Disney and NBC Lead in Fees, Advertising Revenue

Even though it's no secret that the TV industry has struggled because of fragmentation over the years, the top companies still account for the bulk of distribution fees and advertising revenue. This has been led by Disney (NYSE: DIS  ) in subscription fees and Comcast's (NASDAQ: CMCSA  ) NBC in advertising revenue.

The combination of advertising and subscription fee revenue in the TV industry amounts to just under $80 billion. Subscription fees come in at $40 billion, while TV advertising revenue amounts to $37 billion, according to Sanford C. Bernstein analyst Todd Juenger. 

Distribution fees
In the distribution fee segment of the market, Disney is the leader; it has accounted for 20% of all revenue, just beating out Time Warner (NYSE: TWX  ) , which has 18% market share. Since TV revenue growth is expected to be predominately tied in with distribution fees over the next several years, this is a significant market to lead in.

Included in Time Warner's properties are CNN, TNT, HBO, and TBS. Disney owns ABC Family, ABC broadcasting network, ESPN, and of course the Disney Channel, among others. Other companies among the leaders in distribution fees are 21st Century Fox (NASDAQ: FOXA  ) , which was formerly part of the News Corp. empire. It is the parent of Fox Broadcasting, Fox News, and FX. Next is NBCUniversal, the owner of CNBC, NBC, and USA, followed by Viacom (NASDAQ: VIA  ) , which owns Nickelodeon, Comedy Central, and other channels.

Since distribution or retransmission fees are considered to be the major TV growth catalyst over the next few years, this is a key metric to watch when evaluating the future growth of any of the major TV companies. Investors need to consider the fact that the larger media companies have a variety of sectors they serve in, however, so TV content fees must be taken as only one of the factors in the overall growth outlook of any company.

Assuming that Disney and Time Warner continue to lead in this area, though, they have a strong position going forward.

Advertising revenue
On the advertising side of the equation, NBC is the leader there with 20% of market share, followed by Disney with 17%, Fox with 12%. Viacom and CBS have 11% each, while Time Warner comes in with about 10%.

With about $77 billion in overall TV revenue, you can see how strong Disney is when taking into account advertising and distribution fee revenue. That means Disney generates about $28.5 billion in revenue from its TV operations, while Time Warner generates about $16.6 billion. Together, these two companies account for over $45 billion of the $77 billion in revenue the overall TV industry produces.

That's not to say the fragmentation of the TV industry hasn't had a negative impact, as on the advertising side of things it's a loss of about 20% when you go outside the major players. That's about $7.4 billion in revenue that the big TV companies aren't getting, which is not an insignificant amount. It also shows that the impact of market fragmentation maybe isn't as deep as some may think.

Outlook
Looking ahead, it appears advertising will be under pressure because of the growing digital ad market, where marketers aren't willing to pay as much per ad as they do on TV. One exception is digital video ads, which advertising companies say they are willing to pay top dollar for.

For now, distribution fees are looked upon as the growth engine on the TV side of the business. That area will eventually come under pressure, however, because companies like Comcast and Time Warner Cable will have to pass some of those rising fees onto consumers. This will cause conflict, as consumers have become increasingly resistant to rising prices.

It doesn't look like it has come to the point of consumers abandoning the content distributors yet, but it is something that investors need to closely watch as the fees continue to rise.

Can TV stocks help you retire in style?
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2848078, ~/Articles/ArticleHandler.aspx, 10/23/2014 3:23:26 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement