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Is Ten Network Holdings Limited worth tuning into?

It seems that the excitement in Ten Network Holdings Limited (ASX: TEN) will be short lived. The long-time number three network behind rivals Seven West Media Ltd (ASX: SWM) and Nine Entertainment Co Holdings (ASX: NEC), had an outstanding end to 2013 and start to 2014, with bumper audiences tuning into broadcasts of the T20 Big Bash League and the Sochi Winter Olympic Games.

The share price responded, rising nearly 40% between early December and late January as channel Ten and affiliate channels (One and Eleven) commanded over 28% of the free-to-air market share. This compares with a historical level of between 10% and 20%. The media landscape is such that advertising dollars chase viewers, and the impressive audience numbers gave investors optimism that Ten could recover quickly from last year’s $5 million net loss before abnormals.

Unfortunately however, it appears as though Ten is returning to old form. Since bursting through the 28% barrier in early February, Ten has only commanded more than 20% of the market on any particular day on a handful of occasions. In fact, over the last few weeks the network has averaged just 16%, and on Monday 24 February, one of the two strongest viewing days of the week, Ten registered just 12.2%. Similarly, on Monday this week Ten recorded 13.4% market share, compared with 31.3% and 34.1% for rivals Seven and Nine.

If Ten is to return to its former glory, and move its share price from around 35 cents back up above $1 or even above $4 like it was in 2005, it will need to substantially improve its advertising income. The new CEO has been in the position for 12 months and while Morningstar is predicting a return to profitability this year, much more is needed from the turnaround story before investors can expect another jump in the share price.

Foolish takeaway

It appears as though Ten has failed to convert bumper audiences over the Christmas period into viewers for regular shows, including So You Think You Can Dance, Wake Up, The Biggest Loser, Modern Family, Secrets and Lies and The Project. This will disappoint investors who have pushed the share price up over 30% since December, however it appears as though most are in it for the long haul as the share price is yet to take a substantial fall.

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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned

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