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SNL Kagan, an expert on the Economics of Basic Cable Networks (EBCN) in the US, has expanded its coverage to include leading markets in Europe.
In the UK, total revenues increased at a compound annual growth rate (CAGR) of 3.1 per cent over the past four years to $5.6 billion while programming costs fell at a CAGR of 0.8 per cent to $3 billion. Cash flow increased at a CAGR of 11.4 per cent to $1.6 billion while margins expanded from 29.4 per cent to 30.5 per cent during the same period.
In France, total revenues grew at a CAGR of 0.9 per cent over the past four years to $2.9 billion while programming costs rose at a CAGR of 6.8 per cent to $2 billion. Excluding the substantial startup investment by a new premium sports network, cash flow declined at a CAGR of 1.5 per cent to $406.3 million while margins contracted from 18.7 per cent to 15 per cent during the same period.
In Germany, total revenues grew at a CAGR of 4.5 per cent over the past four years to $5.9 billion while programming costs grew at a CAGR of 0.1 per cent to $3.1 billion. Cash flow grew at a CAGR of 16.4 per cent to $1.7 billion while margins expanded from 26.4 per cent to 29.8 per cent during the same period.
With the US ad market slowing and programming costs rising rapidly, the financial prospects for US cable networks are no longer as bright. Those circumstances have virtually every major media conglomerate looking abroad for opportunities. One key theme running across multiple markets which is consistent with the market in the US is that the ad market is soft but sports rights and original programming costs continue to escalate rapidly, putting pressure on cash flow margins. This trend is unlikely to reverse anytime soon, which will likely cause more contentious carriage battles between multichannel operators and cable networks. This is one reason that we are seeing a lot of M&A activity in Europe. The more networks a media company has under its banner, the more leverage it gains with multichannel operators.