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Tough ad market set to continue for Southern Cross

Yet another media company blames the tough advertising market for falling revenues.

Southern Cross Media Group (ASX: SXL) has reported a jump in profits by 48% to $95 million for the 2012 financial year , but still blamed the tough ad market already noted previously by the likes of Fairfax Media Holdings (ASX: FXJ)News Corporation (ASX: NWS) and Seven West Media (ASX: SWM).

Revenues and profits were mainly driven by the company’s acquisition of the Austereo Group in May 2011. Ad revenues from the company’s TV division fell 8.2%, while its metro radio stations reported a 4.7% fall in ad revenues. Poor TV ratings and loss of market share were also to blame for the falling advertising income.

Regional radio advertising went against the trend, rising 3.4%.

Southern Cross has a diversified stable of 68 radio stations and 14 regional free-to-air TV licences. The owner of Australia’s number 1 metro radio network has a 36.6% market share – its 2Day radio station has celebrated its fifth year as Sydney’s number 1 FM breakfast show. Not content with that, Fox and MMM have the number 1 and 2 breakfast shows in Melbourne.

The tough ad market looks set to continue, with Southern Cross seeing no end to the slump, echoing Fairfax Media’s CEO comments that he expected no turnaround before 2015.

The company’s TV audiences are falling as Ten Network Holdings (ASX: TEN) owner of Channel Ten, struggles with its programming – Southern Cross licences Channel Ten content. In the past few weeks, Ten has axed three separate shows, due to very low audience numbers.

Free-to-air TV faces both structural and cyclical issues. Advertising appears to be moving online and away from traditional media such as newspapers and free-to-air. Consumers are more likely to turn to the internet for entertainment these days, rather than switch on the telly. Whether this will turn around, only time will tell.

The company’s radio division appears to have a much better outlook, and is likely to recover when the ad market picks up.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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