In baseball, “Wait ’til next year” is a phrase often born of frustration. For high-definition cable networks, it’s one of hope.
After years of taking losses in order to establish their place alongside standard-definition channels, U.S. HD networks are expected to almost break even this year and generate positive cash flow in 2009 as advertising sales rise with HD television adoption.
The 25 largest HD networks, which recorded a collective $115 million loss last year, will have positive cash flow of $123 million next year. Profit margins, nonexistent this year, will jump to 33% by 2012 as annual revenue for leading networks such as ESPN HD and HD Theater more than triples to around $300 million, according to an SNL Kagan report released this month.
The networks will get returns on their investment as advertising sales make up a larger percentage of total revenue while costs per subscriber drop.
Within the next four years, about two-thirds of U.S. households will have high-definition programming through a cable, satellite or fiber-optic television subscription, up from 19% last year.
“Despite the hurdles new HD networks have to overcome, there is the potential for huge gain, as the traditional cable industry has shown,” SNL Kagan said in the report.
With the number of U.S. HD subscribers more than tripling over the next five years, HD networks’ costs per subscriber, which topped $11 two years ago, will fall to $4.80 this year and will decline further to about $2.50 by 2011.
More importantly, HD networks will be able to count on a jump in advertising sales as the number of households with both HD television sets and subscriptions grows. Ad sales, which made up 9% of revenue for the largest HD networks last year, will account for 18% of total revenue by 2012, SNL Kagan said.
“The pool of ad revenue available to HD networks is fairly small compared with that for traditional cable,” the report said. “The simulcast networks have the challenge of proving there are new viewers, in addition to those who have migrated from traditional networks, to justify asking for additional ad dollars.”