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NEW YORK (MainStreet) — The media and entertainment industry is expected to outperform the major stock market indices in 2013, according to a new report just released by Ernst & Young. Overall revenue and earnings have continued to improve in the entertainment industry, while less-glamorous businesses are still struggling to recover. EY says cable operators will likely be the most lucrative showbiz segment with a 41% profit margin.

The report compares overall media and entertainment business performance to major stock market indices, as well as ranks 10 showbiz industry sectors on their profitability and growth rate.

Interactive media is expected to see earnings growth of 22%. Meanwhile, film and television production costs are falling, as studios distribute fewer releases in favor of streaming, resulting in an 11% return.

The 10 sectors of the media and entertainment industry measured by EY are expected to produce a 2013 profit margin of 26%, compared to the S&P 500's expected annual return this year of 24%. It is the first time in five years that the entertainment industry as a whole will outperform the major stock market benchmarks.

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"Media and entertainment companies are maintaining and growing their businesses primarily by growing their digital revenues and scaling back overhead associated with traditional media," says John Nendick, Global Media and Entertainment Leader at EY. "In emerging markets, increases in advertising, as well as rising incomes and media consumption, have also helped drive revenue and fuel long-term growth as consumers in mature markets continue to migrate toward digital."

The estimated 2013 profitability for the 10 showbiz sectors are: cable operators earning 41%; cable networks, 38%; interactive media, 33%; electronic games, 26%; satellite television, 25%; conglomerates, 25%; television broadcast, 19%; content and information services, 19%; film and television production, 12%; and music, 10%.

The EY report also notes:

  • Interactive media companies are seeing strong growth from an increase in online advertising.
  • Earnings for electronic gaming companies are increasing due to rising consumption on social and casual gaming platforms.
  • Despite rising programming costs, satellite television companies show steady growth from cost controls and increasing revenue.
  • Advertisers still value the ability of television broadcast to reach large audiences despite the rise of competing platforms.
  • In 2012, global music revenues increased for the first time since 1999 due to the growth of licensed digital music services and paid digital downloads.
  • Newspaper and magazine companies continue to face challenging times from declining advertising and subscription revenues. However, business information services companies are reporting stable revenues and margins.

--Written by Hal M. Bundrick for MainStreet