SNL Kagan Reports on Pay-TV Channel Business in U.K., France, Germany

LONDON: A new report from SNL Kagan, which has expanded its coverage to include key markets in Europe, finds that with the slowing U.S. ad market and rising programming costs, major media conglomerates are increasingly eyeing the European pay-TV channels business.

The research firm reports that in the U.K., total revenues from pay-TV channels increased at a compound annual growth rate (CAGR) of 3.1 percent over the past four years to $5.6 billion. Programming costs fell at a CAGR of 0.8 percent to $3 billion. Cash flow increased at a CAGR of 11.4 percent to $1.6 billion, while margins expanded from 29.4 percent to 30.5 percent during the same period.

In France, total cable channels revenues grew at a CAGR of 0.9 percent over the past four years to $2.9 billion, while programming costs rose at a CAGR of 6.8 percent to $2 billion. Excluding the startup investment by a new premium sports network, cash flow declined at a CAGR of 1.5 percent to $406.3 million, while margins contracted from 18.7 percent to 15 percent.

Total pay-TV channels revenues in Germany grew at a CAGR of 4.5 percent in the same four-year period to $5.9 billion. Programming costs, meanwhile, grew at a CAGR of 0.1 percent to $3.1 billion. Cash flow grew at a CAGR of 16.4 percent to $1.7 billion and margins expanded from 26.4 percent to 29.8 percent.

SNL Kagan reports that with the U.S. ad market slowing and programming costs rising rapidly, the financial prospects for U.S. cable networks are "no longer as bright." This has led major media conglomerates to look abroad for opportunities. One key theme running across multiple markets, which is consistent with the market in the U.S., is that the ad market is soft but sports rights and original programming costs continue to escalate rapidly, putting pressure on cash-flow margins. The firm says that this trend is "unlikely to reverse anytime soon," which will likely cause more carriage spats between multichannel operators and cable networks. SNL Kagan points to this as one reason that there is increasing M&A activity in Europe, since the more networks a media company has under its umbrella, the more leverage it gains with multichannel operators.