cable networks

WWW.IBISWORLD.COM Cable Networks in the US May 2014 1

IBISWorld Industry Report 51321Cable Networks in the USMay 2014 Darryle Ulama

Tuned in: Rising cable subscriptions and demand for digital content will drive growth

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

13 Products & Services

14 Demand Determinants

14 Major Markets

15 International Trade

16 Business Locations

18 Competitive Landscape18 Market Share Concentration

18 Key Success Factors

18 Cost Structure Benchmarks

20 Basis of Competition

20 Barriers to Entry

21 Industry Globalization

22 Major Companies22 The Walt Disney Company

23 NBCUniversal

24 Time Warner Inc.

25 Viacom Inc.

26 21st Century Fox

28 Operating Conditions28 Capital Intensity

29 Technology & Systems

29 Revenue Volatility

30 Regulation & Policy

31 Industry Assistance

32 Key Statistics32 Industry Data

32 Annual Change

32 Key Ratios

33 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]


This industry operates studios and facilities and distributes TV programs on a subscription or fee basis through cable systems. This industry includes specialty TV cable networks and

pay-per-view programming. However, programming production is excluded from the industry, as are other TV providers such as satellite broadcasters.

The primary activities of this industry are

Operation of facilities for subscription or fee based broadcasting

Acquisition or production of programming for supply to third party broadcaster

Limited format programming: news, sport, educational

51211a Movie & Video Production in the USMovie and video companies produce taped TV program material.

51211b Television Production in the USTelevision production companies produce taped TV program material.

51311 Radio Broadcasting in the USRadio broadcasting stations, networks and syndicates transmit audio programming through AM, FM and satellite radio channels.

51312 Television Broadcasting in the USTV broadcasters produce and transmit TV programs to affiliated stations.

45411a E-Commerce & Online Auctions in the USE-commerce and online auction companies retail merchandise by electronic media.

45411b Mail Order in the USMail-order companies retail merchandise by electronic media, such as TV.

Industry Definition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Broadcast TV program licensing

Local advertising

National and regional advertising

Network compensation

Specialty TV program licensing

Other revenue


About this Industry

IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com

Additional Resources For additional information on this industry

www.cable360.net Cable 360 Net

www.thecab.tv Cabletelevision Advertising Bureau

www.multichannel.com Multichannel News

www.ncta.com National Cable and Telecommunications Association


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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2014)

33.6%National and

regional advertising

1.8%Local advertising

27.3%Other revenue

26.8%Specialty TV

program licensing

7.2%Network

compensation 3.3%Broadcast TV

program licensing


Key Statistics Snapshot

Industry at a GlanceCable Networks in 2014

Industry Structure Life Cycle Stage Mature

Revenue Volatility Medium

Capital Intensity High

Industry Assistance None

Concentration Level High

Regulation Level Heavy

Technology Change High

Barriers to Entry High

Industry Globalization Medium

Competition Level Medium

Revenue

$56.0bnProfit

$4.2bnWages

$6.4bnBusinesses

425

Annual Growth 14-19

1.3%Annual Growth 09-14

1.7%

Key External DriversTotal advertising expenditureNumber of cable TV subscriptionsPer capita disposable incomeTechnological change for Television Networks and ProvidersTime spent on leisure and sports

Market ShareThe Walt Disney Company 29.6%

NBCUniversal 18.5%

Time Warner Inc. 17.9%

Viacom Inc. 13.4%

21st Century Fox 11.5%

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FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 32



Key External Drivers Total advertising expenditureThe Cable Networks industry generates more than 35.0% of its revenue from selling advertising spots that air to viewers across the country. Typically, advertisers are willing to spend more on commercials for high-profile programming, as these shows will reach a wider consumer audience. Advertising expenditure usually moves in line with corporate profit and consumer spending. Total

advertising expenditure is expected to increase in 2014.

Number of cable TV subscriptionsIndustry revenue typically moves in line with the number of subscribers, which represent cable networks’ total market size. A rise in the number of channels has led viewers to shift from network to cable TV. However, increasing availability of such programming via streaming platforms poses a challenge for industry

Executive Summary

The Cable Networks industry has faced competing trends in the past five years. New channel offerings have increased the number of consumers willing to pay for upgrades on their existing cable subscriptions. Specialized services enabled industry operators to charge premium prices to consumers and advertisers interested in targeting niche audiences. Rising revenue per consumer counteracted an overall drop in advertising spending that stemmed from low corporate profit in the aftermath of

the recession. Still, cable networks have faced increased competition from other media as viewers increasingly opt for internet-based services, such as Netflix, Hulu and Amazon. Although the industry is expected to grow at annualized rate of 1.7% in the five years to 2014, revenue is anticipated to drop by 1.4% in 2014 to $56.0 billion.

In response, the industry is expanding its offerings and focusing on customer service and outreach via social networking, website and application development, as well as traditional call

centers. Although outsourcing has been a trademark trend in the industry, overall employment has increased at an annualized 5.5% to 52,264.

Waning production and distribution costs due to new technologies have diminished industry costs. This trend, combined with pricing premiums, has expanded the industry’s profitability to 7.5% of revenue in 2014. This has also resulted in the expansion of existing companies; establishments are expected to grow at an annualized 3.5% to 796 locations in the five years to 2014.

Rising disposable income will enable consumers to spend even more on industry services over the next five years. An expected 2.0% annualized increase in advertising expenditure in the five years to 2019 will also contribute to revenue, which is projected to grow at an annualized rate of 1.3% to $59.9 billion over the same period. A slowly diminishing consumer base will hinder revenue growth because subscribers are increasingly choosing to spend time and money on streaming media services. In order to encourage continued spending on industry services, operators are expected to invest an increasing proportion of revenue in production, consumer testing and marketing. As a result, profitability is forecast to contract over the next five years.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Rising disposable income and increased advertising expenditure will drive the industry


Industry Performance

Key External Driverscontinued

operators to retain subscribers. The number of cable TV subscriptions is expected to decrease in 2014, posing a potential threat to the industry.

Per capita disposable incomeHigh disposable income facilitates the switch from basic cable systems to more expensive digital cable systems, which leads to higher revenue for operators. As disposable income rises, people are willing to spend more on additional industry products, including premium channels and special events programming. Higher disposable income also boosts household formation, which expands the potential market for cable networks. Per capita disposable income is expected to increase in 2014, representing a potential opportunity for the industry.

Technological change for Television Networks and ProvidersAdvanced systems and technology developed by upstream and

downstream industries, such as Wire and Cable Manufacturing (IBISWorld report 33592) and Television Production (51211b), allow networks to offer their subscribers high-definition and high-quality digital services. Some 3-D programming is becoming available, while cable networks are also experimenting with multi-screen in-home viewership for mobile devices. As a result, technological change is expected to increase slowly in 2014.

Time spent on leisure and sportsLeisure time is a major limiting factor in consumers’ ability to watch TV. People are less likely to invest in cable TV subscriptions when they do not have time to enjoy the service. Consequently, TV viewership is declining as more jobs are created in the wake of the Great Recession, limiting the amount of time consumers have to spend on leisure activities. Leisure time is expected to decrease slowly in 2014.

