) TNT network has gone through tough times amid declining
ratings in the recent past. However, in a nice turn, the network
finished Q2 as basic cable's No.1 network in primetime among total
viewers and key adult demographics. The network continued to
benefit from strong viewership of
Rizzoli & Isles
Higher ratings translate into higher advertising income as well as
licensing and subscription revenues for the content owners. TNT's
advertising as well as subscription revenues have been on an
uptrend over the past few years, but a decline in ratings is a
cause of concern. Indeed, as we enter the third quarter, TNT's
prime-time viewership has already declined by 16% through July 19
in the 18 to 49 demographic.
In the previous quarter, the company's management stated that
TNT has lost ground with younger viewers as they didn't take enough
creative risk with its programming during the past few years.
However, the company has now started addressing this issue and said
that there will be new programming for the summer, which should
help TNT expand its audience with key male demos. In June, the
network came up with two new series -
Murder at the First
The Last Ship
- both of which were well received and scored high ratings.
The Last Ship
attracted 7.2 million viewers in Live +3 for the June 22 episode.
Earlier this month, the network renewed the series for second
season. Given the network's focus on the younger generation by
bringing in more new programming, we expect the ratings to grow.
Going forward, this will have a positive impact on Turner's
See our complete analysis for Time Warner
How Are TNT's Advertising And Subscription Revenues
We estimate that TNT U.S. contributes close to 15% to Time
Warner's stock value. The network derives its revenues primarily
from two sources - advertising and subscription. The network's
advertising revenues have been on an uptrend, rising from $873
million in 2008 to $1.14 billion in 2013. We believe this uptrend
will continue in the coming years driven by new programming. We
estimate advertising revenues will grow to $1.4 billion by 2020,
representing an average annual growth rate of 3%.
Subscription revenues have also been on an uptrend in the past
few years. The key driver has been continued growth in monthly
subscription fees, which increased from $0.93 in 2008 to an
estimated $1.24 in 2013. We estimate monthly subscription fee will
grow to $1.45 towards the end of the decade. This growth will
primarily be driven by annual price increases. Contracts between
content companies and pay-TV service providers include prescribed
yearly increments for fee per subscriber. These contracts are
long-term, spanning across several years. TNT offers good mix of
drama and sports and thus appeals to broad segment of viewers. As a
result, Pay-TV service providers ensure the availability of TNT in
their programming packages. This suggests that the fee increases
continues in the future.
Ad Spending Supportive
The advertising market trended well in 2013 and in Q1 2014.
Overall U.S. advertising revenues grew by 1.3% in 2013 despite the
absence of heavy political spending and the Olympics compared to
the prior year. Ad spending increased by 5.7% in Q1 2014 driven by
the Sochi Olympics. Television as a medium continues to lead with
more than 57% share of the overall advertising market. We expect a
slight uptick in 2014 ad spending primarily due to the U.S. midterm
elections. According to research by eMarketer, the 2014 TV ad
market will grow 3.3% to $68.54 billion and to $78.64 billion by
2018. The overall growth in the advertising market will boost
advertising income of ad-supported cable and broadcasting networks.
TNT will benefit from the advertising growth as advertising income
accounts for more than 40% of the network's revenues.
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