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Economics

Cable TV
By the Project For Excellence In Journalism
Economics

Introduction

The year 2009 brought overall economic growth to the cable news industry, further distinguishing this sector from the travails faced by of other media platforms.

The Economics of Cable News
Channel 2009 Profit 2009 Total Revenue 2009 Ad Revenue 2009 Subscriber Revenue 2008 CPM for 30-second ad 2009 Average Monthly Subscriber Fee
CNN & HLN $475.5 million (+1%) $1.18 billion (-1%) $513.4 million $578.8 million $5.81 $0.48
Fox News $534.8 million (+19%) $1.21 billion (+14%) $622.9 million $569.5 million $3.97 $0.49
MSNBC $149.6 million (+1%) $367.5 million (+ < 1%) $183.6 million $180.2 million $3.33 $0.16
Source: SNL Kagan, a division of SNL Financial LLC. All figures are estimates, and figures for 2009 are projections.

But as in audience, there were big differences among the channels. For the first time, Fox News was clearly on top.

While all three cable news operations — CNN (whose finances are combined with HLN), Fox News, and MSNBC — were projected to increase their profits, at CNN and MSNBC the gains were a negligible 1%.1 Only Fox was projected to increase total revenues, and to do so substantially.

In further signs that Fox was eclipsing CNN as the economic powerhouse of cable news, a role CNN held for years even after being eclipsed in ratings, Fox showed gains in all economic indicators for the cable industry except for CPM, the amount it charges advertisers, per thousand viewers, for each 30-second ad. Fox was projected to again outpace CNN in advertising revenue, but also to eclipse it for the first time in profit and in the average license fee per subscriber.

MSNBC had a steady year but showed no hints of posing a threat to either of its rivals anytime soon. Even CNBC, its sibling business channel with a smaller but more affluent audience, was more than twice as profitable as MSNBC. (For more on CNBC, see Specialty Channels.)

Cable News Profitability by Channel
1997-2009
Design Your Own Chart
Source: SNL Kagan, a division of SNL Financial LLC. CNN figures include HLN; all figures are estimates.

Profits

Cable news was expected to be a robust business in 2009, despite — or perhaps partly because of — the U.S. recession.

SNL Kagan, a leading financial research firm, estimated that the pretax profits of the major cable news channels combined would grow 9% to $1.16 billion in 2009, up from $1.07 billion in 2008.

The projections are periodically revised, and the figures in this study reflect those that were issued in October 2009.

Fox News was expected to lead not only in percentage growth, but also in total profit in 2009, according to SNL Kagan, the leading provider of economic data for the cable industry. There have been years when analysts erroneously projected that Fox would eclipse CNN/HLN’s profits. Indeed, CNN Worldwide President Jim Walton stated in December that profits would be up “double digits” for the year—a stronger growth estimate than that made by SNL Kagan. But the firm projected that FOx would exceed CNN/HLN in 2009 by $59 million—the biggest difference since SNL Kagan began tracking the channels.

Even if Walton’s estimates prove accurate, it appears more likely that Fox will have maintained its edge in total profits for the year.

  • CNN, whose figures include HLN, was expected to increase its profits by just 1% to $475.5 million in 2009, up from $470.3 million in 2008.
  • Fox News was expected to increase its profits by 19% to $534.8 million in 2009, up from $450.8 million in 2008.
  • MSNBC was expected to increase its profits by only 1% to $149.6 million in 2009, up from $148.1 million in 2008.
Cable News – Profits
2008 vs. 2009, in Millions of Dollars
Channel 2008 Projected 2008 Revised (difference) 2009 Projected
CNN & HLN 470.2 470.3 (+0.1) 475.5
Fox News 447.4 450.8 (+3.4) 534.8
MSNBC 135.4 148.1 (+12.7) 149.6
Source: SNL Kagan, a division of SNL Financial LLC
Note: Note: Numbers are estimates. Projections for the year 2008 were originally published in March of that year, but revised in December, while projections for 2009 arrived in October of that year.

Revenues

In a year when many businesses had declining revenues, Fox News stood out for its strong growth. CNN and MSNBC remained basically flat, although that is still not such a bad thing in an environment where some media companies had great losses.

