national broadcast network, national cable, and TV syndication markets. The process lasts for about two weeks, during which time the sellers review their program lineups for the subsequent fall TV season, and then proceed to negotiate locked-in ad rates for specific shows desired by advertisers. Airtime not committed in the upfront is sold in “scatter.” (See Scatter.)
Uplink—The portion of a satellite circuit extending from the user’s terminal to the satellite. (See Downlink.)
Video on Demand (VoD)—A system by which viewers can watch video programs transmitted from a central server to their own TV sets at the time that they choose. Most major cable operators offer VoD to their digital subscribers—some at no extra charge, others for an extra monthly nominal fee. A variant of this service is subscription video on demand (SVoD).
Voice over Internet Protocol (VoIP)—A digital phone technology that converts ordinary telephone calls to digits, which are then transmitted over “packet-switched” data networks. Also called IP telephony, VoIP phone calls require the subscriber to have a broadband connection, bypassing the public switched telephone network (PSTN) used by traditional “circuit-switched” phone companies. Cable operators have been launching VoIP phone service across their footprints since 2004.
INDUSTRY SURVEYS BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 37
PERIODICALS ZenithOptimedia http://www.zenithoptimedia.com Advertising Age Global media services firm that provides extensive data, http://www.adage.com statistics, and forecasts on the media industries. Biweekly; covers advertiser and ad agency news. TRADE ASSOCIATIONS Broadcasting & Cable http://www.broadcastingcable.com Cabletelevision Advertising Bureau (CAB) Weekly; covers TV, radio, and cable industry news. http://www.thecab.tv National association of cable system operators and Multichannel News programmers; provides statistics, advertising, and http://www.multichannel.com marketing assistance, and promotes cable advertising. Weekly; covers cable TV and telecom developments. National Association of Broadcasters (NAB) Radio Business Report http://www.nab.org RBR Source Guide & Directory National association of TV and radio broadcasters; provides http://www.rbr.com legislative, legal, technical, marketing, and operational The first is a weekly newsletter covering the radio industry; information. the second is an annual radio-industry source guide and directory with industry statistics. National Cable & Telecommunications Association http://www.ncta.com Satellite Business News National association of cable system operators and http://www.satbiznews.com programmers; website has links to cable networks, system Daily/weekly; covers satellite industry news. operators, regional and state associations, and publications.
TVB News Radio Advertising Bureau (RAB) http://www.tvb.org http://www.rab.com Quarterly newsletter; covers TV advertising statistics. National association of radio broadcasters; provides advertising and marketing statistics and assistance. Variety http://www.variety.com Satellite Broadcasting & Communications Daily/weekly; covers entertainment industry news. Association (SBCA) http://www.sbca.com MARKET RESEARCH & CONSULTING National association for the satellite industry; provides statistics, market research, useful links, and other assistance. BIA/Kelsey http://www.bia.com Television Bureau of Advertising (TVB) Provides financial, strategic, and operational advisory http://www.tvb.org services and investment resources to the media and National association of television broadcasters; provides communications industries. advertising statistics and promotes a favorable advertising climate in the TV industry. Nielsen Media Research http://www.nielsen.com GOVERNMENT AGENCIES Leading provider of TV audience measurement services. Federal Communications Commission (FCC) SNL Kagan http://www.fcc.gov http://www.kagan.com Government agency; encourages competition in Examines, appraises, and forecasts traditional and new communications markets and protects the public interest. media; publishes a variety of databooks and newsletters.
