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Are these the best media stocks on the ASX?

Outdoor advertising
Source: APN Outdoor presentation

Australia’s media sector has been much maligned over the years – which it probably deserved given how most of the companies in the sector managed to miss the digital revolution – until now.

Traditional media

When it comes to newspapers, it’s clear that they are in structural decline and that means major structural changes to their business for Fairfax Media Limited (ASX: FXJ) and News Corp (ASX: NWS).

Fairfax has adapted somewhat, with its online and print real estate business Domain its most valuable, and fastest-growing asset, while News Corp’s most valuable asset happens to be a majority share in REA Group Ltd (ASX: REA). REA Group owns realestate.com.au, Australia’s largest property portal.

Free-to-air television

Unfortunately, free-to-air broadcasters appear to be falling for the same trap as the publishers – as viewers and advertising revenues continue to migrate away from free-to-air linear TV programming. That’s bad news for the likes of Nine Entertainment Co Holdings Ltd (ASX: NEC), Ten Network Holdings Ltd (ASX: TEN) and Seven West Media Ltd (ASX: SWM) and the regional affiliates Prime Media Group Limited (ASX: PRT) and Southern Cross Media Group Ltd’s (ASX: SXL) commercial TV.

Radio

But surprisingly given its age, radio still continues to perform. Southern Cross’s Metro Radio saw revenues rise 8%, while regional radio revenues were up over 6%. Macquarie Media Ltd (ASX: MRN) saw its net profit soar 152% in FY2016 after merging with the Fairfax Radio Network. But wherever consumers are, many of us still choose to listen to the radio.

Out-of-home advertising

Still in its infancy, outdoor media stocks have soared in the past few years, but their hype couldn’t match their results and the share prices have pulled back. However, this is likely to be a growing sector for some years yet – good news for APN News and Media Limited (ASX: APN), APN Outdoor Group Ltd (ASX: APO), oOh!Media Ltd (ASX: OML), QMS Media Ltd (ASX: QMS) and a tiny operator XTD Ltd (ASX: XTD) which has a strong relationship with APN Outdoor.

The big advantage for out-of-home advertising is that consumers can’t simply fast forward through them, be bypassed, blocked like on the internet or switched off. For advertisers, that’s becoming increasingly important.

Foolish takeaway

The potential growth and advantages over other types of media make the outdoor advertising sector my preferred media play with radio not far behind.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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