Between today's annual meeting and last month's Investor Day for free-to-air television station owner Ten Network (ASX: TEN), investors have had the opportunity to review the company in depth.
By the company's own admission, prior to the current restructuring there was a number of challenges the network faced:
- the focus on the 16-39 and 18-49 age groups was no longer sustainable
- there was no defined digital strategy
- there had been poor execution on programming choices
- there was an ineffective sales division
- there was an inadequate multi-channel strategy
- there were gaps in the leadership team
Management claims to have now addressed these issues and believes the company is well positioned to leverage growth in a ratings recovery. Importantly the company has also dealt with its balance sheet issues via a capital raising and sale of outdoor advertising firm Eye Corp. These initiative have enabled the firm to reduce net debt from $416 million in financial year (FY) 2010 to just $28 million today.
However while there are a number of positives to takeaway from the presentations, there is still the issue that television revenue declined by 13% during FY 2013 and earnings before interest, tax, depreciation and amortisation declined by 49%. Furthermore, consensus forecasts expect another difficult year for earnings in FY 2014.
Certainly the issues facing the free-to-air television industry are not confined to Ten Network. Both Seven West Media (ASX: SWM) and Nine Entertainment (ASX: NEC) – which is yet to trade above its initial public offer price of $2.05 – are also having to deal with the structural changes and weak advertising market.
Foolish takeaway
After the impressive returns achieved by shareholders in Fairfax Media (ASX: FXJ) this year, it's appealing to investigate the merits of Ten Network. In my opinion though, for many investors a 'wait and see' approach is required before it may be considered 'safe' to invest. Accurately valuing Ten at this point in its turnaround is difficult. Also, with so much uncertainty surrounding the future structure of the media industry, Ten is arguably too complex and risky.