  • CNN, along with HLN, was expected to decrease total revenues 1% to $1.18 billion in 2009, down from $1.19 billion in 2008.
  • Fox News was expected to increase its revenue 14% to $1.21 billion in 2009, up from $1.06 billion in 2008.
  • MSNBC was expected to increase its revenue by less than 1% to $368 million in 2009, up from $367 million in 2008.
Cable News Revenue (Estimated)
2008 vs. 2009, in Millions of Dollars
Channel 2008 Projected 2008 Revised (difference) 2009 Projected
CNN & HLN 1,197.7 1,191.7 (-6) 1,178.9
Fox News 1,058.5 1,061.9 (+3.4) 1,208.8
MSNBC 346.6 366.6 (+20) 367.5

Revenue Streams

Cable’s dual revenue streams — advertising and subscriber fees — provided them relief from the ad declines bedeviling other media. For CNN and MSNBC, subscriber fees, which cable providers pay the channels, cushioned the blow of decreased advertising revenues. For Fox, growth in both subscriber and advertising revenues put it in a much stronger financial position than the other channels. (For more on the two revenue streams of cable, read the backgrounder.)

Cable News Revenue Streams (Estimated)
2009
Design Your Own Chart
Source: SNL Kagan, a division of SNL Financial LLC
CNN figures include HLN

Each of the two streams counts for about half of the total revenues to cable news channels. Subscriber fees were projected to total $1.3 billion in 2009, as was advertising revenue. In general, each stream makes up about half of a channel’s total revenue.

Subscriber Revenues

The year 2009 marked the first time that Fox News was expected to pass CNN in the average monthly revenue per cable subscriber.2 MSNBC would continue to receive a much lower fee than either of the other channels.

In total subscriber revenue, though, CNN continued to beat Fox News by a small margin. This is largely due to the fact that CNN is available in slightly more households than Fox. If each of the channels were available in the same number of households, then Fox would probably have the edge in total subscriber revenue. And if its subscriber fees — also known as license fees — continue to increase sharply, as they have in recent years, the channel will soon beat CNN in subscriber revenue whether they are in more homes are not.

  • CNN, along with HLN, was projected to increase its subscriber revenue 5% to $579 million in 2009, up from $550 million in 2008. Its average subscriber fee was expected to rise to 48 cents per subscriber, up from 47 cents.
  • Fox News was projected to increase its subscriber revenue 19% to $570 million in 2009, up from $478 million in 2008. Its average subscriber fee was expected to rise to 49 cents per subscriber, up from 42 cents.
  • MSNBC was projected to increase its subscriber revenue 6% to $180 million in 2009, up from $171 million in 2008. It was expected to raise its average subscriber fee to 16 cents per subscriber, up from 15 cents.

Fox News’ gains in subscriber revenues are the result of contract negotiations with cable systems that are finally coming to fruition. Fox’s success in those negotiations is a reflection of the channel’s ratings surge over recent years (see Audience for more). For more discussion of the efforts of News Corp., Fox’s parent, to attract this type of revenue for its broadcast operations in 2009, see the Network TV chapter.

Cable News Monthly Revenue per Subscriber
1998-2009, by Channel
Design Your Own Chart
Source: SNL Kagan, a division of SNL Financial LLC
CNN figures include HLN

Early 2009 brought with it concerns of a new vulnerability for cable TV. With improvements in the quality and accessibility of online videos, and the success of free video websites such as hulu.com, and the improved clarity of broadcast television signals after the change from analog to digital, might some consumers cancel their cable subscriptions? The deepening recession seemed to suggest that this was a likely outcome.

Yet the most recent projections by SNL Kagan actually showed growth in 2009, in both number of cable subscriptions and subscription revenues.

It could be that with the recession, at-home television viewing is seen as a cheap — and therefore preferable — alternative to other forms of entertainment.

Nevertheless, the Sanford C. Bernstein research group conducted a poll that found that 35% of people who watch video online said they might cancel their cable subscriptions within five years.3 And if an a la carte pricing model were to replace the current packaged system, the cable business model could be upended.

Not coincidentally, Comcast launched Fancast Xfinity TV, an online service for its subscribers, in December. The service allows subscribers to watch cable TV content online after authenticating their identity as paying customers. Fancast is the first official portal to launch based on the TV Everywhere concept, and could protect cable license fee revenues. According to SNL Kagan Analyst Derek Baine, it is likely that nearly all multichannel providers, including satellite companies, will adopt this model.4

Advertising Revenues

When it came to the second part of cable revenue, advertising, Fox News was expected to extend its lead over CNN for a second year. It was projected to be the only news channel to generate more revenue in 2009 than in 2008. CNN, however, kept its hold on one part of the equation: rates advertisers pay based on a cost per thousand viewers (CPM). MSNBC remained in third place in both CPM and overall ad revenues.

