Cable Earnings: Trends to Watch
The cable industry faces some big issues: rising content costs, rising competition challenging ratings, and the looming threat of blackouts as content and distribution companies negotiate new deals. This week we’ll see how the industry is faring.
Cable content companies will report how they’re managing rising costs and growing competition, which is putting pressure on ratings.
Cable and satellite TV operators will reveal how they’re handling their own rising costs, passed along from the content creators, plus the threat of “cord-shaving” as customers increasingly watch video online.
We’ll see how TV Everywhere services like Comcast’s XFinity and TimeWarner's HBO Go are working to keep customers watching and paying. One threat hanging over both content and distribution companies: growing instability about contract negotiations and blackouts in the wake of DirecTV and Viacom’s unprecedentedly-long battle.
Discovery Communications kicked off cable industry’s earnings parade with higher revenue and profits, driven by continued strength in advertising. U.S. ad revenue grew 7 percent on increased pricing and better ratings, while international revenue grew 10 percent, driven by 11 percent higher ad revenue.
CEO David Zaslavsaid that the Olympics will have a negative impact in the current quarter, but overall was positive.
He noted that revenue from selling digital rights to Netflix and Amazon is purely incremental, saying “older content looks to be working really well for us.” He also said that tests with Comcast’s TV XFinity service are going well, and that he believes “TV Everywhere is valuable.”
Zaslav also praised improvement at HUB and much-criticized OWN. Saying “Oprah’s engaged,” Zaslav noted that ratings in Oprah’s key demographic have grown every month of the year, and are up more than 25 percent year-to-date, on track for profitability in the second half of next year. A sign that the network is getting back on track, Zaslav pointed out that every advertiser that signed on before the network went to air has resigned.
But perhaps most interesting — and most telling for the industry — was Zaslav’s comment about negotiating distribution deals. (Discovery has several coming up for renewal this fall.)
When asked if he’d be willing to let Discovery’s channels go dark in negotiations, as Viacomand DirecTVdid in theirpublic negotiation, he wouldn’t answer directly. Instead he said “we’ll be pushing to get fair value,” noting that Discovery is investing over $1 billion in content.
“We want to be more important to viewers,” Zaslav said. “When we do we’ll be able to get more value.”
Bottom line: Don’t be surprised if we see more blackouts in the fall as content creators look to pass along their higher costs to distributors.
—By CNBC's Julia Boorstin
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*This post has been updated since it was orginally published.