Nine Entertainment Co Holdings Ltd (ASX: NEC) fell victim to the structural headwinds facing Australia's media industry yesterday after the free-to-air-network operator announced a significant profit downgrade for the year ending 30 June 2015.
The company's shares fell a whopping 16.1% during Tuesday's session after it said earnings would be between $285-290 million, down from prior guidance of approximately $311 million. Other media corporations including Seven West Media Ltd (ASX: SWM), Fairfax Media Limited (ASX: FXJ) and Southern Cross Media Group Ltd (ASX: SXL) also plunged on the news as Nine Entertainment cited "softer-than-anticipated" advertising in the second half, with particularly soft conditions in May and June.
Why is this happening?
Earlier this year, the Fairfax press quoted NBN Co board member Simon Hackett as saying that "commercial television, as it currently exists, has five years left… [By] 2020, there won't be much left of our broadcast television."
Australia's entertainment landscape is changing rapidly and advertisers are no longer going to the traditional media companies for their marketing. Instead, many are turning to the likes of Facebook or YouTube to advertise their material given the rapid growth in viewing hours being enjoyed by these platforms.
Online streaming services such as Netflix, Presto and Stan are also stealing market share away from the free-to-air networks, giving viewers the power to watch what they want, when they want, without the burden of long ad-breaks every 10 minutes or so.
How can they fix it?
Nine Entertainment, Seven West Media and Ten Network Holdings Limited (ASX: TEN) (together with SBS and the ABC) are all vying for a dominant position in Australia's free-to-air market and must find a way to edge out the competition. One of the most logical ways to do this is by gaining the broadcasting rights to major sports events such as the AFL and the NRL.
As highlighted by Fairfax, Nine Entertainment has once agan signalled its interest in securing a slice of the AFL broadcast rights for the first time in nearly a decade, which could see one game per round aired – likely on a Saturday to ensure it can maintain its coverage of live NRL matches on a Friday night and Sunday afternoon. While Seven and Foxtel (and Telstra Corporation Ltd (ASX: TLS)) currently maintain broadcasting rights, Ten is also said to be interested in returning to the AFL arena.
Although they can prove incredibly costly, free-to-air networks can effectively guarantee large audiences for such major sports events, meaning they are vital for the future of the networks moving forward.