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Accelerated competition

Cable network operators had a difficult year in 2013. The shift to online streaming services, such as Netflix and Hulu, has escalated, as television programming becomes more unbundled and less tied to cable packages. According to Forbes, cable and satellite

providers lost about 113,000 subscribers in the year’s third quarter alone, a significant figure when compared to the total 80,000 subscribers lost in 2012. As such, industry revenue is expected to decline 1.4% to $56.0 billion in 2014.

Investments have led to rebounding profitability

Cable networks have invested heavily in upgrading their content to HD formats and providing many subscribers with digital set-top boxes with advanced features. The industry also began distributing content in 3-D. Along with higher quality content, networks invested in more shows and channels. Over the past five years, cable networks consistently expanded their infrastructure to reach more households. According to the National Cable and

Telecommunications Association, the cable industry spent $15.0 billion on capital in 2012. Companies in the industry implemented these strategies to set themselves apart from competitors and lower subscriber churn rates (the rate at which customers discontinue their service on a voluntary or involuntary basis). Companies that can support a steady subscriber base have less volatile revenue and often earn higher revenue per subscription, as loyal

Current Performance

Over the past five years, the Cable Networks industry has expanded its channel offerings and improved service quality to better compete with emerging digital media platforms and dwindling subscriptions. Decreased corporate profit and disposable income limited advertising and subscription revenue during and after the recession. Since then, recovery has reenergized advertising activity and disposable income, allowing for greater expenditure on premium services and steady advertising revenue. In the five years to 2014, advertising expenditure has grown at an annualized 4.5%, while per capita disposable income has increased at an annualized rate of 1.2%. Cable networks now offer most programs in high-definition (HD) and many offer premium services to consumers that are willing to pay extra. In response to new industry offerings, revenue per subscriber rose over the

past five years. This growth, however, has been limited by decreasing cable subscriptions, as more viewers turn to online services that give them more control over content. As a result, industry revenue is expected to increase at a tenuous annualized rate of 1.7% in the five years to 2014.

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Investments have led to rebounding profitabilitycontinued

subscribers are the most likely to upgrade to premium services.

Investments led operators to incur higher production costs, which resulted in lower industry profitability early in the period. In 2009, the combination of heavy investments and a weak economic landscape pushed average profit to 5.4% of revenue. However, because consumers paid a premium for specific programming and on-demand content, average industry profit (as measured by earnings before interest and taxes) is expected to rise to 7.5% of revenue in 2014.

Organizations that charged higher rates for TV rights, including coverage of high-profile games, events and college sports, also challenged industry profitability over the past five years. NBC, for instance, paid a premium to show exclusive coverage of the 2012 Summer Olympics and the 2014 Winter Olympics. In order to make up losses from these higher payments, cable networks passed the costs to consumers by developing tiered payment models based on viewer access to content, boosting the average revenue per subscriber.

New and consolidating operations

Steady revenue growth and decreasing barriers to entry attracted new companies to the Cable Networks industry. Barriers to entry decreased due to new technologies that reduce the amount of money, skill and labor required to set up a business within the industry. For example, digital distribution has significantly diminished infrastructure costs. In particular, local and regional networks formed over the five years to 2014 boosted the number of industry establishments at an annualized 3.5% to 796. Meanwhile, some companies entered the industry through vertical integration, namely Comcast with its acquisition of NBC Universal in late 2009. Such consolidation has caused the number of enterprises to remain relatively flat, increasing at an estimated

annualized rate of 0.5% to 425 networks over the same period.

As a result of existing companies’ expansion and increased services to attract and maintain viewers, industry employment has increased. Outsourcing certain segments of operations has become the norm, but the development of media services and the expanding program lineup have led operators to increase their labor force. In the five years to 2014, the number of cable network employees is expected to increase at an annualized 5.5% to 52,264.

Advertising sources shift

The Cable Networks industry generates about 35.4% of its revenue from selling advertising spots that air on its networks. However, advertising has decreased as a proportion of revenue over the five years to 2014. During this time, total US advertising expenditure has grown at an annualized rate of 4.5%. Meanwhile, new online media continues to attract

consumers, encouraging advertisers to reallocate their spending away from cable networks.

The primary sources of advertising have changed since 2009, when local advertising made up a larger portion of revenue. IBISWorld estimates that in 2014, national and regional advertising will make up 33.6% of revenue, while

The development of media services have led operators to increase their labor force



Advertising sources shift continued

local advertising will generate only 1.8%. This shift occurred because local spending on advertising decreased during the recession, as small businesses were more likely to cut marketing budgets.

Local advertisers were also more likely to invest solely online because such marketing platforms can often measure viewer engagement and target audiences more accurately.

Content and service diversification

Industry upselling and consumer spending on subscriptions are projected to pick up, as demand for lifestyle, family and educational programming will strengthen. Operators will also aim to provide channels with local and regional content, including sports, news, weather and traffic. Demand for new channels will also accelerate in niche areas, such as stations targeted at specific ethnic groups. For instance, the Federal Communication Commission’s acquisition provisions to Comcast require the company to start several new networks that are dedicated to children’s and minority programming. The number of channels available will continue to expand in order to attract and retain consumers. To reduce costs, IBISWorld expects the industry to rely more on sourcing content from production

companies as opposed to producing in-house. Cable networks, however, will increasingly invest in new programming, while digital-cable operators continue to invest in infrastructure. Distributors are also expected to better integrate cable services with multiplatform users, which will also benefit the industry. These activities will lead to industry expansion; in the five years to 2019, the number of industry enterprises is expected to increase slightly at an annualized rate of 0.8% to 443 operators.

Industry Outlook

The Cable Networks industry will benefit from falling unemployment and increasing disposable income over the five years to 2019, resulting in revenue growth from improving contracts with distributors. Downstream cable distributors will demand more programming and new digital and high-definition (HD) channels from networks as they strive to maintain subscriber growth and interest. Due to improving consumer confidence and a greater capacity for entertainment,

subscribers will be less prone to cancel their high-priced, value-added services and more likely to spend on more network-channel subscriptions or packages. Still, as viewers seek greater control of their media consumption via digital, on-demand platforms, cable networks will face escalating competition that will dampen the potential for greater revenue growth. In the five years to 2019, revenue from cable network operators is forecast to increase at an annualized rate of 1.3% to $59.9 billion.

Industry growth will be supported by upselling to existing subscribers and new households



Looming threats Despite expected revenue growth and product diversification, cable subscriptions are projected to decrease in the five years to 2019 at a higher rate than in the five years prior. In the past, despite declining subscriptions, cable networks maintained steady revenue by increasing licensing fees to cable companies, which pass on the costs to consumers. However, this model could change, as there has been a recent push against rising cable costs.

Under the Television Consumer Freedom Act of 2013, Senator John

McCain has pushed for regulation that would force cable companies to offer channels to consumers individually, instead of through regular cable packages. This is expected to decrease costs for consumers, who would only have to pay for channels they regularly watch. Although the regulation has a small chance of actually passing, the sentiment against rising cable costs is clear. The industry will have to capture growing advertising revenue and rising disposable income levels to continue to grow.

