Australia's media landscape is experiencing a dramatic change whereby advertising dollars are increasingly being targeted towards the internet, and away from the traditional media platforms such as televisions and newspapers.
As highlighted by the Fairfax press, a new report by PricewaterhouseCoopers (PwC) shows total advertising spend in 2014 was $13 billion and is expected to balloon out to $16.4 billion by 2019. At the same time however, advertising spend on free-to-air TV is expected to remain unchanged at roughly $3.835 billion, which will see it account for just 24% of total ad-spend, down from 30% today.
Indeed, this will make it increasingly difficult for Australia's free-to-air networks to remain afloat with Ten Network Holdings Limited (ASX: TEN), Seven West Media Ltd (ASX: SWM) and Nine Entertainment Co Holdings Ltd (ASX: NEC) (and SBS) all competing aggressively for a dominant position in the market. Recently, we saw Nine Entertainment downgrade its earnings guidance substantially, which resulted in an industry-wide sell-off amongst investors.
Newspapers are expected to experience a similar demise. The PwC report also showed that newspapers accounted for 13% of total advertising spend in 2014, with that figure expected to drop to 5% by 2019, which does not bode well for Fairfax Media Limited (ASX: FXJ).
Is this the end of Free-to-Air?
I've long been of the belief that Australia is too small for three (or more) free-to-air networks to compete against each other, and believe that we could see at least one go underwater at some point over the next decade, or maybe even sooner. Indeed, Fairfax even quoted NBN Co board member Simon Hackett who provided an even grimmer outlook to state that "commercial television, as it currently exists, has five years left… [By] 2020, there won't be much left of our broadcast television."
At the same time as advertising revenues are being diverted away from free-to-air and newspapers, they are increasingly being focused online. PwC believes that the internet will account for 51% of advertising dollars by 2019, up from 34% in 2014. Indeed, mediums such as Facebook, Twitter and Google could be amongst the many beneficiaries.
Netflix and other online streaming services such as Stan and Presto will also attract audiences away from television, although they do not rely on advertising revenues so much as subscription rates for growth.
With such enormous disruption in the industry, investors would be wise to avoid investing in Australia's free-to-air networks and focus their attention on other quality investment opportunities.
An excellent investment alternative
One that I like which could be a huge beneficiary of the TV networks' woes is oOh!Media Ltd (ASX: OML), a small-cap specialist in out-of-home media. Not only is oOh!Media a market leader in each of its operating divisions, out-of-home advertising is also becoming an increasingly popular way for companies to advertise their products with evidence suggesting a huge increase on their return on investment. At $2.47 a share, this is a company you need on your watchlist.
