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The death of TV

Free-to-air television may be coming to an end, and faces the same threats physical newspapers do today.

The growth of the internet, gaming and mobile entertainment options, and demand on consumers for their ‘viewing time’, is pushing free-to-air TV stations to the brink.

Not that many years ago, the main mode of family entertainment was through television. Like newspapers, those same television stations now face unprecedented threats to their business, through internet-enabled entertainment.

Advertisers, the main revenue source for TV stations, are leaving in droves and moving online. Why bother spending millions on a TV campaign, when an equivalent internet campaign costs much less and can be targeted more accurately at consumers more likely to respond to that advertising?

The arrival of the National Broadband Network (NBN) could be the tipping point. The internet already offers TV shows and movies streamed directly to your television, computer and mobile devices. Speeds of up to 100 times faster than we currently enjoy, and widespread availability is likely to see even more consumers turn to the internet for entertainment on demand.

Seven West Media Ltd (ASX: SWM), Ten Network Holdings (ASX: TEN) and Nine Entertainment will need to revamp their business model and diversify their revenue stream to survive. A potential way of diversifying could be by taking a leaf out of pay TV’s book – through additional digital channels, TV shows and movies available on demand, and pay-per-view shows.

The bad news is our only current pay TV offering, Foxtel — part owned by Telstra Corporation (ASX: TLS) and News Corporation (ASX: NWS)  — is also struggling. In the last financial year, Foxtel only managed to add 30,000 new subscribers, suggesting it too is facing some of the same headwinds as free-to-air TV.

Foolish takeaway

It seems management and owners of the free-to-air stations haven’t yet cottoned on to the threat to their business, given some of their recent statements and actions. No longer is free-to-air TV just competing with the other stations, but a wide range of entertainment media. The first to move will likely gain the advantage, leaving the others fighting over the scraps. Who will it be?

If you only invest in one company this year, make it our “Top Stock for 2012-13”. Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

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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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