Why the Ten Network Holdings Limited share price is crashing

The Ten Network Holdings Limited (ASX: TEN) share price has plunged 15.7% to $1.197 in early trading, despite what looks like a decent result for the 2016 financial year (FY16).

Here’s a quick summary of the main points:

  • Television revenues up 7.5% to $676.4 million compared to FY15
  • Revenue market share increased 2.2% to 24%
  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $4.5 million compared to a $12 million loss in FY15
  • Net loss of $156.8 million compared to a $312.2 million loss last financial year
  • Capital city television advertising declined 2.9% during the year
  • Net extraordinary expenses of $125.3 million, including television licence impairment charge of $135.2 million and a gain of $23.1 million from the sale of the Out-of-Home business
  • Net debt down from $131 million in August 2015 to $54 million in August 2016
  • Ten’s catch-up service, Tenplay, appears to be growing strongly

That data suggests the free-to-air broadcaster is improving across many areas, but investors apparently aren’t impressed Ten reported yet another loss and another writedown on its TV licence. Even without the writedowns, Ten is still not profitable.

And the bad news doesn’t appear to have ended.

Television advertising is in structural decline, as more viewers switch to other forms of entertainment. Ten even warned that the television advertising market was struggling.

Subscription video on demand (SVOD) services like Netflix and Stan account for an estimated 2% of total TV viewing according to Ten. That may appear small but the fact remains that viewers want the freedom to watch what they want when they want, rather than being forced to watch linear television like free-to-air and Pay TV which broadcast specific shows at particular times.

I’ve maintained for some years now that Australia’s free-to-air market only has room for two broadcasters, not three, and Seven West Media Ltd (ASX: SWM) and Nine Entertainment Co Holdings Ltd (ASX: NEC) remain the ones most likely to survive given their dominance of the advertising market.

Foolish takeaway

A year ago, Ten’s share price was just under $2.00. In another year’s time, the share price could easily be less than $1.00. Look out below.

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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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