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Can the cricket save Channel Ten?

It’s a question that for many Australians is not only more interesting but also more important than who will be our next Prime Minister come September… who will be broadcasting our beloved cricket this summer?

In recent days it has come to light that Ten Network (ASX: TEN) has lobed a $500 million five-year offer to displace the incumbent Nine Network for the cricket media rights. Channel Ten lacks mainstream sport in its programming schedule and many commentators believe this is a major cause of the weak audience share. According to JPMorgan estimates published in The Australian Financial Review, capital audience share for Ten is 21.8%, Nine it’s 36.5% and for market leader Seven, owned by Seven West Media (ASX: SVW), 41.7%.

The bids for the cricket rights, which are due by next week, come as recent surveys show advertising spend is trending downwards. The Australian advertising market is reported to have fallen for four straight months with a mixed outlook for the rest of the calendar year. While some commentators expect a small rise, others expect the market to be down around 3%. Most are in agreement that digital is the one area that will grow which provides both threats and opportunities to the major advertising agencies which still have significant ‘traditional’ agencies like STW Communications (ASX: SGN).

The fact that digital is the growth engine for advertisers means investors don’t just need to think about the headline $500 million that the successful bidder may part with, but also the investment that will be required by TV networks to provide the latest in interactive digital technology. Digital is a big opportunity for the TV networks but also a big expense. Meanwhile radio station owner Southern Cross Media (ASX: SXL) faces its own set of competitive forces from digital streaming of music and radio over the internet.

Foolish takeaway

Traditionally, media businesses have operated at high margins and been highly profitable. Indeed, many fortunes have been made by media owners. The Internet has caused a huge structural shift in the media landscape, and survivors and new entrants who seize the market opportunities stand to be big winners. To date online businesses such as Seek (ASX: SEK) and (ASX: CRZ) are shining examples of winners in the digital age; the next few years will prove if the traditional operators can adjust and prosper as well.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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