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Report: Profits for Media and Entertainment Sector Remain High Despite Downturn

Ernst & Young study finds cable operators have highest margins and interactive media is growing at fastest rate

Recession — what recession?

The media and entertainment sector has withstood the economic downturn and remains far more profitable than other industries, according a report by Ernst & Young. 

How can this be? Two reasons: Media companies have cut expenses dramatically and the advertising market has begun to show signs of life again.

"The pain of the times for the entertainment sector has created a focus on financial discipline. At the same time demand for content is increasing, not decreasing," John Nendick, Global Media and Entertainment Leader at Ernst & Young told TheWrap. 

The new report ranks 10 media and entertainment industry sectors on their profitability and growth rate. It compares the overall performance of the media and entertainment business to other stock market indices.

Overall entertainment companies measured by Ernst & Young grew 5 percent during the past five years. In comparison, other stock market indexes such as the S&P 500 fell 13 percent and the British FTSE 100 fell 17 percent over the same period. 

The statistics are based on EBITDA margins and dollars. 

Even though customers have shown an unwillingness to pay premium prices for movies and television shows, Nendick thinks that entertainment companies can continue to maintain strong margins provided they integrate new technologies. Particularly promising, Nendick says is Ultraviolet, the digital-rights locker that will allow users to watch movies they purchase on multiple devices.

"The growth of the sector should increase over time provided companies can integrate new technologies," Nendick said. "The key for the content companies is to maximize their distribution breadth and also to get a reasonable pricing element for the content."

Despite handwringing about cord cutting, cable operators remain the most profitable of all entertainment sectors. Every sliver of the media business, from music to publishing, enjoyed double digit profit margins. 

Over a five-year period, cable operators had the highest average profitability at 38 percent, followed by interactive media at 35 percent; cable networks at 31 percent; satellite television at 27 percent; publishing at 20 percent; conglomerates at 19 percent; television broadcast at 18 percent and film and television production, electronic games and music, all at 11 percent. 

The sector that has made the largest strides over the past five years is interactive media, which has grown by 15 percent annually. That's been followed by electronic games, 14 percent; cable networks, 10 percent; cable operators, 10 percent; satellite TV, 9 percent; film and television production, 7 percent; conglomerates, 3 percent.

Other sectors that shrunk over the span include publishing, which dropped 1 percent; television broadcast, down 4 percent; and music, which fell 5 percent.