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“TV studios have become the highest return on invested capital business for several of the large-cap media stocks,” he argued in a report, citing “a number of secular tailwinds, including a robust domestic and international syndication market, as well as newer monetization opportunities like subscription VOD.”
Cable networks have boost spending on U.S. syndication, a business that has grown at a compound annual growth rate of 7 percent from $10 billion in 2002 to over $20 billion today, according to the Wall Street observer. “Most of the growth in recent years has come from cable networks looking to fill up their schedules with top quality sitcoms and dramas,” he explained, mentioning a recent sale of NCIS: Los Angeles to TNT.
“Rapidly increasing pay TV penetration in international territories has led to a similar increase in demand for TV content in the syndication window,” DiClemente added. “Many top shows are now sold into international syndication before airing on the linear network, allowing the studios to achieve profitability sooner than ever before.”
Subscription VOD services, such as Netflix and Amazon.com, and TV Everywhere initiatives also represent new revenue opportunities. “Subscription video on demand services are proving to be a boon for studio economics, having found a niche in bidding for library TV content,” DiClemente said. “As the cable operators build out their respective TV Everywhere offerings, we expect to see even more demand for digital content rights.”
Rising retransmission consent dollars will allow broadcast network owners to invest even more in content in the future, according to the analyst. “We expect the broadcasters will invest even more in content, likely creating a more competitive bidding process for top shows – a positive for studio licensing fees,” DiClemente said.
DiClemente also echoed other industry observers, saying he doesn’t expect Apple “to attempt the costly and logistically daunting task of standalone distribution” in the TV space. The same goes for other tech giants, he signaled. “It would be very difficult, not to mention expensive, for new entrants to secure the requisite digital and linear rights,” he said. Apple has recently focused its efforts on potentially teaming with pay TV operators on set-top boxes rather than launching its own full-fledged TV offering.
The Barclays analyst raised his price target on CBS Corp. from $38 to $40, his target on News Corp. from $28 to $29 and his target on Time Warner from $40 to $43.
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