Free TV battle versus Foxtel hots up

The battle for $4 billion of advertising is hotting up with Australia’s free-to-air (FTA) networks joining forces for the first time against pay TV operator, Foxtel.

Fresh from combining to launch a consumer awareness campaign promoting their digital multichannels, the FTA networks are arguing that pay TV had failed to log any of the top 500 shows across television this year. The networks, including Nine Entertainment, Seven News Media (ASX: SWM) and Ten Network Holdings (ASX: TEN) have also told media buyers that Foxtel should not receive any increase in advertising dollars in 2014, because its ability to reach new viewers not already watching free television was limited.

Harold Mitchell, chairman of Free TV Australia has told the Australian Financial Review (AFR) that the arrival of the new FTA digital channels has created a strong medium again. FTA also argues that its audience was holding up in the amount of time viewers spent watching television at just over three hours per day – although the AFR cites one media boss who suggested the viewing time included time on pay TV.

The blast has drawn withering fire from Foxtel, which is jointly owned by Telstra Corporation (ASX: TLS) and News Corporation (ASX: NWS), with Anthony Fitzgerald, the chief executive of pay TV’s $500 million sales arm, MCN, said Free TV’s arguments were more suited to last century.

Mr Fitzgerald has told the AFR that he agrees that television overall is doing well, but suggested the free-to-air networks were struggling to adapt to a new landscape and changing needs of marketers.

Interestingly, there are rumours that the Ten Network and Foxtel are in talks to form a joint venture to sell broadcast and pay TV advertising. Ten is lagging behind both Seven and Nine in advertising market share, with latest results showing its share of the market dropping below 20%. The broadcaster appears desperate to halt its slide, and has been spending up big for the rights to sports events, including the upcoming Winter Olympics and the Commonwealth Games.

Foolish takeaway

As much as they don’t want to admit it, the FTA networks are facing sagging advertising revenues and consumer viewing time. People have other demands on their down time, and free-to-air is struggling to compete with pay TV and radio as well as other forms of digital media. Unless they change and adapt to the new paradigm, they face obliteration.

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Motley Fool writer/analyst Mike King owns shares in Telstra.

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