According to MarketLine, the worldwide broadcasting and cable TV industry is expected to reach around $475 billion in 2015, showing growth of 27% annually. Out of this total market, TV advertisement contributes around 44%. Three broadcasting and TV companies are focusing on growth through production of new and existing hit series, joint ventures, and building a portfolio of growing businesses. Will their plans provide any exciting investment opportunities?
Standing tall on the shoulders of its holdings
Liberty Media Corp (NASDAQ:LMCA) holds approximately 52% in Sirius XM Radio Inc (NASDAQ:SIRI) and derives 70% of its stock value from this asset. Sirius XM, a satellite radio service provider, has a monopoly over satellite radio in the U.S. Sirius XM Radio Inc (NASDAQ:SIRI) derives the bulk of its business from the U.S. automobile market. Sirius has partnered with 10,000 dealerships across the U.S. through the “Pre-owned Vehicle Program” in order to promote future growth. Under this program, franchised dealers are eligible to give a free three-month subscription to customers buying a pre-owned car. The basic subscription for Sirius is around $15 a month. Historically the conversion from trial to paid user for Sirius is around 45%, providing growth opportunity. Sirius expects total subscription revenue to reach $3.32 billion this year, up from $2.96 billion in 2012, which in turn will benefit Liberty Media Corp (NASDAQ:LMCA).
Charter Communications, Inc. (NASDAQ:CHTR), an asset of Liberty Media Corp (NASDAQ:LMCA), completed the acquisition of Cablevision’s Optimum West cable systems for $1.6 billion. Liberty Media holds 27% of Charter Communications. This acquisition will provide Charter Communications with 375,000 additional subscribers in Colorado, Montana, Wyoming, and Utah, boosting the company’s total subscribers 5.8 million across 29 states. The cable business of Optimum West, acquired by Charter, is one of the fastest-growing businesses in the cable multiple-system operator market (MSO) in the U.S. The acquisition is a major step forward for Charter Communications, Inc. (NASDAQ:CHTR) to become a major player in cable MSO space, and it will gain additional annual advertisement revenue of around $10 million. In turn, this will benefit Liberty Media Corp (NASDAQ:LMCA) through its holding.
Growing royalties and pay-TV subscriptions
The royalty revenue earned by Grupo Televisa SAB (ADR) (NYSE:TV) from Univision in the second quarter ending in June this year was $70.5 million. Grupo Televisa SAB (ADR) (NYSE:TV) receives royalties for giving exclusive rights of its programs to Univision for airing in the U.S through the joint venture “TuTV”. Televisa has 50% interest in the joint venture. The content provided by TuTV targets the Hispanic population living in the U.S., estimated at around 53 million. In addition, the Hispanic population has contributed around 60% of the total U.S. population growth, a benefit for Univision.
The viewership of TuTV has also increased due to live broadcasts, as its target audience prefers this to pre-recorded. Hence, the channel has gained viewers at the cost of its English-language broadcasters. Grupo Televisa SAB (ADR) (NYSE:TV)’s royalty revenue from Univision is expected to reach $270 million in 2013.
Grupo Televisa SAB (ADR) (NYSE:TV) is betting its growth in the pay-TV segment. Pay-television subscriptions have increased by 233,000 to 5.65 million in the second quarter of 2013, which resulted in a 12.8% increase year over year in the Sky segment’s revenue, to $305 million. The growth in pay television is due to its low-cost packages. According to the Business Bureau, pay television has reached 14 million households and risen to 50% penetration in Mexico. At present, Grupo Televisa SAB (ADR) (NYSE:TV) has more than 60% of the pay-television market in Mexico. The growth in pay television will continue because the free broadcast channel gives immense time to advertisers, whereas pay TV provides uninterrupted programs. This trend will continue to benefit Televisa.