Competition escalates Despite industry investments, households are projected to continue to shift from traditional cable TV services to online media. Netflix, Hulu and Amazon are gaining traction among viewers of all demographics; IBISWorld expects the number of cable subscribers to decline slowly in the next five years. Cable networks will respond by enhancing their content and on-demand services. As a result of higher industry spending in an attempt to retain and upsell to subscribers, IBISWorld forecasts that industry profit (earnings before interest and taxes) will decline to 6.7% of revenue in 2019. In the short term, cable distributors will reduce costs by concentrating their activities in certain regional clusters. They will save money through swapping and purchasing subscribers from each other to offer

services in more concentrated areas. These initiatives will keep industry profit margins from declining further.

As competition accelerates and demand for new programming rises, the need for customer service representatives will increase. However, many networks will also resort to cutting payroll costs in order to remain profitable. These competing trends will cause industry employment to remain relatively flat in the five years to 2019, increasing by an annualized 1.1% to 55,194.

Competition will heat up between traditional cable TV services and online media over the period


Industry PerformanceThe industry’s key markets are saturatedThe industry’s contribution to the economy is steadyMajor players will increasingly dominate the industry

Life Cycle Stage


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DeclineShrinking economicimportance

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

MaturityCompany consolidation;level of economic importance stable

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economyCompany numbers stabilize; M&A stageEstablished technology & processesTotal market acceptance of product & brandRationalization of low margin products & brands

E-Commerce & Online Auctions

Mail Order

Satellite Telecommunications Providers

Movie & Video Production

Television ProductionCable Networks



Industry Life Cycle The Cable Networks industry is in the mature phase of its life cycle. The industry’s contribution to the economy, as measured by industry value added (IVA), is forecast to grow at a 2.1% annualized rate during the 10 years to 2019, below the expected GDP annualized growth of 2.7% in the same period. Cable operators find themselves fighting for an increasingly saturated market dominated by the largest companies and increasing threat from other media platforms.

Despite a recovering economy, cable subscriptions are expected to decline in the five years to 2019 at a faster rate than the five years to 2014. Although consumer confidence and disposable income are expected to increase, suggesting a rise in entertainment spending, online services are expected to continue to steal market share away

from cable networks. Rapid technological development has altered the media consumption habits of viewers, and more and more consumers will opt for services that allow them to watch programs at their leisure. Moreover, tablet and smartphone adoption will accelerate, diminishing the reliance on televisions, and subsequently cable operators, for entertainment.

Furthermore, the top four companies in the industry have rapidly gained market share and will continue to do so, limiting opportunities for other companies. In the 10 years to 2019, the number of industry enterprises is expected to grow at a modest 0.7%. Meanwhile, the most dominant networks in the industry will continue to leverage their strong audiences to obtain more revenue from cable companies.

This industry is Mature


Products & Services

The industry offers a variety of channels with programs that span a range of genres. All major cable networks have roughly the same number of subscribers and offer programming to segmented viewer demographics. There are also other dedicated news, weather, music and educational channels. The potential revenue of cable networks stems from expected viewership, including the sheer size of the audience and its demographic profile.

AdvertisingThe industry generates 35.4% of its revenue from selling advertising spots to air on its networks. This segment decreased as a proportion of industry

revenue over the past five years, as total US advertising expenditure remained weak in the aftermath of the recession. This rate will accelerate in the next five years, as total US advertising expenditure is expected to grow at an annualized rate of 2.0% through 2019. However, competition from other media will hinder some of the advertising revenue growth in this industry.

National and regional advertising is expected to make up 33.6% of revenue, while local advertising accounts for only 1.8% in 2014. These proportions have changed since 2009, when local advertising made up a more significant portion of revenue. The shift occurred as local spending on advertising decreased

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

51322 Cable, Internet & Telephone Providers in the US The cable distribution industry is a major client of this industry.

51741 Satellite Telecommunications Providers in the US Satellite operators are also increasing their demand for channels and film product, which they purchase primarily from TV producers and cable networks.

KEY SELLING INDUSTRIES

51211b Television Production in the US The cable providers industry commissions TV shows for broadcast and cable television.

Supply Chain

Products and services segmentation (2014)

Total $56.0bn

33.6%National and

regional advertising

1.8%Local

advertising

27.3%Other revenue

26.8%Specialty TV

program licensing

7.2%Network

compensation 3.3%Broadcast TV

program licensing



Products & Markets

Major Markets The major markets for the industry’s services are cable and other distributors that deliver network programming to households and businesses across the country. The most popular segment is basic cable video subscribers, with connections contracting slowly over the past five years. According to a study conducted by SNL

Kagan in 2012, basic cable video subscribers declined from 64.9% of multichannel subscribers to 58.0% from 2008 to 2011. These subscribers are switching to direct-broadcast satellite subscriptions, which rose during this time.

In terms of audience, cable networks reach all segments of the

DemandDeterminants

The demand for industry services is largely driven by demand for new channels, programs and content from cable distributors. Cable program distributors require an array of networks and channels and new and alluring programming to distribute to households and businesses. Therefore, distributors demand network programming that has wide appeal with households over a large geographical area, either nationally or in a regionally concentrated area. There needs to be potential for high

household penetration because revenue is directly based on share of revenue from subscribers to individual network channels.

Some programming cost discounts are offered to the larger networks due to their ability to provide services over a larger geographic area and their higher subscriber base. Cable services are also being increasingly bundled with telephone, internet, interactive-TV, video-on-demand and personal-video-recorder services to increase demand and reduce the subscriber churn rate.

Products & Servicescontinued

at a faster rate than regional and national spending during the recession.

LicensingLicensing of rights to broadcast or distribute content makes up about 30.1% of industry revenue. The industry derives 26.8% of its revenue from providing specialty programming and channel services to basic and digital cable operators. The other 3.3% of licensing revenue comes from selling broadcast rights to TV programs owned by cable networks. These segments have grown as a share of industry revenue over the past five years, as companies have relied on licensing fees to counter the loss of advertising revenue. While cable subscriptions have fallen over the years, cable networks have raised licensing fees to cable operators, more

than making up for revenue lost from decreased advertising.

OtherNetwork compensation, usually cash payments that networks make to stations and other networks for airing their content, makes up about 7.2% of industry revenue. This segment is relatively steady as a share of revenue.

Other industry services are diverse and generate about 27.3% of industry revenue. The resale of merchandise makes up a steady 1.4% of industry revenue. The sale of online advertising space is a rapidly increasing revenue segment that is expected to generate about 1.2% of revenue in 2014. Television production services bring in about 0.2% of industry revenue and are also a relatively steady segment.


Products & Markets

International Trade The industry mainly services the domestic market, including households, businesses and education establishments. Industry operators are increasingly focusing on national and regional service delivery, rather than local service. However, video channels

and programs are also being sold to overseas countries as cable and pay-TV services. Operators providing services internationally include all major market players, including the Walt Disney Company, NBC Universal, Time Warner Inc., Viacom and Fox.

Major Marketscontinued

population. Low-income households are the least likely demographic to subscribe to Cable TV services, as their lower disposable incomes limit their spending on entertainment. However, people with more time on

their hands, including the unemployed and older age groups, are more likely to watch television. By gender, the cable TV audience is composed 47.0% of men and 53.0% women.

