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Is the biggest threat to US media group growth the dollar?

What has been the biggest challenge for US media groups in Europe over the past decade? The rise of subscription video-on-demand? The plateau in broadcast TV viewing? The sudden and rapid expansion in social video?

In actual fact, exchange rate effects – and specifically the strength of the dollar relative to European currencies – have been some of the key issues impacting addressable market value for the international branches of US film and TV groups. To illustrate this, take two statements:
  1. The Western European TV industry grew from $76bn annual revenue in 2008 to a turnover of $89bn in 2015.
  2. The Western European TV industry declined from $96bn annual revenue in 2008 to a turnover of $94bn in 2015.
While seemingly contradictory, both statements are true, depending on how the market is looked at. Using fixed exchange rates (set at Q4 2015 levels), the Western European TV market, consisting of pay TV, broadcast advertising, public funding and subscription VoD, expanded dramatically, growing by $13bn dollars across the period. For local broadcasters and operators, these were net gains – they were making more money at the end of the period than at the beginning.

But for international – and particularly North American – companies operating in the region, the story looks very different. Once devaluation of the Euro, Pound and other currencies is factored in, the market, which was worth $96bn in 2008 at then-current exchange rates, declined to $94bn in 2015. Had Western European currencies retained their 2008 value, the TV market in the region could have been worth $112bn, $18bn more than the value conferred by 2015 rates.

Global channel group Discovery Communications noted in its Q3 2016 results that a key reason for a downturn in financials that quarter was exposure to unfavourable currency impacts. International networks revenue fell 2.7% as a consequence, relative to 1.5% domestic growth. 

Across the TV market globally, the only regions to have actually grown in dollar terms between 2012 and 2015 were Asia and North America. All other regions have suffered relative currency devaluations, which have been significant enough to drive dollar-value market declines.

In light of these currency devaluations, recent M&A activity in North America, such as AT&T’s purchase of DirecTV, the Charter/TWC merger, and Altice’s acquisition of Cablevision and Suddenlink makes more sense. Consolidation often occurs in saturating markets as price competition stretches company finances, and firms look to make efficiency savings. But purchasing North American media companies has had ancillary benefits – stability, and relative growth. North America represented 38% of global TV revenues in 2012. By the end of 2015, it represented 41%. This share of market has not been driven by strong domestic market expansion, but by the strength of the dollar.