Are any of the TV networks a buy?

The latest “5 City Share Report” from OzTAM, which measures the total share of television viewing, does not provide a happy picture for TV network investors, particularly Ten Network (ASX: TEN) shareholders, with Ten’s audience share now in fourth place behind Channel Seven, Channel Nine and ABC1.

Ratings are a critical measure for TV networks as they ultimately determine where media buyers allocate their advertising dollars. The internet however has created such a pull on viewers’ attention that total ad spend on TV is facing an uphill battle as more advertising dollars are directed towards the internet.

While all free-to-air networks are under pressure from the allocation of total advertising spend, it only takes a couple of hit shows to turn around a ratings slump at a network.

Seven West Media (ASX: SWM) which controls the Seven Network has benefitted from content including the AFL football finals. For investors looking for a “diluted” way to invest in Seven Network, take a look at Seven Group (ASX: SVW), which provides a significant shareholding in Seven West Media as well as exposure to mining services and other investments.

Alternatively, investors may choose to keep some cash available to buy into the expected upcoming initial public offering (IPO) of the Nine Network. Investors will need to wait and see the pricing and financial details of the IPO should it eventuate, and should of course be sceptical of the motivations of the sellers.

Ten’s lacklustre ratings performance is reflected in its poor share price performance, which has seen its shares fall 82% in the past five years. This underperformance coupled with the potential for a few hit shows to boost ratings could make Ten Network a stock with significant upside potential.

Foolish takeaway

Investors who are prepared to take contrarian positions in companies can potentially outperform the wider market – so long as they are contrarian and right. TV networks have been out of favour with the investment community for some time, which could provide opportunities for canny investors.

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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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