Research firm SNL Kagan found that many top cable networks did quite well in 2010 – with an average cash flow margin of 41%. Of the 180 cable networks examined, a few reported net losses, and others (principally sports networks) had high programming rights costs that limited profitability. Still, Kagan labeled the performance as “amazing.” They also suggest that profitability will continue to increase, reaching 41.9% in 2011 and 44.9% in 2015. (Cash flow margins are the percentage of revenues that remain after deducting operating expenses, taxes, and debt payments).
Kagan estimated that some 30 cable networks had cash flow margins over 50% in 2010, with Nickelodeon leading the way at 64.6% (all those reruns are pretty cheap). Local Scripps Network’s Food Network ran a 60% margin and HGTV came in at a reported 57%. Cable news channels Fox, CNBC and CNBC World were in the over 50% club.
Kagan projected that by 2015, 58 cable networks would achieve cash flow margins of 50% or more, with another 61 falling in the 40-50% range. That would mean that 2/3s of the networks considered would have cash flow margins over 40%.
While these numbers are high, they are within historic media profit margins, at least until the last couple of decades. Large market daily newspapers often showed cash flow margins in the 25-40% range in the ‘good old days’, and still average in the 15-20% range. At least until competition increased with the rise of digital media. Top market network-affiliate television stations almost uniformly had cash flow margins in the 50-75% range, and cable systems had cash flow margins around 40%, until the debt service piled up in the mergers & acquisitions frenzy starting in the mid 1980s, combined with the need for network rebuilds and upgrades, ate up most of the cash flow for the larger MSOs. But today, it looks like the business to be in will be in focused networks.
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