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The end of TV as we know it

The Australian market may no longer be big enough for Channels Nine, Seven and Ten.

In fact, we could see the demise of one of Australia’s free-to-air TV stations, with experts suggesting there’s no longer room for three commercial broadcasters.

Pioneering funds manager Laurence Freedman – the current chariman of KalNorth Gold Mines (ASX: KGM) has suggested that Channel Ten – owned by Ten Network Holdings (ASX: TEN) may be the odd one out. Freedman made his fortune picking up Ten from Westpac Banking Corporation (ASX: WBC) in 1992, and relaunching it as the most profitable free-to-air network in Australia.

He suggested that we may only need two commercial free-to-air networks, because advertisers will only advertise on two, when talking to Fairfax Media’s BusinessDay. He added that he doesn’t think one of them will survive, and up until now, the only question was which two would be left.

Related: The death of TV

Media analysts from investment bank Citi have also suggested that sustaining three broadcasters could prove ‘challenging’, with much bigger economies like France and Germany having just two free-to-air networks.

Channel Ten has reported falling revenues and increasing costs, as it attempted to expand its audience with expensive blockbuster shows from the US. Ten screened six-time Emmy award winner Homeland’s second season last month, but ratings came in at a disappointing 630,000 compared to 1 million during the first season. A series of heavily panned TV shows such as The Shire and Being Laura Bingle also did the broadcaster no favours. That saw Ten lagging behind The ABC, with just over 10% of viewers in October.

The main problem for free-to-air stations is that content screened in other countries is being accessed by Australians through other media, such as Foxtel, iTunes and Hulu – which offers TV shows for free, and online piracy. The ability for consumers to watch those shows within hours or sometimes minutes of their release, without ads, whenever they want, rather than as dictated by the free-to-air stations.

Even though Ten fast tracked Homeland, it wasn’t fast enough, with the US already several episodes ahead.

Foxtel – jointly owned by Telstra Limited (ASX: TLS) and News Corporation (ASX: NWS), in particular, has upped the ante, with several strategies encouraging consumers to subscribe, to offset declining growth in subscribers, and increase revenue per subscriber. Foxtel launched an ‘Express from the US’ campaign, with shows airing within hours of their US broadcast. It also launched Foxtel Go, that allows subscribers to watch Foxtel programs on iPads, and announced that it was cutting down on ads screening during shows.

The Foolish bottom line

Like newspaper publishers, free-to-air TV broadcasters may have reached their use-by-date, unless they innovate and do more to attract viewers. In a worst case scenario, we could see at least one of them disappear.

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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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