Major market segmentation (2014)

Total $56.0bn

21.4%Consumers aged 65 and up10.8%

Consumers aged 18 to 24

19.1%Consumers aged 50 to 64

9.5%Consumers aged 12-17






Products & Markets

Business Locations 2014

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Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes


Products & Markets

Business Locations The industry is concentrated according to the regional share of the population, which represents the potential viewing audience. Entertainment centers like New York and Los Angeles are crucial nodes for industry activity. Industry operators benefit from close ties to talent and superior facilities in these cities, which also house the largest TV audiences.

The regions with the largest concentration of establishments are: the Mid-Atlantic (22.0%), the West (21.5%), the Southeast (19.5%) and New England (12.4%). Many of these regions feature states with major players and populous states with particularly high industry concentration. California is the state with the largest concentration of establishments, housing 18.3% of the industry’s total. California’s historic ties to the entertainment industry allow it to occupy the top spot, and the state houses major player Disney. Other states such as New York (13.4% of establishments) features

major players NBC Universal and Viacom. Georgia (6.4%) is the location of Turner Broadcasting, the cable arm of Time Warner. Both Massachusetts (7.1%) and Florida (5.8%) have significant industry concentration as well.

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Cost Structure Benchmarks

ProfitIndustry profit (earnings before interest and tax) is expected to make up 7.5% of 2014 revenue, and increase from 5.4% in 2009. During the past five years, the average margin expanded as networks spent a smaller portion of their earnings on wages, instead investing in production, consumer testing and marketing. These latter costs are

increasing as companies vie for viewership based on quality and audience interests. As a result, profit is expected to once again contract in the next five years, to about 6.7% in 2019.

PurchasesIndustry purchases make up 30.0% of industry revenue, and they include technology-based investments, such as

Key Success Factors Close monitoring of competitionContent is increasingly being delivered through a number of other media formats. Companies must monitor competition in the cable and satellite markets for delivery of network channels and audience acceptance.

Control of distribution arrangementsStrong links with satellite and cable program distributors ensures maximum household penetration for channels.

Ability to negotiate successfully with regulatorCompanies need to maintain contact with regulators, particularly the

FCC, and ensure compliance with the many regulations that directly impact industry operations.

Ability to quickly adopt new technologyCompanies must have access to the ever-evolving digital programming technology. Strong links with suppliers of new bundled services are also required to attract and retail subscribers. Supply of new programming over time is essential.

Ensuring pricing policy is appropriateOperators must maintain appropriate pricing models across basic and value-added services in order to maximize consumer satisfaction and thus minimize churn.

Market Share Concentration

The Cable Networks industry has a high level of market share concentration. The industry’s top four players make up 79.4% of industry revenue in 2014, and many smaller networks are also linked by programming or aggregation agreements with these larger networks. There are, however, Federal Communications Commission limits on the extent of vertical integration between the cable networks and distributors. Satellite delivery of programs continues to aid this process, but currently, four of the top companies also hold interests in this

growing form of program delivery. Market share concentration has increased over the five years to 2014, as major players have all experienced tremendous growth. For example, after being purchased by Comcast, a major cable network, NBC Universal enjoyed an estimated 195.1% growth in industry revenue in 2011. Other major players, such as Disney and Time Warner, have continued to expand their market share by growing audiences for their flagship networks, which have allowed them to increase rates charged to cable companies.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is High

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure Benchmarkscontinued

computers, software and cameras, which are needed for the production and organization of content. These costs have been declining as technology becomes more advanced. Cutting-edge technologies, however, continue to make up a substantial portion of these costs, as companies continuously strive to increase productivity.

WagesWages, including both wages for employees and contracted labor to support the recent investment in new infrastructure, is another major cost area. In 2014, wages are expected to make up 11.5% of industry revenue, which is a slight increase from 8.4% in 2009. Although this cost has increased over the five years, the growth is misleading as wages as a share of revenue plummeted to historical lows during the recession. Overall wages as a

share of revenue has steadily declined over the past decade, as new technology has contracted the need for labor. Wages as a share of revenue are anticipated to continue to decrease slowly during the five years to 2019; a recovering economy expected to boost industry demand and mitigate the effect of technology on the need for labor.

DepreciationDepreciation is expected to amount to 3.9% of industry revenue in 2014. Capital investments picked up in the past five years, as cable networks aimed to digitize and enhance their programs to HD and 3D formats. To attract subscribers away from digital and online competition, networks also invested in delivery infrastructure and services. Depreciation has decreased from 2009, when it accounted for about 6.7% of industry revenue.

Sector vs. Industry Costs

■ Profi t■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other

Average Costs of all Industries in sector (2014)

Industry Costs (2014)

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11.5




Barriers to Entry Registration requirements and other regulations create a significant barrier to entry, in terms of both the time and money required to acknowledge and adhere to the rules. Before commencing operation, a cable network operator must supply information to the secretary of the Federal Communications Commission (FCC) for each community to be served. The commission then issues a public

notice that sets forth the details of each registration statement as it is received. The cable TV operator may begin operation immediately upon filing the registration statement; however, commencement of operation is entirely at the risk of the system operator. If the rules are violated, appropriate regulatory sanctions, including imposition of a monetary forfeiture and the issuance of a

Basis of Competition Internal competitionThe basis of competition relates to the diversity, quality and consistency of programming, which caters to the needs of both general subscribers and niche markets. Regional competition is key to cable networks. However, Federal Communications Commission regulations ensure that users have a variety of choices for their TV services, resulting in continued competition. Cable networks tend to compete based on the programming offered to various viewer segments and demographics. For example, both Walt Disney and Viacom have network and programming that target younger viewers. Success in cable programming relies on strong content, aggressive marketing and, increasingly, social media outreach.

External competitionBroadcast TV competes against this industry; however, competition from

this medium is limited due to its declining audience. Satellite TV subscription services, on the other hand, are increasing in popularity as they are able to offer increasingly high-quality services. Home-video products and the internet are also posing competition as consumers increasingly view programs over the internet, through internet TV, smartphones, tablets and games consoles. This market share will likely accelerate as more digitally linked and access products are developed.

The Cable Networks industry competes with these and other media not only for consumers but also for advertising revenue. Other competitors include newspaper, magazine and billboard advertising. Some of these other industries also compete for talent, ideas and other programming.

Cost Structure Benchmarkscontinued

Rent and UtilitiesRent and utilities are a significant cost as industry operators maintain studios and facilities for their programs. Over the five years to 2014, costs for this segment have remained steady, as industry operators continue to fully utilize existing facilities in order to cut costs. This segment is expected to remain steady as a cost in the five years to 2019.

OtherOther industry costs, including rent, utilities and administrative expenditures, are minor. Marketing makes up the largest part of these costs at about 1.7% of industry revenue, and it will continue to play a major role in attracting and retaining audiences for cable network TV.

Level & Trend Competition in this industry is Medium and the trend is Increasing

Level & Trend Barriers to Entry in this industry are High and Decreasing



Industry Globalization

Industry operators face a low level of globalization because they are domestically owned and earn most of their revenue from US viewers. All major industry operators, however, sell their content abroad, reflecting the significant cultural influence of these networks and increasingly attractive markets abroad. Programming and

channels are increasingly available to other countries, particularly movies, sports and children’s programs. IBISWorld analysis suggests that this industry is subject to an increasing level of globalization, particularly through a complex international network of satellite-based and online subscription services.

