Cable’s financial success – more than just television

Cable and satellite companies in Canada (known in regulatory speak as broadcasting distribution undertakings or BDUs) reported revenues that totaled in excess of $10 billion dollars in 2008, according to data released by the CRTC on April 23, 2009.

The industry sector’s revenues in 2008 represented almost three-times that reported in 2000 when total revenues were less than $3.7 billion. Profits (defined as income before interest and taxes) have increased ten-fold during the same period, reaching almost $2.2 billion in 2008 from only $0.25 billion in 2000.

The rapid growth in revenues and profits is attributable to a number of factors.

The main line of business for cable and satellite companies has traditionally been the distribution of television programming. Since 2000, the range of television programming and related services has increased significantly; initially with the roll out of digital services, and more recently, with high definition programming and personal video recorders. These services have contributed to overall growth in revenues.

At the same time, there have been increases in the cost of providing these services, both in programming and capital investment. For cable companies in particular, the capital investment has contributed to declining operating income and profits. Operating margins decreased from 39% in 2000 to 28% in 2008. Profit margins decreased from 20% to 6.5% over the same period.

(The CRTC did not report depreciation or profits separately for programming services for the period 2006 to 2008. Profits were derived for the last three years based on estimates of the depreciation expense attributable to programming services using trends in the ratio of depreciation for programming versus all services reported for prior years.)

The real source of growth, particularly in profits, has been the launch by cable companies of broadband internet and, more recently, telephony services.

At the start of the decade, services other than television programming accounted for less than 6% of the revenues and 2% of the profits generated by cable companies. By 2008, internet and telephony services generated more than 42% of the revenues and 85% of the profits. The financial results reported for satellite companies consist almost entirely of programming services so a similar comparison is not meaningful.

There have been suggestions that cable and satellite companies should be required to pay a fee for carriage to Canadian conventional broadcasting stations. At a public hearing on April 27, 2009, the CRTC provided estimates that a fee of $0.50 per station per subscriber each month would amount to more than $352 million in annual payments from cable companies, according to a report by the Globe and Mail.

Annual payments of this magnitude would have exceeded the profits generated by cable companies from the distribution of television programming services in any of the years 2005 through 2008.