Analysis

Sustained revenue growth for the cable and satellite television industry

In 2008, the operating revenues of cable and satellite television companies rose 14.4% to $10.3 billion (current dollars). It was the third consecutive year that the industry had revenue growth in excess of 10%.

Cable operators were largely responsible for the industry’s revenue growth. Revenues were $8.3 billion in 2008, up 15.3% from 2007. Cable operators enjoyed revenue growth of more than 15% for a third consecutive year, primarily due to substantial gains in the telephony and Internet markets.

Wireless providers also posted higher revenues, though the growth rate was slightly lower than in 2007. Their revenues climbed 10.9% to $2.1 billion in 2008.

A more profitable industry

Each dollar of revenue earned by cable and satellite television companies in 2008 generated 21.6 cents of profit before interest and taxes, the strongest performance since the beginning of the decade. However, profitability varied appreciably across the major segments of the industry.

Wireless service providers, especially satellite providers, had a profit margin before interest and taxes of 4.1%, compared with 25.9% for cable operators. Nevertheless, it was a positive result for the wireless segment for the second consecutive year, as it had suffered losses before interest and taxes between its emergence in 1997 and 2006.

Profit margin before interest and taxes of cable operators has been above 15% since the beginning of the decade and above 20% since 2004. The diversification of the segment’s services that began with the introduction of Internet access services more than 10 years ago and continued with the addition of telephone services in 2005 was a major factor in improving the segment’s profitability.

Telecommunications services contribute plenty of subscribers

The total number of subscribers to the main services offered by cable operators (television, Internet access and telephony) was 15.7 million on August 31, 2008, 1.4 million more than in 2007. More than half of the new customers were telephone service subscribers.

On August 31, 2008, cable operators had almost as many telecommunications subscribers (Internet and telephone) as television subscribers. The significant inroads made by cable operators into the telephony and Internet market are the culmination of a strategy designed to ensure the industry’s growth by diversifying its services. That diversification has enabled cable operators to offer multi-service bundles, build customer loyalty and increase per-subscriber revenue. In 2008, each basic service subscriber brought in an average of $1,022 per year, more than double what each subscriber generated at the beginning of the decade.

A record number of new digital subscribers

The rapid transition to digital technology also played an important role in the cable industry’s growth. With digital technology, it is possible to offer new services such as video on demand and high-definition television. Those services are helping the industry not only to remain competitive but also to generate new revenues.

Growing numbers of cable television subscribers are going digital. There were 4 million digital cable subscribers on August 31, 2008, 19.9% more than on August 31, 2007. The absolute year-over-year increase was a record 663,134.

The day when a majority of cable subscribers will watch television using digital technology is not far away. On August 31, 2008, 49.3% of cable television subscribers had gone digital.

Some stability in the cable and satellite television market

Market share remained virtually unchanged for a third consecutive year, with cable operators accounting for three out of four subscribers. This relative stability follows an eight-year period during which wireless service providers had steadily increased their market share.

Nevertheless, the number of cable television subscribers grew somewhat faster (+2.3%) than the number of wireless subscribers (+1.5%) for a second consecutive year.

On August 31, 2008, wireless television (mainly satellite) had 2.7 million subscribers, compared with 8.1 million for cable television. Thus, cable television surpassed its 1999 record high of 8 million subscribers.

More revenue spent on programming

In 2008, cable operators spent 34.7% of their television subscription revenues on programming (affiliation payments). That proportion has risen every year since 2005. At the beginning of the decade, it was 27.7%.

By comparison, wireless providers put 36.1% of their revenues into programming, much the same as in the previous two years.