Barriers to Entrycontinued

cease-and-desist order, may be employed. This risk, in addition to the paperwork required, makes it impossible for new companies to casually enter the market and necessitates a familiarity with the industry and FCC guidelines.

Also, although the degree of capital intensity is generally low relative to labor, it remains quite significant. There are still high and recurring costs associated with establishing a new cable network, particularly in delivering the consistently high-quality product that is demanded by cable distributors and their subscribers. As a result, access to finance and funds to develop a constant stream of new productions is absolutely essential.

Finally, there is a high degree of vertical integration between major cable and satellite distributors and cable network companies. This occurs either through direct ownership or long-term programming supply contracts that may

lock out potential competitors. There is also a degree of aggregation in programming between large and small cable operators. The degree of vertical integration between networks and cable distributors decreased during the early to mid-2000s, assisted by the introduction of satellite programming delivery systems. Four of the top six cable companies now hold direct interests in satellite program delivery services.

Barriers to Entry checklist Level

Competition MediumConcentration HighLife Cycle Stage MatureCapital Intensity HighTechnology Change HighRegulation & Policy HeavyIndustry Assistance None


Level & Trend Globalization in this industry is Medium and the trend is Increasing


Player Performance The Walt Disney Company is a global entertainment company with interests in the TV networks, cable networks, theme parks and resorts, consumer products and movie production industries. As of September 28, 2013, the Walt Disney Company employed about 175,000 people worldwide and aggregate revenue totaled $45.0 billion. The company charges other multichannel video service providers, such as Comcast, for the distribution of its content. However, Disney also produces and acquires the programming and content for its cable network operations.

The company owns 100.0% of Disney Channels Worldwide, ABC Family and SOAPnet. It also has 80.0% ownership of ESPN and a 50.0% stake in A&E, which acquired Lifetime in 2009. Disney has maintained its role as a cable network leader through innovative content and investments in new technologies. For instance, Disney launched ESPN 3D in June 2010, which was projected to feature about 100 live events in its first year of operation. The company has also cemented a role in crossover entertainment brands, such as the ESPN Zone, ESPN The Magazine, ESPN Regional Television and ESPN Radio Network.

Over the five years to 2014, Disney has consistently expanded by investing in their existing networks, as well as in new markets. In 2012, Disney expanded its ownership stake of A&E from 42.1% to 50.0%, acquiring a portion of NBCUniversal’s stake in the company.

That same year, Disney increased its ownership of UTV, an India-based entertainment network, from 50.0% to 99.0% of the company. Disney announced in 2011 that it had launched a Disney Channel network in Russia, which is expected to reach 75.0% of the country’s viewers. While the foreign investments do not affect US revenue, they do reflect the aggressive growth that the company has experienced over this period.

Financial performanceIn the five years to fiscal 2014, industry-relevant revenue is expected to grow at an annualized rate of 6.4%, as Disney-owned channels continue to gain popularity. Most networks at Disney experienced growth over the five-year period, but ESPN, Disney Network and A&E had the strongest years of growth. Disney’s cable segment has proven resilient, even with lower political advertising spending and total ad spending only recently surpassing its prerecession values. The segment enjoyed increased revenue from higher contractual rates with cable companies, along with growth in its major networks. Industry-relevant revenue is expected to grow an additional 8.5% in fiscal 2014 to $16.6 billion. Operating income is expected to increase at an average annual rate of 20.0%, demonstrating the segment’s strong market position.

Major CompaniesThe Walt Disney Company | NBCUniversal | Time Warner Inc.Viacom Inc. | 21st Century Fox | Other Companies

9.1%Other

The Walt Disney Company 29.6%

NBCUniversal 18.5%

Time Warner Inc. 17.9%

Viacom Inc. 13.4%

21st Century Fox 11.5%SOURCE: WWW.IBISWORLD.COM

Major players(Market share)

The Walt Disney Company Market share: 29.6% Industry Brand Names Disney Channel ABC SOAPnet A&E Television Networks


Major Companies

Player Performance NBCUniversal (NBCU), a wholly owned subsidiary of Comcast Corporation, is involved in a number of services, including theme parks, producing and distributing film and TV programming, operating cable and TV networks around the world, broadcasting network TV through owned and affiliated stations in the United States and regular investments in new media technologies, such as digital media. In 2013, Comcast employed more than 136,000 people and generated $64.7 billion. With 15 cable networks and 11 regional sports and news networks, NBCU features a diverse domestic entertainment portfolio. Its domestic cable networks include USA Network, Bravo, CNBC, SYFY, MSNBC, Oxygen, Universal HD, Chiller, Sleuth and mun2.

In November 2009, General Electric (GE) paid Vivendi $5.8 billion for its 20.0% stake in NBCU; GE then signed an agreement to sell 51.0% of NBCU to Comcast for $13.8 billion in cash and assets. This deal established a new joint-venture company, which will have a strong presence in broadcast TV and cable TV with a share of about 20.0% of total domestic TV viewers. Comcast could

then cut regular operating costs by producing more shows using NBCU’s existing facilities, eliminating the need for the company to build space and assemble the equipment. The acquisition was valued at about $30.0 billion. In February 2013, Comcast Corporation bought the rest of GE’s share in NBCU for $16.7 billion. Comcast Corporation is a publicly listed company with headquarters in Philadelphia. In the aftermath of the recession, Comcast focused more on in-house content to cut licensing costs. This successful transition to content creation led the company to seek an acquisition target (NBCU) to more rapidly expand its production and distribution activities.

Financial performanceIn the five years to 2014, NBCU’s cable networks segment is expected to grow at an annualized 34.0% to $10.4 billion, including a strong 12.6% growth in 2014 due to higher viewership during the Sochi Olympics. Since Comcast acquired NBCU, industry relevant revenue has increased substantially, with the company receiving a boost from Comcast’s existing information

Player Performancecontinued The Walt Disney Company (US cable TV segment) – fi nancial

performance*

Year**Revenue

($ million) (% change)Operating Income

($ million) (% change)

2008-2009 12,146.1 N/C 1,901.4 N/C

2009-2010 12,874.8 6.0 2,241.6 17.9

2010-2011 14,016.1 8.9 2,756.7 23.0

2011-2012 14,554.2 3.8 3,187.8 15.6

2012-2013 15,268.9 4.9 3,261.2 2.3

2013-2014 16,572.2 8.5 4,727.7 45.0

*Estimates; **Year-end SeptemberSOURCE: ANNUAL REPORT AND IBISWORLD

NBCUniversal Market share: 18.5% Industry Brand Names E! Entertainment Television USA Network Syfy CNBC Versus MSNBC


Major Companies

Player Performance Time Warner Inc. is a global media and entertainment company with activities in three main businesses: television networks, film and entertainment and publishing. As of December 2013, the company employed 34,000 employees and generated $29.8 billion in total company revenue. Time Warner Inc. operates in the industry through its subsidiary, Turner Broadcasting System, which owns and operates eight cable TV networks. Turner’s networks are broadcast in more than 200 countries and the company is focused on developing its foreign presence, especially in Latin America and India. Programming comes mainly from the company’s film, animation and TV libraries, as well as sports and syndicated TV series.