The mixed results in terms of advertising revenue point to a challenging economic climate in which the car and financial industries, two big sources of advertising, — were hard hit. The fact that things were not worse suggests that the channels took an aggressive approach to replace some of these sources of advertising with others.

Cable News – Net Ad Revenue*
2000-2009, in Millions of Dollars
Channel 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CNN & HLN 412.8 445.9 359.8 399.2 317.4 375.9 399.0 434.0 556.3 513.4
Fox News 51.2 59.9 109.8 208.6 257.0 345.3 388.3 460.1 567.6 622.9
MSNBC 138.8 115.7 98.4 113.1 111.0 106.4 116.6 137.4 192.7 183.6
Source: SNL Kagan, a division of SNL Financial LLC
*Note: Net Ad Revenue refers to revenue generated after discounting the commission that goes to advertising agencies. Figures for 2009 are projections.
  • CNN and HLN’s advertising revenue were projected to drop 8% to $513 million in 2009, down from $556 million in 2008.
  • Fox News was projected to increase its advertising revenue by 10% to $623 million in 2009, up from $568 million in 2008.
  • MSNBC’s advertising revenue was projected to drop 5% to $184 million in 2009, down from $193 million in 2008.

As for the rates charged for those ads, CNN still has an edge. In 2008, the latest year for which there are data, advertisers had to pay CNN $5.81 per thousand estimated viewers per 30-second advertisement, while they paid Fox $3.97, and MSNBC $3.33. All of these figures are down slightly from 2007.

CNN maintains that it is more valuable to advertisers because, when all its platforms are included, it has wider reach than all broadcast and cable networks. Greg D’Alba, the executive vice president of CNN ad sales, points to Nielsen TV/Internet Fusion data as well as cume to support that argument.4

Part of what buoyed CNN was HLN’s warm reception among big-name advertisers, who took notice of HLN’s ratings surge in 2009 (CNN and HLN revenues are tallied together). First-time advertisers include Subway and Pepsi. Other advertisers that had left HLN returned to the channel.5

Advertising Rates on Cable Television
2008, Select Networks (Cost per Thousand Viewers for 30-Second Ad)
Cable Channel CPM ($)
ESPN 15.27
Golf Channel 11.12
MTV 10.72
Bravo 10.21
Comedy Central 7.46
CNN 5.81
TLC 5.78
Weather 4.61
E! 4.32
Lifetime 4.13
Fox News 3.97
MSNBC 3.33
Source: SNL Kagan, a division of SNL Financial LLC

If Fox continues to gain in both total viewers and ads, the effect of a lower rate will continue to diminish.

There were some questions in 2009 about the effect on advertisers of partisan-sounding rhetoric on Fox News. Glenn Beck in July raised a stir with some comments he made about President Obama. As a result, some companies moved their ads from Beck’s program to others on Fox.

Among those who moved their ads from Beck’s program were ConAgra, Procter & Gamble, Geico and Sprint, some 33 in all.

Why the pullback in advertising, especially when Beck brings so many viewers? Clorox issued a statement: “We do not want to be associated with inflammatory speech used by either liberal or conservative talk show hosts.”6

Fox News stated that these companies “have redistributed to other programming on the network, so there has been no revenue lost.”7 There is no evidence that it harmed Fox’s financial situation.


Footnotes

1. All profit estimates in this chapter are pre-tax.

2. The fee collected by the cable channel differs from system to system.

3. Tim Arango, “Cable TV’s Big Worry: Taming the Web,” New York Times, June 23, 2009

4. Personal communication with SNL Kagan analyst Derek Baine, January 4, 2009

5. Mike Reynolds, “Cable TV Upfronts 2009: CNN Cites Reach Edge,” Multichannel News, April 13, 2009

6. Claire Atkinson, “Viewers, Advertisers Are Finding HLN,” Broadcasting & Cable, October 19, 2009

7. David Bauder, “Attack on Obama Riles Beck’s Advertisers,” Associated Press, August 23, 2009