38 BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 INDUSTRY SURVEYS
COMPARATIVE COMPANY ANALYSIS
Million $ CAGR (%) Index Basis (2003 = 100) Ticker Company Yr. End 2013 2012 2011 2010 2009 2008 2003 10-Yr. 5-Yr. 1-Yr. 2013 2012 2011 2010 2009 BROADCASTING COMPANIES‡ CBS  CBS CORP DEC 15,284.0 14,089.0 D 14,245.0 14,059.8 13,014.6 13,950.4 A 26,585.3 A,C (5.4) 1.8 8.5 57 53 54 53 49 DISCA  DISCOVERY COMMUNICATIONS INC DEC 5,535.0 A,C 4,487.0 A,C 4,235.0 A 3,773.0 A,C 3,516.0 3,443.0 C,D 506.1 A 27.0 10.0 23.4 1,094 887 837 746 695 SNI  SCRIPPS NETWORKS INTERACTIVE DEC 2,530.8 2,307.2 2,072.0 D 2,067.2 1,541.2 D 1,590.6 NA NA 9.7 9.7 ** ** ** ** NA
CABLE & SATELLITE COMPANIES‡ AMCX † AMC NETWORKS INC DEC 1,591.9 1,352.6 1,187.7 1,078.3 D NA NA NA NA NA 17.7 ** ** ** ** NA CVC  CABLEVISION SYS CORP -CL A DEC 6,232.2 D 6,692.6 6,700.8 D 7,231.2 A,C 7,773.3 7,230.1 A 4,177.1 D 4.1 (2.9) (6.9) 149 160 160 173 186 CMCSA  COMCAST CORP DEC 64,657.0 62,570.0 55,842.0 A,C 37,937.0 35,756.0 34,256.0 18,348.0 D 13.4 13.5 3.3 352 341 304 207 195 DTV  DIRECTV DEC 31,754.0 29,740.0 27,226.0 24,102.0 21,565.0 A 19,693.0 A 10,121.2 C,D 12.1 10.0 6.8 314 294 269 238 213 TWC  TIME WARNER CABLE INC DEC 22,120.0 21,386.0 19,675.0 18,868.0 17,868.0 17,200.0 NA NA 5.2 3.4 ** ** ** ** NA
OTHER BROADCASTING & CABLE COMPANIES EMMS EMMIS COMMUNICATIONS CP-CL A # FEB NA 196.1 D 236.0 D 251.3 242.6 D 333.9 D 591.9 D NA NA NA NA 33 40 42 41 JRN JOURNAL COMMUNICATIONS INC DEC 397.3 D 400.0 A 356.3 376.8 D 433.6 544.9 798.3 (6.7) (6.1) (0.7) 50 50 45 47 54
DIVERSIFIED COS WITH OPERATIONS IN BROADCASTING & CABLE CHTR CHARTER COMMUNICATIONS INC DEC 8,155.0 A 7,504.0 7,204.0 7,059.0 6,755.0 6,479.0 4,819.0 5.4 4.7 8.7 169 156 149 146 140 DIS  DISNEY (WALT) CO SEP 45,041.0 42,278.0 40,893.0 38,063.0 36,149.0 37,843.0 27,061.0 5.2 3.5 6.5 166 156 151 141 134 NWSA  NEWS CORP JUN 8,891.0 A 8,654.0 9,095.0 A NA NA NA NA NA NA 2.7 ** ** ** ** NA TWX  TIME WARNER INC DEC 29,795.0 D 28,729.0 28,974.0 26,888.0 25,785.0 D 46,984.0 39,565.0 D (2.8) (8.7) 3.7 75 73 73 68 65 VIAB  VIACOM INC SEP 13,794.0 13,887.0 14,914.0 9,337.0 H 13,619.0 14,625.0 NA NA (1.2) (0.7) ** ** ** ** NA
OTHER SATELLITE BROADCASTERS DISH DISH NETWORK CORP DEC 13,904.9 D 14,266.5 A 14,048.4 A 12,640.7 11,664.2 11,617.2 5,739.3 9.3 3.7 (2.5) 242 249 245 220 203 SIRI SIRIUS XM HOLDINGS INC DEC 3,799.1 3,402.0 3,014.5 2,817.0 2,472.6 1,664.0 A 12.9 NM 18.0 11.7 29,514 26,430 23,419 21,885 19,209
Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.