The company has been successful with its “TBS: Very Funny” campaign for its flagship network. The network shows contemporary comedies and original series. It also had the rights to produce and telecast some Major League Baseball

games throughout the 2013 season. In conjunction with CBS, it also has the rights to the college basketball (NCAA) championship and tournament games through 2024. Turner has seven additional domestic networks, including CNN, the original cable television news service that reached 98.9 million US households in 2012 (latest data available). As with CNN, which is run from 15 news bureaus and editorial operations in the United States, the company is involved in the production and acquisition of various shows. That segment is not included in this industry. Other networks include HBO, truTV and the CW.

Financial performanceThe company’s Turner Broadcasting segment has grown at an annualized rate of 4.1% over the five years to 2014. Time Warner’s cable networks have grown as a result of higher subscription revenue, as Turner Broadcasting has increased the rates it charges to cable companies.

Player Performancecontinued

infrastructure. Revenue from newer company operations, such as Versus and Comcast Sports, have been the integral drivers of revenue growth. Furthermore, increasing subscribers

and recovering advertising revenue helped drive growth and will continue to do so in 2014. Operating profit remains strong and has exhibited growth in each of the past five years.

NBCUniversal (US cable TV segment) – fi nancial performance*

YearRevenue



2009 2,395.7 N/C 483.3 N/C

2010 2,731.5 14.0 574.6 18.9

2011 8,061.0 195.1 3,199.0 456.7

2012 8,272.0 2.6 3,303.0 3.3

2013 9,201.0 11.2 3,051.0 -7.6

2014 10,363.3 12.6 3,936.9 29.0

*EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD

Time Warner Inc. Market share: 17.9% Industry Brand Names CNN TNT TBS truTV Cartoon Network


Major Companies

Player Performance Viacom operates in the global entertainment industry, with a total revenue figure of $13.8 billion in 2013. Viacom is based in New York and owns and produces movies through Paramount Pictures. Viacom operates through more than 200 locally operated TV Channels and hundreds of mobile and digital TV properties, presenting content to over 160 countries, representing over 700 million households. For example, Nickelodeon is one of the world’s most widely distributed channels; the network program reaches 99 million households domestically and 300 million households globally. Overall, Viacom produces 74.0% of its revenue domestically.

Viacom’s cable networks are split into four groups: the Music Group, the Nickelodeon Group (targeted towards kids and family), the Entertainment Group and BET Networks (targeted towards African-Americans). Each of

Viacom’s network groups has a clearly defined target audience. This resonates strongly with advertisers, translating to higher revenue for the company. The company produces much of its own content, as well as content for other networks; however, the associated costs and revenue are not included in this industry. The integrated production does cut costs for the company, enabling it to maintain an above average profit. Its major media network properties include Nickelodeon, VH1, MTV, Comedy Central and BET.

Financial performanceIn the five years to fiscal 2014, Viacom’s cable networks segment is expected to increase at an annualized 5.5% to $7.5 billion, including a 6.4% growth in fiscal 2014. Growth in the company’s cable networks has been attributed to strong viewership among younger


Furthermore, the company has benefited from increased advertising revenue, tied to the popularity of its NBA on TNT segment. Still, certain segments of its cable networks have struggled to increase viewership. CNN, in particular, has

suffered from inconsistent ratings, as it struggles to retain viewers after the passing of major events. In 2014, revenue is expected to grow 5.0% to $10.0 billion, with increasing rates buoying lagging network viewership.

Turner Broadcasting System (US cable TV segment) – fi nancial performance*

YearRevenue



2009 8,192.7 N/C 1,442.5 N/C

2010 8,163.2 -0.4 1,647.9 14.2

2011 8,715.4 6.8 1,746.1 6.0

2012 9,253.3 6.2 1,906.1 9.2

2013 9,552.5 3.2 2,334.3 22.5

2014 10,030.1 5.0 2,469.7 5.8

*EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD

Viacom Inc. Market share: 13.4% Industry Brand Names MTV MTV2 VH1 CMT Nickelodeon Comedy Central BET


Major Companies

Player Performance Fox Entertainment Group is wholly owned by 21st Century Fox Inc., a diversified global media and entertainment company with total revenue reaching $27.7 billion in 2013 and an employee base of 26,500. Fox is involved in film production, film distribution, TV broadcasting and cable networks activities. Among its primary networks are Fox News (the leading cable news provider), FSN (the largest regional sports network) and FX, which reaches nearly 100 million US households. Its networks primarily compete with ESPN (for sports), as well as CNN and MSNBC (for news). Fox’s other networks include National Geographic, Fuel TV and Fox College sports.

Recently, 21st Century Fox has announced several major changes to its cable segment. On March 5, 2013, chairman Rupert Murdoch announced

the formation of Fox Sports 1 (a national cable sports network similar to ESPN), which is expected to compete for the lucrative sports broadcasting market. The new network is expected to reach as many as 90 million cable subscribers, providing major sports events, analysis and news for viewers. According to COO Chase Carey, the new network could become a “cornerstone” of the company. On April 17, 2013, Murdoch announced the company would be splitting into two separate entities: 21st Century Fox (television and film) and News Corporation (newspapers and books). The split was finalized on June 28, 2013.

Financial performanceIn the five years to fiscal 2014, Fox’s cable network segment is expected to increase at an annualized 22.3% to $6.5 billion, including a projected 12.6%


demographics. For example, according to Nielsen, in 2013, Viacom’s Nickelodeon claimed the number one spot for daytime programming. Viacom’s performance is not only linked to its substantial investment in original programming, but also to the expansion of its own branded networks across digital platforms. The company is

benefiting from launches of some new channels in the international market and increased domestic advertising and affiliate fees, with both rates and subscriber numbers increasing. The segment’s operating income has also remained strong and is expected to grow at an annualized 11.2% in the five years to fiscal 2014.

Viacom Inc. (US cable TV segment) – fi nancial performance*

Year**Revenue

($ million) (% change)Net Income


2008-2009 5,727.0 N/C 1,250.6 N/C

2009-2010 6,266.5 9.4 1,571.5 25.7

2010-2011 6,459.3 3.1 1,606.8 2.2

2011-2012 6,408.9 -0.8 1,800.3 12

2012-2013 7,043.2 9.9 1,958.7 8.8

2013-2014 7,494.0 6.4 2,129.1 8.7

*Estimates; **Year-end SeptemberSOURCE: ANNUAL REPORT AND IBISWORLD

21st Century Fox Market share: 11.5% Industry Brand Names FOX FSN FX SPEED FUEL TV NGC Network (National Geographic, 71% interest)


Major Companies

Other Companies There are about 420 total other companies in this industry, which make up the remaining 9.1% of industry revenue. Such smaller cable networks may be partly owned or otherwise affiliated with major players. Many operate regionally or have a different niche market. Specialized cable networks include sports, religious or ethnic-

focused media organizations. With increased consolidation in the industry, the number of operators has remained relatively flat, as dominant players continue to pressure newcomers and hopeful entrants. In the five years to 2014, the number of industry enterprises is expected to increase only slightly, at an average annual rate of 0.5%.


growth in fiscal 2014. However, some of this growth represents the segment’s recovery from 2009, when revenue hit its lowest amid the woes of the recession; in 2009, industry-relevant revenue fell by 62.8%. This decline was mostly due to weaker advertising spending, dampening the segment’s main revenue source. The segment has since bounced back and has experienced robust double-digit growth in three of the past five years. While CNN and MSNBC have failed to convert new

viewership into increased revenue, Fox News has consistently grown, currently leading cable news ratings. FX viewership has also grown over this period, as original series, including Louie and Sons of Anarchy, have been very successful. Growing viewership and the subsequent rise in advertising revenue is expected to help the company grow beyond fiscal 2014. Operating income is expected to total $1.5 billion in fiscal 2014.

