Industry Outlook

Growth Potential

Market Segment: Expected growth:(2009-2014)

US 3%

Europe 2.9%Asia Pacific 5.7%

The Growth potential of the Cable and Broadcasting industry is sluggish especially when looking at the US and European markets. The Asia Pacific market is the most promising out of the 3 but, none of the top companies have made a significant presence in that market. Rivalry has also increased significantly due to the stagnant growth rates which are prompting companies to defend their market share. The industry isn’t growing its remaining relatively stagnant which is stimulating rivalry among competitors. The industry is expected to grow 3.8% for a 5 year period (2009-2014) the growth is a positive light especially when in 2009 the industry actually had a negative growth rate of 4.2%. According to Standard and Poor they are worried about the outlook of companies in the industry with recent trends in cord-cutting and The TV everywhere concept. Standard and poor also mentions the concern with the US economic situation being a speed bump for growth. The U.S economic conditions affect companies in this industry because major players in the industry depend heavily on the U.S market.

Industry Profitability

New EntrantsThe Profitability potential for new entrants in the industry is marginal at best. The growth

rate in the industry is slow moving and the industry is dominated by 5 companies who own about 80% of the market. This makes it hard for new companies to earn revenue with most of the market being dominated. The growth rate of the different global markets is slow so there isn’t much room for them to come in and find a new niche market that hasn’t already been tapped by another company. The industry is heavily influenced by economies of scale the high capital requirements are probably the biggest hurdle that most new entrants will come across. The high capital requirements that new companies must overcome are insurmountable. Industry members account a majority of their expenses to video programming. The specific numbers will be addressed later in risk factors.

Industry MembersThe profitability for current industry members is promising despite stagnant growth in the

US market. The slow growth increases competition drastically with their being such a small consumer base for companies to tap into as the market grows slowly. The demand has changed which forces industry members to adjust to that demand change and accommodate to consumers new preferences. Industry members receive a vast amount of their revenue from individual consumers and/or subscribers. Some of the driving forces companies must adapt to are new technological changes and internet capabilities. The increased popularity of VOD and DVR services especially through tablet, Smartphone and PC’s have become a more innovative way to

appeal to consumers. The aforementioned driving forces can open up a new source for advertisement revenue for companies. Time Warner cable is working with BlackArrow at the moment and Comcast is also in talks with them to provide a new form of advertisement. This can also open up the door to increase their subscriber base by appealing to new consumers. Industry members can offer their subscribers

Overall the industry is profitable for current industry members despite slow growth and stagnant numbers. Advanced advertising revenue is expected to increase up to $4 billion by 2014 according to analyst. The increase in Video on Demand services opens up a new door for companies to provide their content online for subscribers to access. Services like Netflix and Hulu have opened the door for industry members to tap into that market and begin to streamline content.

Risk Factors

Programming expensesThe cost of programming is expected to continue to rise in the future which will affect

industry members operations. Programming expenses already account for a substantially amount of cost. Comcast accounts 52% of its operating expenses to its video programming in 2010 that’s a little over half of their expenses. DirecTV accounts 49% of its operating expenses to broadcast programming in 2010. Time Warner Cable 47% of their operating expenses are covered under the category of video programming. The increase in cost could affect the various programming that industry members are able to acquire in the future. If they aren’t able to acquire the programming that consumers want this could lead to a decrease in their subscriber base.

Economic conditionsThe weak economic conditions that the US market has been experience have rippled

through every industry. It has made consumers more reluctant to spend money which would affect consumers buying premium services from industry members. Consumers will only buy the best premium services and also have become more aware of products and what’s offered to them. The weak economic conditions will continue to breed and increase rivalry among competitors on prices and the best services/products.

Supplier Dependence Industry Members rely on various 3rd party vendors and some of those vendors are the

sole suppliers of industry members. The demand for various products and services from suppliers could exceed their capacity. Suppliers also have a huge bargaining power with industry members because of the heavy dependence. Dish network’s sole supplier is echo star while Time Warner Cable has three top suppliers (Samsung electronics, Cisco systems, Motorola). If suppliers wanted to change terms of agreements or increase cost they could put industry members in difficult financial situations.

Digital MediaThe emerging new capabilities with the internet have posed a threat to industry members.

Consumers are now able to access video content online for free or at a very low cost. Hulu and Netflix are the biggest examples of the new and emerging digital media. These new forms of digital media have effected how consumers want to watch TV. The traditional model is becoming irrelevant cord cutting is the future. Industry members must adapt and deliver video content to consumers through new mediums at a competitive price.

Pirating/Illegal activitiesThe increase in internet capabilities and digital media has had an adverse effect on many

industry members. Consumers are able to access VOD content for free and don’t have to pay to streamline content. Consumers are also able to download movies and TV shows from various websites. This poses a threat for industry members because they have to attract those consumers who do access content online for free. There is also a threat that consumers who aren’t able to afford services or simply wish no longer to pay can switch to pirating.

There are no severe problems in the industry that need to be addressed at the moment. There are a lot of trends and changes but, there is nothing severe to affect the industry in a detrimental way.

Attractiveness The industry is experiencing stagnant growth numbers in the US market where most

industry members receive their revenue. This slow growth decreases the attractiveness of our industry. There is also stiff competition between competitors the bundle packages that are offered by the leading companies in the industry is the biggest example. They all have similar pricing models when it comes to their bundles and offer similar services in their bundles telephone, internet and TV which decreases the attractiveness. Industry profitability is affected by the driving forces with the shift in demand for new and improved services. Streamlined content has become a new way innovative way to appeal to new consumers and current subscribers. Netflix and Hulu are examples of streamlined content; industry members have an opportunity to earn more revenue by offering their content online. This would increase the attractiveness of the industry. There are several risks in the future such as economic conditions, supplier dependence and pirating. These risks could become hindrances especially with economic conditions since industry members rely heavily if not solely on the US market. This can affect revenue for industry members where they rely on individual consumers for revenue. The driving forces in the industry make the industry more attractive. The short term cost associated with the changes that driving forces present to companies is a minor setback when to achieve long term goal. The short term cost could make the driving forces unattractive. The demand has shifted to new innovative services Technological change, emerging new internet applications and marketing and service innovation are ruling the industry right now. The new technological changes can’t be overlooked or skipped over consumers are heavily driven and enthralled with technology. Industry members must adapt and offer consumers the newest and the best and that unfortunately can come at an expensive price. The new capabilities consumers have with the internet are forcing companies to adjust and innovate with new marking concepts like the advanced advertising. Streamlined content is also becoming popular and industry members are now offering consumers content online as well. The outlook of industry members

making a good profit shows potential which makes the industry attractive. Despite the stagnant growth rate the industry still is expected to increase its market value. The US market value is expected to be $147,212 by 2014 that would be a 16% from 2009. Companies in the industry have also continued to make a profit despite bearish economic conditions. Time Warner cable has a 5.6% increase in their total revenue from 2009-2010 according to their 10-k. Comcast had a 6.1% increase from 2009-2010 in their total revenue according to their 10-k. Advanced advertising is also expected to increase in revenue to $4 billion in 2014. Companies have great potential to tap into a new medium for revenue and consumers will always want to be entertained.

King, D. (2008). Providers Aim to Keep Up With Growth. Television Week, 27(8), 18-24. Retrieved from EBSCOhost.