Picture biz growth rate, profits slim

Profit margins for filmed-entertainment companies are the lowest in the communications industry, according to a survey published today by Veronis, Suhler & Associates.

Weak box office and operating losses at Carolco and Pathe Communications also pushed down the growth rate of revenues of the largest publicly traded film entertainment companies in 1991, according to an index also constructed by the investment banking group.

The index, chosen by the consultants for purposes for their annual Communications Industry Report, found that revenues of the public film entertainment companies grew 11.3% in 1991 to about $ 13 billion.

However, this growth rate is the lowest in the survey’s five-year reporting period, well below the average of 15.2% for that period and the 1989 high of 22. 8%.

Operating income dropped 14.9% to $ 873.8 million for the 35 companies making up the filmed entertainment index. Average operating income margins fell 2.1 points to 6.7% in 1991, while cash flow margins dropped 2.4 points to 10.1%, making profit margins for filmed entertainment companies the lowest in the survey.

The survey found that the cable TV industry had the highest profit margins in 1991, at 39.2%, in the communications industry. Cable TV had average operating cash flow margins increasing by 1.9 points in 1991.

Overall, the recession, combined with rising operating costs and corporate restructuring, led to a 8.5% fall in pretax operating income and a 3% cash flow decline for the entire group of 298 publicly reporting companies in the communications industry that make up the survey.

Revenues were up 4.5% and net income down for 1991 for the group, with average operating income margins of 11.3%, off 1.6 points in 1991 and down 3.8 points compared with the 1987 high.

Assets remained stable in 1991 due to limited acquisition activity as well as slower spending, the survey found.

For the filmed entertainment segment, the survey revealed the continuing financial dominance of five major studios–Disney, MGM, News Corp. (20th Century Fox), Paramount and Time Warner (Warner Bros.)–which, per the report, accounted for 80.7% of total revenues, 76.1% of the operating income and 73% of the cash flow for the index in 1991 (MCA/Universal wasn’t listed).

While the survey noted the strong performance of News Corp. and Walt Disney, weaker results of Paramount Communications and Time Warner in 1991 also pushed the average down.

Disney revenues were up 15.5%, for example, high above the index average, while Time Warner’s revenues were up only 5.5%, and Paramount’s revenues fell 2. 7%.

News Corp. generated a huge 73.2% increase in 1991 revenues, spurred by the success of “Home Alone,””Die Hard 2” and “Sleeping With the Enemy.” And Sony Entertainment (Columbia, TriStar) reported a 35.5% growth in revenue for 1991.

Escalating costs

The survey results also revealed the impact of escalating costs on profit margins for the major studios. The operating income margin of the five major studios dropped 1.6 points from 1990 to 6.1%. That’s a 3.3 point drop from 1987. The group’s average operating cash flow margin fell 2 points from 1990 to 9.1%, 1.2 points lower than 1987.

The other 29 companies making up the index posted higher margins, but saw steeper declines than the major studios. Operating income margins dropped 3.5 points and the cash flow margins were off 4.1 points.

The investment bank pointed out that Carolco and Pathe’s income declines adversely impacted results for these companies and when excluded, margin declines were more modest and results well above those of major studios. New Line posted revenue gains of 69.5% from 1990 to 1991.

The survey also noted that the fastest-growing revenue source for filmed-entertainment companies over the last five years has been foreign sales. Overall, film industry revenues have grown at about twice the rate of U.S. consumer and industry spending at the box office, on homevideo, and television program licenses.

The cable industry posted the largest 1991 profit gains of any communications industry segment, the survey revealed. Revenues of publicly reporting cable companies rose 9.8% to $ 12 billion in 1991, a small increase however compared to the 20.4% average growth rate for the group measured by the survey since 1987 .

More severely hit were 1991 revenues for publicly reporting television and radio broadcasting companies, the survey revealed. This segment’s revenues fell 2.4% to $ 17.5 billion in 1991, as a result of the recession and a drop in overall ad spending, plus the impact of the Persian Gulf War. Operating income dropped 43.2% over the year and cash flow declined 33.1%.

The survey found that the recorded music industry was the only other segment besides cable TV to post a higher operating income margin in 1991 than in 1990.

It found that over the past five years, publicly reporting recorded-music company revenues, driven by acquisitions and an expanding worldwide market, grew 22.2% compounded annually, more than twice the 8.9% annual growth of U.S. spending on recorded music in that time period.

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