With the dust settled on another round of quarterly reports, VIP has analyzed the results and determined that the value of the Pay TV industry, at least for publicly traded companies, was $61.473 billion.
Compared with the same time period in 2019, total TV revenues have increased by 5.8%, or by $3.366 billion. This was driven by revenues from TV networks, up by $3.338 billion (11.2%).
Given that the analysis doesn’t include private Pay TV providers and media groups, such as Cox, A+E Networks, and Crown Media, the true value will be greater, with VIP estimating it to be around the $70-$75 billion mark.
Revenues from TV networks were the greatest contributor to the total value of Pay TV, coming in at $33.2 billion. It’s telling that three of the four largest TV companies – Disney, Comcast and AT&T – see revenues from their TV operations contributing less than 50% to the total revenues of their companies, at 40%, 21% and 11% respectively.
Of the twelve media companies analyzed, seven saw revenues generated from distribution (retransmission or carriage fees) account for a greater proportion of total TV revenue than advertising. With cord cutting increasing, and virtual MVPDs not looking too hot either, that is a concern.
Despite bullish statements from senior leadership about continuing to increase these fees, VIP’s view is that the breaking point is coming. With high fees a consistent reason for cord cutting for years, increasing the costs for a dwindling base does not make sense. This will be of particular concern to shareholders of companies deriving a majority of TV revenue from distribution, namely AMC (62%), AT&T (73%) and Sinclair (73%, up massively due to the purchase of the Fox Sports RSNs).
When compared to 2019, the majority of media companies saw increases in affiliate and retransmission revenues. Of note are the three firms who saw a decline in revenues versus the prior year. AMC’s affiliate revenues were down by $23m, Comcast’s cable group was down by $27m, and Viacom’s combined cable and international affiliate group saw a decline of $91 million.
The majority of media companies also saw a year-over-year increase in advertising revenues. Five saw these revenues fall. For ViacomCBS (down by $586m across the broadcast group) and AT&T (a fall of $304 million), a significant portion of blame can be laid at the COVID-19 pandemic, which saw the cancellation of the reliable ratings bonanza in the NCAA’s March Madness tournament. Of particular concern is the decline for AMC Networks, meaning domestic revenues saw a fall in both advertising and affiliate fees.
The next highest component of Pay TV was MVPD service. This was worth $24.4 billion in Q1, with AT&T and Comcast accounting for over half of this ($13 billion). Of note for the pair is the fact that their MVPD operations generated more revenue than their TV network divisions WarnerMedia and NBCUniversal respectively.
The majority of TV providers see MVPD service contributing less than half of total revenue, with the shift to broadband service offering a bulwark to the anticipated long-term decline of MVPD subscriptions. The lone exception is Dish. The company bid for the future back in 2015 with the first VMVPD service in Sling TV, but with recent subscriber counts declining, the decision to develop a 5G mobile service is the company’s move to diversify before revenues shrink too far.
The massive amount of money generated by Pay TV shows just why big tech has been entering the TV market, be it via promoting access to traditional TV channels à la Google’s YouTube TV, snapping up sports rights like Amazon, or creating a content service like Apple TV+. By quantifying the total value, it also demonstrates why traditional media companies have begin the leap en masse in 2020 to both offering subscription services direct to consumers but also purchasing free streaming services Vudu, Xumo and Tubi. Parts of the audience are migrating; old media still wants their money.
The COVID-19 pandemic has impacted the media business with reduced ad spend on networks, likely increased cord cutting, and a production shutdown across studio lots. As such, VIP anticipates a decline in the Q2 value of Pay TV of at least 10%, with our forecast that the total measurable revenues will shrink to $75.764 billion.