INDUSTRY SURVEYS BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 39
Million $ CAGR (%) Index Basis (2003 = 100) Ticker Company Yr. End 2013 2012 2011 2010 2009 2008 2003 10-Yr. 5-Yr. 1-Yr. 2013 2012 2011 2010 2009 BROADCASTING COMPANIES‡ CBS  CBS CORP DEC 1,873.0 1,634.0 1,291.0 724.2 226.5 (11,673.4) 1,435.4 2.7 NM 14.6 130 114 90 50 16 DISCA  DISCOVERY COMMUNICATIONS INC DEC 1,075.0 954.0 1,133.0 631.0 560.0 274.0 (52.4) NM 31.4 12.7 NM NM NM NM NM SNI  SCRIPPS NETWORKS INTERACTIVE DEC 505.1 681.5 472.8 400.9 273.2 23.6 NA NA 84.6 (25.9) ** ** ** ** NA
CABLE & SATELLITE COMPANIES‡ AMCX † AMC NETWORKS INC DEC 290.7 136.2 126.4 118.2 NA NA NA NA NA 113.4 ** ** ** ** NA CVC  CABLEVISION SYS CORP -CL A DEC 127.3 33.3 238.2 365.1 285.6 (226.6) (283.1) NM NM 282.7 NM NM NM NM NM CMCSA  COMCAST CORP DEC 6,816.0 6,203.0 4,160.0 3,635.0 3,638.0 2,547.0 (218.0) NM 21.8 9.9 NM NM NM NM NM DTV  DIRECTV DEC 2,859.0 2,949.0 2,609.0 2,198.0 942.0 1,515.0 (292.5) NM 13.5 (3.1) NM NM NM NM NM TWC  TIME WARNER CABLE INC DEC 1,954.0 2,155.0 1,665.0 1,308.0 1,070.0 (7,344.0) NA NA NM (9.3) ** ** ** ** NA
OTHER BROADCASTING & CABLE COMPANIES EMMS EMMIS COMMUNICATIONS CP-CL A # FEB NA (6.3) 22.3 (13.3) (122.7) (300.3) 12.3 NA NA NA ** (51) 182 (108) (1,000) JRN JOURNAL COMMUNICATIONS INC DEC 26.3 33.3 21.8 30.7 4.3 (224.8) 66.8 (8.9) NM (21.2) 39 50 33 46 6
DIVERSIFIED COS WITH OPERATIONS IN BROADCASTING & CABLE CHTR CHARTER COMMUNICATIONS INC DEC (169.0) (304.0) (369.0) (237.0) 11,366.0 (2,451.0) (238.0) NM NM NM NM NM NM NM NM DIS  DISNEY (WALT) CO SEP 6,136.0 5,682.0 4,807.0 3,963.0 3,307.0 4,427.0 1,338.0 16.5 6.7 8.0 459 425 359 296 247 NWSA  NEWS CORP JUN 506.0 (2,075.0) 678.0 NA NA NA NA NA NA NM ** ** ** ** NA TWX  TIME WARNER INC DEC 3,554.0 3,019.0 2,886.0 2,578.0 2,079.0 (13,402.0) 3,146.0 1.2 NM 17.7 113 96 92 82 66 VIAB  VIACOM INC SEP 2,407.0 2,345.0 2,146.0 1,175.0 1,591.0 1,233.0 NA NA 14.3 2.6 ** ** ** ** NA
OTHER SATELLITE BROADCASTERS DISH DISH NETWORK CORP DEC 854.8 636.7 1,515.9 984.7 635.5 902.9 224.5 14.3 (1.1) 34.3 381 284 675 439 283 SIRI SIRIUS XM HOLDINGS INC DEC 377.2 3,472.7 427.0 43.1 (342.8) (5,313.3) (226.2) NM NM (89.1) NM NM NM NM NM
Note: Data as originally reported. CAGR-Compound annual growth rate. ‡S&P 1500 index group. Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available.
