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Ernst & Young: New study shows profitability and growth in media & entertainment
March, 25th 2011

In a new study on the growth and profitability of the media and entertainment industry released today by Ernst & Young, cable operators showed the highest profitability among all media and entertainment sectors, and interactive media was the fastest growing sector within the industry. The report also reveals that, despite current perceptions, the media and entertainment industry as a whole is yielding greater profitability and growth than many other stock market indices. All measures of profitability and growth are based on EBITDA margins and dollars respectively.

The new report, Spotlight on profitable growth: media & entertainment, ranks 10 media and entertainment industry sectors on both their profitability and growth rate, as well as providing a performance comparison of the overall media and entertainment business to other stock market indices.

The data illustrates that despite a difficult operating environment, media and entertainment companies continue to show great resiliency," said John Nendick, Global Media and Entertainment Leader at Ernst & Young. Additionally, we believe that as advertising and consumer spending continues to rebound, and digital initiatives blossom, improved growth and profitability lie ahead."

When looking at overall profitability during the period 2006-2010E (figure A), cable operators had the highest average profitability at 38%, followed by interactive media 35%; cable networks 31%; satellite television 27%; publishing 20%; conglomerates 19%; television broadcast 18% and film and television production, electronic games and music, all at 11%.

When looking at just estimated 2010 profitability, the media and entertainment sectors ranked nearly identical to the five-year average with cable operators placing first at 39%; interactive media, 36%; cable networks, 33%; satellite TV, 27%; publishing, 20%; conglomerates, 18%; TV broadcast, 16%; electronic games and film and television production, both at 12%; and music, 9%.

An examination of the 2006-2010E average growth rate (figure A) revealed that, in terms of EBITDA dollars, interactive media is the fastest growing media and entertainment sector at 15%, followed by electronic games, 14%; cable networks, 10%; cable operators, 10%; satellite TV, 9%; film and television production, 7%; conglomerates, 3%; publishing, -1%; television broadcast, -4%; and music, -5%.

Spotlight on profitable growth also shows that the combined growth rate of all 10 media and entertainment sectors taken as a whole outperforms many other industries as measured by a comparison to key cross-industry stock market indices (figure B). The 2006-2009 growth rate for the Ernst & Young media and entertainment study group is 5%, compared to the CAC 40 Index, -5%; Nikkei Index, -5%; S&P 500 Index, -13%; DAX 30 Index, -14%; and the FTSE 100 Index, -17%.

During the period 2006-2009, the media and entertainment industry also proved to be most profitable when compared with the other cross-industry stock market indices (figure B). The ten sectors of the media and entertainment industry measured by Ernst & Young had an average profit margin of 23%, which held the number one spot, followed by S&P 500 Index and FTSE 100 Index, 22% CAC 40 Index, 17%; DAX 30 Index, 16%; and the Nikkei Index, 13%.

An improved advertising climate, combined with strong digital distribution strategies will be the key to growth among these media and entertainment sectors, said Mark Besca, Ernst & Young Media & Entertainment Partner. Media and entertainment companies are unbundling and repackaging content in new and innovative ways and recognizing that the majority of future revenue will come from services rather than products.


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