Playing the media game, profitably

Good old cable operators, cable networks, satellite television and new interactive media make the best margins in the media and entertainment business. The worst are publishing, TV broadcasting and music industries.

And, having a media conglomerate is absolutely the wrong way to make money in this business.

That, among other things, is what ‘Spotlight on profitable growth’, a recent report from Ernst & Young (global) shows (see chart). It uses data from 89 global media companies that generated an Ebitda (earnings before interest, taxes, depreciation and amortisation) of $133 billion in 2010.

It gives answers to several questions that bog anyone analysing this business. How bad is the impact of online and other forms of new media on old media? How much money is both old and new media making? While cable, both operators and networks, gross over 30 per cent in Ebitda margins, where they lose are in the growth rate of those margins. That is where interactive media and games score highest. So, while gaming brings in only 12-odd per cent in Ebitda currently, against 37 per cent from cable operators, it is growing the fastest, at a compounded annual rate of 15 per cent.

The big surprise, however, is the bit about conglomerates. One would have thought that having all assets under one roof would improve operating margins; it doesn’t. While overall conglomerates did well, at 20 per cent Ebitda, they are seeing a margin growth of just about three per cent. That doesn’t sound like there is any future in being a big media baron.