40 BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 INDUSTRY SURVEYS
Return on Revenues (%) Return on Assets (%) Return on Equity (%)
Ticker Company Yr. End 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009
BROADCASTING COMPANIES‡ CBS  CBS CORP DEC 12.3 11.6 9.1 5.2 1.7 7.1 6.2 4.9 2.7 0.8 18.6 16.2 13.1 7.7 2.6 DISCA  DISCOVERY COMMUNICATIONS INC DEC 19.4 21.3 26.8 16.7 15.9 7.7 7.7 9.9 5.7 5.2 17.2 14.9 17.8 10.2 9.5 SNI  SCRIPPS NETWORKS INTERACTIVE DEC 20.0 29.5 22.8 19.4 17.7 11.8 16.8 12.9 12.6 11.5 25.8 38.9 27.4 25.4 21.6
CABLE & SATELLITE COMPANIES‡ AMCX † AMC NETWORKS INC DEC 18.3 10.1 10.6 11.0 NA 11.1 5.7 6.3 NA NA NA NA NA NA NA CVC  CABLEVISION SYS CORP -CL A DEC 2.0 0.5 3.6 5.0 3.7 1.8 0.5 3.0 4.0 3.1 NA NA NA NA NA CMCSA  COMCAST CORP DEC 10.5 9.9 7.4 9.6 10.2 4.2 3.8 3.0 3.1 3.2 13.6 12.8 9.1 8.3 8.7 DTV  DIRECTV DEC 9.0 9.9 9.6 9.1 4.4 13.5 15.1 14.4 12.2 5.4 NA NA NA 161.8 24.3 TWC  TIME WARNER CABLE INC DEC 8.8 10.1 8.5 6.9 6.0 4.0 4.4 3.5 2.9 2.3 27.5 29.1 19.9 14.6 8.3
OTHER BROADCASTING & CABLE COMPANIES EMMS EMMIS COMMUNICATIONS CP-CL A # FEB NA NM 9.5 NM NM NA NM 3.4 NM NM NA NA NA NA NA JRN JOURNAL COMMUNICATIONS INC DEC 6.6 8.3 6.1 8.1 1.0 4.3 6.4 5.1 6.8 0.8 11.5 16.2 10.6 16.2 2.5
DIVERSIFIED COS WITH OPERATIONS IN BROADCASTING & CABLE CHTR CHARTER COMMUNICATIONS INC DEC NM NM NM NM 168.3 NM NM NM NM 74.4 NM NM NM NM NA DIS  DISNEY (WALT) CO SEP 13.6 13.4 11.8 10.4 9.1 7.9 7.7 6.8 6.0 5.3 14.4 14.7 12.8 11.1 10.0 NWSA  NEWS CORP JUN 5.7 NM 7.5 NA NA 3.5 NM NA NA NA 4.7 NM NA NA NA TWX  TIME WARNER INC DEC 11.9 10.5 10.0 9.6 8.1 5.2 4.4 4.3 3.9 2.3 11.9 10.1 9.2 7.8 5.5 VIAB  VIACOM INC SEP 17.4 16.9 14.4 12.6 11.7 10.4 10.4 9.6 5.3 7.2 38.1 29.1 23.9 13.1 20.2
OTHER SATELLITE BROADCASTERS DISH DISH NETWORK CORP DEC 6.1 4.5 10.8 7.8 5.4 4.5 4.4 14.4 11.0 8.6 168.6 NA NA NA NA SIRI SIRIUS XM HOLDINGS INC DEC 9.9 102.1 14.2 1.5 NM 4.2 41.2 5.7 0.6 NM 11.1 143.7 93.7 35.1 NM
Note: Data as originally reported. ‡S&P 1500 index group. Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.
