Rising Digital Revenue, Cutbacks Driving Entertainment Sector Growth

Cable operators and networks show top profit margins while interactive media is fastest-growing, according to Ernst & Young economic report

If you wonder why cable operators and cable networks so frequently engage in prolonged and consumer-squeezing fights over transmission fees, a new report from Ernst & Young provides some insight into why: a boatload of money is at stake.

Cable operators are expected to be the most profitable media and entertainment sector in 2013 with an estimated 41 percent profit margin, followed by the cable networks at 37 percent, according to Spotlight on Profitable Growth: Media and Entertainment, Vol. VI,  released Thursday by the accounting giant.

Next up were interactive media (35 percent), satellite TV (26 percent), electronic games (25 percent), conglomerates (23 percent), content and information services (19 percent), broadcast TV (17 percent), film and TV production (10 percent) and music (10 percent).

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

The fastest growing sector was interactive media, with an estimated annual growth rate of 22 percent since 2009, thanks to a spurt in online advertising. And on the film and TV front, lower production costs from less product and increased streaming revenue resulted in 11% annual compound growth over the past five years.

“Media and entertainment companies are maintaining and growing their businesses primarily by growing their digital revenues and scaling back overhead associated with traditional media,” said John Nendick, Global Media and Entertainment Leader at EY.

“In emerging markets, increases in advertising, as well as rising incomes and media consumption, have also helped drive revenue and fuel long-term growth as consumers in mature markets continue to migrate toward digital,” he said.

The report also noted that for the first time in five years, the media and entertainment industry is expected to outperform the major stock market indices in 2013.