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Seven Network and Prime Media agree to stick together

After much anticipation by the market, Seven West Media (ASX: SWM) and Prime Media Group (ASX: PRT) have today announced the signing of a six-year affiliation agreement that builds on a partnership which spans close to 30 years.

The partnership allows for Seven Network’s content to be broadcast into regional and rural Australia using Prime’s infrastructure and broadcasting licenses and accessing a potential audience of over 5 million. Some market watchers had speculated that the Kerry Stokes-backed Seven West may try to snare control of Prime Media, however the signing of this long-term agreement would appear to put that speculation to rest for the time being.

Investors seemed to take the agreement in their stride, with the shares up slightly, in line with the broader market in early trade. Prime’s share price has had a good run over the past year with an increase of nearly 33%. However competitor Southern Cross Media (ASX: SXL), which also has broadcast agreements with Seven Network as well as the Ten Network (ASX: TEN), has seen its share price rocket by 70% over the same period.

The price performance of a number of media stocks in the past year would appear to contradict all the talk of the sector being structurally challenged from the internet. For example the John Singleton-backed Macquarie Radio Network’s (ASX: MRN) shares are trading at a two-year high of $1.07 after news this week that the radio station owner was considering a merger with the Fairfax Media (ASX: FXJ) owned Fairfax Radio.

Foolish takeaway

Once again the price gains in a number of media stocks prove the benefits of taking a contrarian approach to investing. While threats of structural challenge and weak advertising markets are real, sometimes the market overly discounts these factors creating opportunities for investors prepared to buy when others are selling.

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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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