INDUSTRY SURVEYS BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 41
Debt as a % of Current Ratio Debt / Capital Ratio (%) Net Working Capital
Ticker Company Yr. End 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009
BROADCASTING COMPANIES‡ CBS  CBS CORP DEC 1.3 1.5 1.4 1.3 1.2 34.0 34.0 35.3 36.2 40.4 510.7 331.9 370.1 456.3 736.0 DISCA  DISCOVERY COMMUNICATIONS INC DEC 1.9 2.9 3.3 2.2 2.1 48.6 44.3 38.1 35.5 34.6 580.8 292.2 250.4 378.7 388.4 SNI  SCRIPPS NETWORKS INTERACTIVE DEC 6.7 5.9 7.4 6.9 4.7 38.3 41.4 41.6 30.3 35.4 87.5 112.4 93.3 71.5 114.6
CABLE & SATELLITE COMPANIES‡ AMCX † AMC NETWORKS INC DEC 3.1 1.6 2.5 1.7 NA 128.1 164.9 174.9 88.1 NA 243.8 413.6 437.4 462.8 NA CVC  CABLEVISION SYS CORP -CL A DEC 1.2 0.8 0.8 0.8 1.0 199.8 202.4 203.2 207.5 173.8 NM NM NM NM NM CMCSA  COMCAST CORP DEC 0.7 1.2 0.6 1.1 0.4 34.8 28.3 28.9 28.9 28.3 NM NM NM NM NM DTV  DIRECTV DEC 0.9 1.0 0.9 1.0 0.9 130.3 123.4 108.6 86.6 61.6 NM NM NM NM NM TWC  TIME WARNER CABLE INC DEC 0.4 0.9 1.2 1.4 0.7 55.0 57.6 58.1 55.4 56.2 NM NM NM NM NM
OTHER BROADCASTING & CABLE COMPANIES EMMS EMMIS COMMUNICATIONS CP-CL A # FEB NA 1.1 1.0 1.2 1.3 NA 82.4 100.7 91.1 90.7 NA NM NM NM NM JRN JOURNAL COMMUNICATIONS INC DEC 1.1 1.1 1.1 1.0 1.1 43.3 54.2 16.8 26.5 47.0 NM NM 722.9 NM NM
DIVERSIFIED COS WITH OPERATIONS IN BROADCASTING & CABLE CHTR CHARTER COMMUNICATIONS INC DEC 0.2 0.3 0.3 0.3 1.1 90.0 91.0 91.1 89.3 87.4 NM NM NM NM NM DIS  DISNEY (WALT) CO SEP 1.2 1.1 1.1 1.1 1.3 20.9 20.7 21.8 20.5 24.8 542.6 NM 671.7 845.2 396.6 NWSA  NEWS CORP JUN 2.1 1.3 1.6 NA NA 0.0 0.0 0.0 NA NA 0.0 0.0 0.0 NA NA TWX  TIME WARNER INC DEC 1.5 1.4 1.5 1.5 1.5 38.2 37.4 37.5 32.1 30.5 450.5 552.8 432.4 367.6 362.0 VIAB  VIACOM INC SEP 1.8 1.3 1.3 1.3 1.2 66.3 51.6 45.2 41.7 42.6 404.2 794.8 556.6 639.5 979.4
OTHER SATELLITE BROADCASTERS DISH DISH NETWORK CORP DEC 2.7 2.3 1.2 1.0 1.1 81.2 87.0 93.1 111.5 137.9 162.5 221.1 NM NM NM SIRI SIRIUS XM HOLDINGS INC DEC 0.5 0.8 0.6 0.4 0.4 53.0 37.6 63.7 72.9 75.8 NM NM NM NM NM
Note: Data as originally reported. ‡S&P 1500 index group. Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.
42 BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 INDUSTRY SURVEYS
Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)
Ticker Company Yr. End 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009
BROADCASTING COMPANIES‡ CBS  CBS CORP DEC 21 - 12 15 - 11 15 - 9 18 - 11 43 - 9 16 17 18 19 59 1.3 - 0.7 1.6 - 1.1 1.9 - 1.2 1.6 - 1.0 6.5 - 1.4 DISCA  DISCOVERY COMMUNICATIONS INC DEC 30 - 21 25 - 16 16 - 12 31 - 19 25 - 10 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 SNI  SCRIPPS NETWORKS INTERACTIVE DEC 25 - 17 15 - 9 19 - 12 22 - 16 26 - 11 17 11 13 13 18 1.0 - 0.7 1.1 - 0.7 1.1 - 0.7 0.8 - 0.6 1.7 - 0.7