21st Century Fox (US cable TV segment) – fi nancial performance*

Year**Revenue



2008-2009 2,360.0 -62.8 -361.6 N/C

2009-2010 2,680.0 13.6 371.5 N/C

2010-2011 4,860.9 81.4 486.5 31.0

2011-2012 5,468.6 12.5 735.5 51.2

2012-2013 5,734.3 4.9 1,459.9 98.5

2013-2014 6,456.8 12.6 1,511.0 3.5

*Estimates; **Year-end JuneSOURCE: ANNUAL REPORT AND IBISWORLD


Capital Intensity This industry has a medium to high level of capital intensity, mostly due to technological investments that the industry is incurring to enhance the content and delivery service of the networks’ programs. For every dollar spent on wages, the average cable network operator will spend about $0.34 on capital, including the depreciation of facilities and content rights. Major investments occurred in the mid to late 2000s, as cable operators faced increasing competition from digital and online services. Capital costs mainly encompass spending on facility upgrades and software updates, but also include recent program enhancements to HD and 3D. Over the five years to 2014,

capital investment has decreased while wages have increased from their recessionary low.

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success


Labo

r Int

ensi

veCapital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

E-Commerce & Online AuctionsCable, Internet &

Telephone Providers

Mail Order

Satellite Telecommunications Providers

Movie & Video Production

Cable Networks

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Cable NetworksInformationEconomy

Level The level of capital intensity is High


Operating Conditions

Revenue Volatility Industry revenue depends strongly on industry pricing models, which are subject to change as contracts are altered. The transition to alternative media coupled with rising content costs, for example, pressured industry pricing and led operators to shift to tiered pricing

models during the past five years. Meanwhile, cable subscriptions have decreased slowly in the five years to 2014. This decrease in subscribers, however, has been largely balanced out by increased higher spending per subscriber under tiered pricing. Thus in the five

Technology& Systems

The Cable Networks industry has experienced high technological change in recent years. Technology is significant for film and TV studios, outside broadcasting units and associated equipment, such as satellite and cable links to cable distributors. Recent changes in digital broadcasting by distributors have affected studio and equipment upgrades, operations and purchases. Many operators now use digital networks following the large investment in this infrastructure to roll out high-speed data, video-on-demand and other services. Four of the top six cable operators have also taken a financial interest in satellite delivery of services following its recent growth, with more than 22.0% of multichannel video programming subscribers receiving services by this mode.

Cable program networks have been at the forefront of providing HD programming, and cable operators began delivering HD services in earnest to customers in 2002. Deployment has been on an upward arc ever since. The cable industry is also working closely with TV set manufacturers to ensure consumers receive HD in the most convenient and user-friendly ways possible. High-definition TV (HDTV) is a digital TV format delivering theater-quality pictures and CD-quality sound. HDTV offers an increase in picture quality by providing up to 1,920 active horizontal pixels by 1,080 active scanning lines, representing an image resolution of more than two million pixels. In addition to providing improved picture quality with more visible detail, HDTV offers a widescreen format and Dolby Digital 5.1 surround sound.

Level The level of Technology Change is High


Volatility vs Growth

Reve

nue

vola

tility

* (%

)

1000

100

10

1

0.1

Five year annualized revenue growth (%)–30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

Cable Networks

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Level The level of Volatility is Medium



Regulation & Policy The industry is heavily regulated by a combination of legislation and controls at the federal, state and local level. In late 2007, the Federal Communications Commission (FCC) adopted a 30.0% cap on horizontal ownership, which limits the number of video subscribers that one company can serve. This prevents companies in this industry from consolidating or growing more to make up a larger market share. The rule has been questioned in court, and the FCC relaxed the restrictions when it was revised in 2007. Some deregulation can be expected in the future because the FCC made it clear that it will take the internet into account when deciding this ownership regulation.

There are established policies in the areas of ownership; channel usage; franchise provisions and renewals; subscriber rates and privacy; obscenity and lockboxes’ unauthorized reception of services; equal employment opportunity; and pole attachments. The law also defines jurisdictional boundaries among federal, state and local authorities for regulating cable TV systems. In Telecommunications Act of 1996, Congress noted that it wanted to provide a pro-competitive, deregulatory national policy framework designed to accelerate private-sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition.

State and local regulationsA variety of laws and regulations for cable TV exist at the state and local level.

Some jurisdictions, such as Massachusetts, regulate cable TV on a comprehensive basis through a state commission or advisory board established for the sole purpose of cable TV regulation. At least 30 other states have one or more laws specifically applicable to cable TV, dealing most commonly with subjects like franchising, theft of service, pole attachments, rate regulation and taxation.

The Communications Act of 1934 requires that no new cable operator may provide service without a franchise, and establishes several policies relating to franchising requirements and franchise fees. The Communications Act authorizes local franchising authorities to grant one or more franchises within their jurisdiction. Although the Communications Act also generally precludes the regulation of cable systems as common carriers, it authorizes the commission to require the filing of informational tariffs for intrastate communications services (other than cable service), which is provided by a cable system.

Rates regulationThe Cable Act of 1984 permitted local franchising authorities to regulate only if the cable franchise area was served off the air by fewer than three unduplicated broadcast signals. In 1991, the commission raised this number to six. In passing the Cable Act in 1992, Congress found that rates for cable services rose significantly following the 1984 Cable Act (and the accompanying deregulation of rates).

Revenue Volatilitycontinued

years to 2043, the Cable Networks industry had only a moderate level of revenue volatility. Industry revenue suffered the most in 2009, when consumers cut spending due to the

recession and lower overall advertising spending diminished the industry’s main revenue source. It was, however, followed by strong growth in 2010, when revenue increased by 11.1%.

Level & Trend The level of Regulation is Heavy and the trend is Decreasing



Industry Assistance The industry does not receive any direct or special federal government assistance. Some states and municipalities do provide tax and monetary incentives for TV production in their jurisdiction; however, such assistance is usually more applicable to the TV Production industry (IBISWorld report 51211b). The Cable

Networks industry does receive assistance from the National Cable and Telecommunications Association (NCTA) which represents the entire cable and telecommunications industry. The NCTA provides industry data and governmental advocacy for industry issues.

Regulation & Policycontinued

Each service tier is regulated in a slightly different manner. Local franchising authorities are responsible for regulating the basic-service tier, which follows rules set by the commission, and establishes a benchmark rate based on a number of factors, including the number of subscribers, channels and a number of other factors. However, pay-per-channel and pay-per-program services are not regulated. Small cable operators are partially or wholly exempt from rate regulation. In any franchise area where a small cable operator serves less than 50,000 subscribers, rate regulation does not apply to the operator’s cable programming services tiers or to its basic tier if it was the only tier subject to regulation as of December 31, 1994. Rates for a cable system’s service tiers and equipment may be regulated only if the cable

system is not subject to effective competition as defined by the FCC.

