The media industry includes a broad range of sectors, from film and television production to electronic games and publishing. Although some sectors of the media industry once saw digital technology as a threat, they now embrace it, developing new digital products and utilizing new content-distribution platforms. Media and entertainment companies have seen increases in their profits and margins as the economy improved.
Media Industry Diversity
The media industry is diverse, comprising 10 sectors: electronic games, interactive media, cable operators, cable networks, satellite television, broadcast television, film and television production, conglomerates, publishing and music. The newer sectors, interactive media and electronic games, have experienced faster growth than the more-mature industry segments of publishing and broadcast television. Cable, satellite, television, film and conglomerates have high barriers to entry. So most small businesses focus on publishing, music-related services, interactive media and electronic games. Many tech startups exist in the latter two categories.
Media Profit Margins
Most Internet companies get most of their revenues from advertising, but they’re increasing their proportion of sales from subscriptions. The Ernst & Young report uses earnings before interest, depreciation, taxes and amortization over revenues as a cash-flow-based profit margin. Interactive media had some of the highest average margins, approximately 35 percent over the four years ending in 2010.
Newspapers and Magazines
Newspaper and magazine companies in general have struggled with the rise of the Internet as a news and information source. As a result, their profit margins have dropped. Newspapers have reduced expenses by reducing the number of full-time journalists and support employees, changing the size of the newspaper, and switching to lower-grade newsprint. More newspapers and magazines now offer digital subscriptions. This provides subscribers easy access on their computer, tablet or mobile device and drastically reduces print and distribution costs. Specialty, trade and locally focused publications that are driven by end users have fared better.
More on Profit Margins
Profit margins can vary greatly across a broad, diverse industry such as media. The profit margin is calculated by dividing net income by sales. Comparison across segments shows that Internet companies with margins of 21.8 percent in 2012 had higher profitability than newspapers, whose profits margins dropped to 3.6 percent as of 2012. Profit margin is a quick way to see how much profit is derived from every dollar of revenue.
- Billboardbiz: Music, Film Industries Average Lowest Profit Margins Among Media Sectors [http://www.billboard.com/biz/articles/news/1178849/music-film-industries-average-lowest-profit-margins-among-media-sectors]
- Ernst & Young: Spotlight on Profitable Growth –- Media & Entertainmenhttp://www.billboard.com/biz/articles/news/1178849/music-film-industries-average-lowest-profit-margins-among-media-sectors [http://www.ey.com/Publication/vwLUAssets/Spotlight_on_profitable_growth_2011/$FILE/Spotlight%20on%20Profitable%20Growth%202011.pdf]
- Yahoo Finance: Industry Summary [http://biz.yahoo.com/p/sum_qpmd.html]