CABLE & SATELLITE COMPANIES‡ AMCX † AMC NETWORKS INC DEC 18 - 12 29 - 18 25 - 17 NA - NA NA - NA 0 0 0 NA NA 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 NA - NA NA - NA CVC  CABLEVISION SYS CORP -CL A DEC 41 - 28 NM - 83 44 - 13 29 - 17 27 - 10 122 462 67 38 41 4.4 - 3.0 5.6 - 3.2 5.0 - 1.5 2.2 - 1.3 4.3 - 1.5 CMCSA  COMCAST CORP DEC 20 - 14 16 - 10 18 - 13 17 - 12 14 - 9 30 28 36 29 21 2.1 - 1.5 2.7 - 1.7 2.8 - 2.0 2.5 - 1.7 2.4 - 1.5 DTV  DIRECTV DEC 13 - 9 12 - 9 15 - 11 18 - 12 36 - 20 0 0 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 TWC  TIME WARNER CABLE INC DEC 21 - 13 14 - 9 16 - 11 18 - 11 22 - 7 38 32 38 44 NM 3.1 - 1.9 3.5 - 2.2 3.4 - 2.4 3.9 - 2.4 152.6 - 45.2
OTHER BROADCASTING & CABLE COMPANIES EMMS EMMIS COMMUNICATIONS CP-CL A # FEB NA - NA NM - NM 1 - 0 NM - NM NM - NM NA NM 0 NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 JRN JOURNAL COMMUNICATIONS INC DEC 19 - 10 10 - 6 17 - 7 13 - 6 96 - 7 0 0 0 0 40 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 5.6 - 0.4
DIVERSIFIED COS WITH OPERATIONS IN BROADCASTING & CABLE CHTR CHARTER COMMUNICATIONS INC DEC NM - NM NM - NM NM - NM NM - NM 0 - 0 NM NM NM NM 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 DIS  DISNEY (WALT) CO SEP 22 - 15 17 - 12 17 - 11 18 - 14 18 - 9 22 19 16 17 20 1.5 - 1.0 1.6 - 1.1 1.4 - 0.9 1.2 - 0.9 2.3 - 1.1 NWSA  NEWS CORP JUN 21 - 17 NA - NA NA - NA NA - NA NA - NA 0 NA NA NA NA 0.0 - 0.0 NA - NA NA - NA NA - NA NA - NA TWX  TIME WARNER INC DEC 18 - 13 15 - 11 14 - 10 15 - 12 19 - 10 30 33 34 37 43 2.4 - 1.6 3.1 - 2.1 3.4 - 2.4 3.2 - 2.5 4.2 - 2.2 VIAB  VIACOM INC SEP 18 - 11 13 - 10 14 - 10 21 - 14 12 - 5 23 24 22 16 0 2.1 - 1.3 2.3 - 1.8 2.3 - 1.5 1.1 - 0.7 0.0 - 0.0
OTHER SATELLITE BROADCASTERS DISH DISH NETWORK CORP DEC 31 - 18 27 - 19 10 - 6 11 - 8 16 - 6 0 71 59 0 141 0.0 - 0.0 3.8 - 2.6 10.3 - 6.1 0.0 - 0.0 22.8 - 9.0 SIRI SIRIUS XM HOLDINGS INC DEC 70 - 49 5 - 3 22 - 12 NM - 61 NM - NM 0 9 0 0 NM 0.0 - 0.0 2.8 - 1.7 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0
Note: Data as originally reported. ‡S&P 1500 index group. Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year.
INDUSTRY SURVEYS BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 43
Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)
Ticker Company Yr. End 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009
BROADCASTING COMPANIES‡ CBS  CBS CORP DEC 3.08 2.55 1.94 1.07 0.34 (8.43) (7.73) (8.05) (7.83) (9.49) 64.06 - 37.43 38.32 - 27.18 29.68 - 17.99 19.65 - 12.26 14.56 - 3.06 DISCA  DISCOVERY COMMUNICATIONS INC DEC 3.01 2.54 2.82 1.48 1.30 (13.12) (6.23) (4.23) (5.00) (4.89) 90.76 - 64.44 64.50 - 40.24 45.81 - 34.75 45.42 - 27.69 32.69 - 12.46 SNI  SCRIPPS NETWORKS INTERACTIVE DEC 3.43 4.48 2.87 2.40 1.66 5.95 3.97 3.90 2.84 0.19 86.41 - 57.32 66.33 - 41.91 53.66 - 33.82 53.34 - 37.94 42.36 - 18.10
