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Basic Cable TV Networks Losing Momentum

Kagan Research forecasts that the basic cable TV network business, after a spectacular quarter-century run, will experience a deceleration of its sizzling revenue growth rate in the next five years. Despite that, its profit outlook remains rosy.

How? The growth in expenses is expected to decelerate even more, given economies of mass scale and only moderate rises in program expenses. Kagan Research forecasts profit margins will rise several percentage points to reach a lofty 41 percent by 2010. "It's definitely a healthy scenario," notes Derek Baine, senior analyst at Kagan Research. Basic cable networks generated $29.9 billion in total U.S. revenue for 2005.

Channel advertising revenue will rise 15 percent in 2006, but that rate is forecast to decelerate to 12 percent in 2010 � still a robust double-digit increase. In the same 2006-2010 time frame, programming costs as a percentage of total revenue are forecast to fall two percentage points.

A la carte � selling channels to consumers individually or in small groupings instead of big basic with 50 or more channels � remains a question mark as the U.S. Congress debates whether to enact legislation.

"If you look at U.S. basic cable channel service on a per channel basis, consumers bills have been flat for several years," notes Baine. However, in other countries where the pay-TV sector is more competitive, individual channel and tier subscription pricing has typically declined.

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