According to the 1996 act, the commission’s authority to regulate the rates charged for cable programming services (those are the channels that are not on cable system’s basic tier and are not sold on a per-channel or per-program basis) was terminated for services provided after March 31, 1999. Therefore, the rates charged for cable programming services are determined by the cable company and the commission does not have the authority to review these rates or to investigate allegations that the rates are excessive.

The 1996 act did not modify the local franchising authority’s ability to regulate basic cable rates; therefore, complaints about basic cable rates should be filed with the franchise authority. Rates for channels sold on a per-channel or per-program basis are not regulated.

Level & Trend The level of Industry Assistance is None and the trend is Steady


Key StatisticsRevenue

($m)

Industry Value Added

($m)Establish-

ments Enterprises Employment Exports ImportsWages ($m)

Domestic Demand


($b)2005 44,987.5 14,702.2 657 380 38,785 -- -- 4,939.9 N/A 271.12006 47,085.5 11,621.3 673 383 39,735 -- -- 4,228.9 N/A 281.72007 50,512.6 10,965.1 658 390 41,674 -- -- 4,347.9 N/A 276.22008 52,416.1 11,883.9 649 437 41,244 -- -- 4,493.2 N/A 270.72009 51,468.3 10,564.8 671 415 40,069 -- -- 4,337.1 N/A 231.12010 57,158.3 14,220.2 703 427 41,143 -- -- 4,731.9 N/A 252.32011 56,419.4 15,000.4 770 431 49,983 -- -- 6,311.8 N/A 267.32012 57,999.7 17,729.5 793 423 51,083 -- -- 6,477.5 N/A 274.82013 56,821.3 14,876.3 795 423 51,849 -- -- 6,523.7 N/A 283.02014 56,031.4 12,807.9 796 425 52,264 -- -- 6,420.3 N/A 288.02015 57,208.0 12,950.2 809 427 53,100 -- -- 6,542.9 N/A 298.02016 58,352.2 12,899.2 814 433 53,843 -- -- 6,655.5 N/A 309.72017 57,827.0 12,803.7 816 436 53,628 -- -- 6,616.2 N/A 302.22018 58,752.2 12,896.3 825 438 54,432 -- -- 6,727.3 N/A 311.92019 59,868.5 13,007.5 837 443 55,194 -- -- 6,841.0 N/A 318.3Sector Rank 6/96 13/96 47/96 54/96 24/96 N/A N/A 15/96 N/A N/AEconomy Rank 172/1297 224/1297 851/1296 893/1296 528/1297 N/A N/A 244/1297 N/A N/A

IVA/Revenue (%)

Imports/Demand

(%)

Exports/Revenue

(%)

Revenue per Employee

($’000)Wages/Revenue

(%)Employees

per Est.Average Wage

($)

Share of the Economy

(%)2005 32.68 N/A N/A 1,159.92 10.98 59.03 127,366.25 0.102006 24.68 N/A N/A 1,184.99 8.98 59.04 106,427.58 0.082007 21.71 N/A N/A 1,212.09 8.61 63.33 104,331.24 0.072008 22.67 N/A N/A 1,270.88 8.57 63.55 108,941.91 0.082009 20.53 N/A N/A 1,284.49 8.43 59.72 108,240.78 0.072010 24.88 N/A N/A 1,389.26 8.28 58.52 115,011.06 0.102011 26.59 N/A N/A 1,128.77 11.19 64.91 126,278.93 0.102012 30.57 N/A N/A 1,135.40 11.17 64.42 126,803.44 0.112013 26.18 N/A N/A 1,095.90 11.48 65.22 125,821.13 0.092014 22.86 N/A N/A 1,072.08 11.46 65.66 122,843.64 0.082015 22.64 N/A N/A 1,077.36 11.44 65.64 123,218.46 0.082016 22.11 N/A N/A 1,083.75 11.41 66.15 123,609.38 0.072017 22.14 N/A N/A 1,078.30 11.44 65.72 123,372.12 0.072018 21.95 N/A N/A 1,079.37 11.45 65.98 123,590.90 0.072019 21.73 N/A N/A 1,084.69 11.43 65.94 123,944.63 0.07Sector Rank 90/96 N/A N/A 7/96 86/96 11/96 12/96 13/96Economy Rank 913/1297 N/A N/A 101/1297 941/1297 163/1296 39/1297 224/1297

Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.

Revenue (%)

Industry Value Added

(%)

Establish-ments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)Wages

(%)

Domestic Demand

(%)


(%)2006 4.7 -21.0 2.4 0.8 2.4 N/A N/A -14.4 N/A 3.92007 7.3 -5.6 -2.2 1.8 4.9 N/A N/A 2.8 N/A -2.02008 3.8 8.4 -1.4 12.1 -1.0 N/A N/A 3.3 N/A -2.02009 -1.8 -11.1 3.4 -5.0 -2.8 N/A N/A -3.5 N/A -14.62010 11.1 34.6 4.8 2.9 2.7 N/A N/A 9.1 N/A 9.22011 -1.3 5.5 9.5 0.9 21.5 N/A N/A 33.4 N/A 5.92012 2.8 18.2 3.0 -1.9 2.2 N/A N/A 2.6 N/A 2.82013 -2.0 -16.1 0.3 0.0 1.5 N/A N/A 0.7 N/A 3.02014 -1.4 -13.9 0.1 0.5 0.8 N/A N/A -1.6 N/A 1.82015 2.1 1.1 1.6 0.5 1.6 N/A N/A 1.9 N/A 3.52016 2.0 -0.4 0.6 1.4 1.4 N/A N/A 1.7 N/A 3.92017 -0.9 -0.7 0.2 0.7 -0.4 N/A N/A -0.6 N/A -2.42018 1.6 0.7 1.1 0.5 1.5 N/A N/A 1.7 N/A 3.2

2019 1.9 0.9 1.5 1.1 1.4 N/A N/A 1.7 N/A 2.1Sector Rank 87/96 96/96 63/96 54/96 66/96 N/A N/A 86/96 N/A N/AEconomy Rank 1197/1297 1280/1297 866/1296 731/1296 819/1297 N/A N/A 1153/1297 N/A N/A

Annual Change

Key Ratios

Industry Data



Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

Industry Jargon

IBISWorld Glossary

CHURN The rate of increase at which customers discontinue their service on a voluntary or involuntary basis.

DIGITAL Content provided in a digital format instead of the former analog connection.

FEDERAL COMMUNICATIONS COMMISSION (FCC) An independent US agency that regulates radio and TV communications.

HIGH DEFINITION (HD) A television system that has about twice as many scan lines per frame than a conventional system and a proportionally sharper image.

SMALL CABLE OPERATOR An operator that serves less than 1.0% of all subscribers in the United States and that is not affiliated with entities earning gross annual revenue or more than $250 million.

SYNDICATION Process by which publishers outsource news reporting and editing to third-party wire services.


Jargon & Glossary

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

IBISWorld Glossarycontinued

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