Cable's Cash Flow Business

The U.S. cable TV business was for many decades a difficult business for investors to understand. For decades, cable companies seemed to be plowing all their money back into construction and capacity. Few were profitable in a classic sense, but generated huge amounts of cash flow. That has required quite a lot of explaining by cable executives.


It seems cable remains a cash flow story, in large part, though a handful of cable TV firms now pay a dividend and are profitable in a classic sense. Cable companies paying dividends


Revenues for seven large U.S. cable operators have risen at an annual growth rate of 7.3 percent, from $53.57 billion in 2006 to $70.95 billion in 2010, and operating cash flow has risen 8.3 percent annually, from $20.19 billion in 2006 to $27.78 billion in 2010, SNL Kagan reports.

Margins have held steady in the upper 30 percent range, but the pressure has increased due to rising programming expenses, including both cable network and retransmission costs.



The programming expense growth has been somewhat offset by cash flows from the high-margin advanced services segments and from advertising revenues. In addition, 2010 marks the first time all of the large cable companies in the index were free cash flow positive.


Of course, nothing is really certain in video entertainment and telecom these days. The ability to deliver such predictable results and cash flow hinges on the continued success of the business model, and many would say that is questionable, over time.


So far, though, the cable industry has been remarkably adept at responding to declining, and now negative growth rates in its legacy business. To the extent that cash flows continue to grow in the future, more and more of that growth is going to come from new sources.




Cable is a cash flow business