CABLE & SATELLITE COMPANIES‡ AMCX † AMC NETWORKS INC DEC 4.06 1.94 1.78 1.63 NA (11.87) (16.62) (19.81) NA NA 73.39 - 49.97 55.38 - 34.78 44.21 - 29.66 NA - NA NA - NA CVC  CABLEVISION SYS CORP -CL A DEC 0.49 0.13 0.86 1.25 0.98 (23.67) (28.57) (27.59) (29.83) (26.27) 20.16 - 13.62 18.85 - 10.76 38.08 - 11.57 36.10 - 21.53 26.43 - 9.34 CMCSA  COMCAST CORP DEC 2.60 2.32 1.51 1.29 1.27 (20.37) (20.77) (21.12) (12.12) (12.61) 52.09 - 37.21 38.22 - 24.28 27.16 - 19.19 22.40 - 15.10 18.10 - 11.10 DTV  DIRECTV DEC 5.22 4.62 3.49 2.50 0.96 (22.02) (17.60) (11.74) (6.70) (2.55) 69.15 - 47.71 55.17 - 41.92 53.40 - 39.82 44.61 - 29.83 34.25 - 18.81 TWC  TIME WARNER CABLE INC DEC 6.76 6.97 5.02 3.67 3.07 (82.11) (74.78) (61.01) (49.11) (50.47) 139.85 - 84.57 100.50 - 63.93 80.86 - 57.15 66.77 - 41.00 68.22 - 20.19
OTHER BROADCASTING & CABLE COMPANIES EMMS EMMIS COMMUNICATIONS CP-CL A # FEB NA (0.21) 1.97 (0.61) (3.56) NA (4.27) (8.79) (14.27) (14.44) 3.61 - 1.43 2.57 - 0.66 1.40 - 0.58 2.45 - 0.43 1.62 - 0.24 JRN JOURNAL COMMUNICATIONS INC DEC 0.52 0.61 0.36 0.52 0.05 (1.33) (2.22) 1.72 1.69 1.01 9.77 - 4.99 5.85 - 3.94 6.18 - 2.69 6.52 - 3.08 4.80 - 0.36
DIVERSIFIED COS WITH OPERATIONS IN BROADCASTING & CABLE CHTR CHARTER COMMUNICATIONS INC DEC (1.65) (3.05) (3.39) (2.09) 101.41 (81.70) (76.59) (77.14) (60.53) (59.52) 144.02 - 76.19 83.41 - 56.05 61.15 - 38.20 39.99 - 29.10 39.75 - 0.01 DIS  DISNEY (WALT) CO SEP 3.42 3.17 2.56 2.07 1.78 5.96 5.35 4.61 4.40 5.39 76.54 - 50.18 53.40 - 37.94 44.34 - 28.19 38.00 - 28.71 32.75 - 15.14 NWSA  NEWS CORP JUN 0.86 (3.32) 1.08 NA NA 13.21 NA NA NA NA 18.09 - 14.39 NA - NA NA - NA NA - NA NA - NA TWX  TIME WARNER INC DEC 3.85 3.14 2.74 2.27 1.75 (11.41) (11.07) (10.38) (6.71) (6.32) 70.77 - 48.55 48.54 - 33.62 38.62 - 27.62 34.07 - 26.43 33.45 - 17.81 VIAB  VIACOM INC SEP 4.95 4.42 3.65 1.93 2.62 (13.72) (7.74) (5.04) (3.65) (5.38) 87.84 - 53.86 56.91 - 44.85 52.67 - 35.13 40.25 - 27.89 31.56 - 13.25
OTHER SATELLITE BROADCASTERS DISH DISH NETWORK CORP DEC 1.87 1.41 3.40 2.21 1.42 (5.41) (7.58) (4.12) (5.70) (7.79) 58.30 - 33.79 37.92 - 26.12 32.56 - 19.38 24.16 - 17.32 22.18 - 8.79 SIRI SIRIUS XM HOLDINGS INC DEC 0.06 0.55 0.11 0.01 (0.15) (0.35) (0.06) (0.99) (1.08) (1.16) 4.18 - 2.95 3.01 - 1.78 2.44 - 1.27 1.69 - 0.61 0.78 - 0.05
Note: Data as originally reported. ‡S&P 1500 index group. Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the following calendar year. J-This amount includes intangibles that cannot be identified.
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44 BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 INDUSTRY SURVEYS
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INDUSTRY SURVEYS BROADCASTING, CABLE & SATELLITE / OCTOBER 2014 45