Free-to-air-television broadcaster Ten Network Holdings Limited (ASX: TEN) this morning announced that it will raise up to $154 million in new capital to reduce debt and invest in programming. The raising is at 15 cents per share a heavily discounted price to the 26.5 cents at which the stock closed last week.
Ten plans to raise $77 million via a renounceable rights issue to a register of shareholders that includes some powerful backers in Gina Rinehart, Lachlan Murdoch and James Packer, all of whom will have the option to take up their allocation.
The other half of the money will be raised by issuing $77 million worth of new shares to Foxtel, which will give it an effective 15% ownership interest in Ten. Foxtel itself is co-owned by Telstra Corporation Ltd (ASX: TLS) and News Corp (ASX: NWS).
Given the amount of discounted capital raisings the company has undertaken in recent times the business could perhaps consider applying for charity status and investors will need to be feeling generous to participate in the latest cash call.
Previous raisings at heavily discounted prices have been promoted as opportunities to revitalise the business but to seemingly little effect and there's no guarantee the latest roll of the dice will produce the results required.
Ten also announced it has agreed a deal with Multi Channel Network as its sales representative. The Multi Channel Network is an advertising sales joint venture used by Foxtel and Ten will hope to leverage its expertise in generating more revenue.
Structural problems
Investors should note that the key problem free-to-air-television faces is a structural shift in viewing patterns to other forms of entertainment like pay-TV and online viewing services like Netflix. This is a trend that will not reverse and likely accelerate as advertising revenues decline in alignment with falling viewer numbers.
The management team has also justifiably come under fire for the disastrous recent performance and questionable strategy, with shows like The Biggest Loser reflecting overall performance versus rivals Seven West Media Ltd (ASX: SWM) and Nine Entertainment Co Holdings Ltd (ASX: NEC).
Nine Entertainment recently downgraded its full year profit guidance on the back of soft advertising revenues in further evidence that the free-to-air industry faces big problems in generating top line growth.
Tough outlook
Overall, the best hope for Ten investors appears to be the collection of powerful backers that have a strong interest in seeing the business survive. However, the strategy looks like it is in need of serious reform if it's to avoid the embarrassment of a 10-cent share price mirroring the channel number.
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