After a highly profitable three-year run, pay-TV programmers, particularly "pure-play" cable networks, are facing some tough times.
So says MoffettNathanson principal analyst Michael Nathanson, who said Monday that the constellation of stagnant ratings, a slowing ad market, competition from broadcast and SVOD platforms, as well as increased bargaining power for licensing fees on the part of pay TV operators due to consolidation, will now begin to take their toll.
The big entertainment conglomerates--Viacom, The Walt Disney Company, 21st Century Fox, Time Warner Inc.--are somewhat insulated, Nathanson says. But pure-play operators like AMC, Discovery Network and Scripps Networks will find themselves particularly exposed.
Nathanson writes, "These smaller cable network groups have been hit the hardest as investors have been forced to think about four negative factors: 1) Like broadcast, cable nets are now facing a zero-sum ratings game; 2) Weak scatter and lighter volume in the upfronts point to a continuing slow cable ad market; 3) The fiercer battle for audiences are driving programming costs higher; and 4) The consolidation of distribution muscle will drive affiliate fee growth down into the future."
C3 ratings were down 4 percent across the board in the second quarter, Nathanson notes, while cable networks have been forced to ramp up original content production to keep up with original programming by SVOD platforms like Netflix (NASDAQ: NFLX), as well as stepped-up summer programming efforts made by broadcasters.
"This has and will continue to impact margins going forward," Nathanson writes.
- read this MoffettNathanson report (sub. req.)
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