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Media and Entertainment Sector Profitability Forecast to Rise Again in 2014

Digital and international growth key factors for boosting M&E average profit margins, according to EY

Big media and entertainment companies worldwide are expected to average 28% profit margins this year, up from 26% last year, according to a forecast from consulting firm EY. That’s better than major stock-market indices, and the highest level since it began tracking sector-wide profitability in 2006.

Of the 10 media and entertainment sectors EY tracks, cable TV leads the pack. Cable operators are projected to achieve 41% margins in 2014, followed by cable networks at 37%. The others are: interactive media, 36%; electronic games, 29%; media conglomerates, 26%; satellite TV, 26%; publishing and information services, 21%; television broadcast, 19%; film and TV production, 12%; and music, 11%.

By comparison the firm expects companies in the S&P 500 Index to have 27% margins on average this year, with other cross-industry indices around globe lower, per EY. The report analyzes earnings before interest, tax, depreciation and amortization (EBITDA) to gauge relative profitability, and found that on average M&E EBITDA profits have risen each year since 2010.

“The hidden secret is, media and entertainment companies are performing very efficiently,” said John Nendick, EY’s global head of media and entertainment.

However, not everything is coming up roses for all M&E players. Jobs in the motion picture and sound industries have declined 19% over the last two years, according figures from the U.S. Bureau of Labor Statistics through August 2014.

Over all, though, media and entertainment companies remain healthy, according to EY. Key factors boosting M&E sector profitability in 2014 are chiefly expansion of digital distribution and growth in international markets, Nendick said, along with higher advertising spending and acquisitions and divestitures.

“We are seeing that digital is very much driving profits now, instead of disrupting it,” Nendick said. And while U.S. M&E markets are generally mature, “internationally there is still substantial growth.”

The report examined 106 companies worldwide that reported at least $1 billion in revenue for 2013, including Disney, Time Warner, Comcast, CBS, Viacom, 21st Century Fox, Sony Pictures Entertainment, Lionsgate, Google, Netflix and Facebook.

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