There's been a lot of upheaval in free-to-air media land of late. Channel 10 was acquired by American giant CBS Group and ceased being an Australian-owned entity. Nine Entertainment Co. Holdings Ltd (ASX: NEC) purchased Fairfax and the major licenses to air nationally significant sporting events changed hands. Then there's the growth of seemingly endless competition from streaming options like Netflix, Stan, Amazon Prime and the potentially game-changing Kayo Sports that Foxtel has oddly launched to compete against itself.
Nine and Seven West Media Ltd (ASX: SWM) are greatly diversified entities compared to 20, or even 10, years ago. Despite opportunities in new subscription products, advertising is still the revenue king and buyers are spoilt for choice across the entire spectrum.
I'm interested to see what advertisers do over the next couple of months with two marquee events available on free-to-air Nine and Seven. Will these sought-after media properties provide them with a nudge of momentum for the rest of the year? The upcoming Ashes series will be a nighttime affair screened on the Nine Network and Wimbledon will air in a similar time slot over on Seven. It's fair to say there is some added interest in both this year that might keep us up late, but will it be enough to drag the advertisers through the door?
There's ongoing interest in the futures of David Warner and Steve Smith, and over on the spectacular green courts of Wimbledon we have genuine skin in the game with the highly likeable and marketable Ashleigh Barty in with a real chance of taking home the trophy. If it all goes to hell in a hand basket early on with an English whitewash on the cards or an early exit by the Aussies at Wimbledon the networks, and us, could be in for a long and painful winter.
Investing in Seven and Nine
Opinion among analysts fails to meet much of a consensus, so if you want to invest in our broadcasting giants it's best to do some homework. I must confess I have a great desire for both Nine and Seven to grow and be handsomely profitable. I've spent the vast bulk of my career in the arts and creative industries and any company that provides opportunities to our artists, musicians, writers, animators and so on to tell great Australian stories has my unequivocal support. However, we're talking about investing our hard-earned cash and our heart must inevitably reacquaint itself with the brain!
Both are quite cheap. Nine's share price opened this morning at $1.94 per share, and currently distributes a fully franked dividend at 4.46% yield, while the Seven share price is hovering around the $0.47 mark having lost slightly more than half its value since its high point of $1.095 in August of this financial year. Seven has not paid shareholders a dividend since September 2017.
Seven recently downgraded its earnings before interest and tax expectations and with pre-federal election uncertainty in the air at the time, this most likely accounted for the slump. I just don't think it's all doom and gloom at Seven. There are enough green shoots there, including an increase in revenue share in the free-to-air market, a reduction in net debt, expected to be in the order of $75 million and a pretty watchable slate of offerings on its channels, including the aforementioned Wimbledon. Add to that the second half of the AFL season (including the finals series) and its second dig at hosting the home international cricket season, which kicks off in November. I'm tempted because I'm satisfied there's enough upside to be optimistic about some growth and I can't see the share price going much lower than where it is now.
Over at Nine, the share price has generally been heading in an upward direction, recovering from a January low of $1.30. It'll be interesting to see where full integration of Fairfax takes the company. I'd hope it will lead to some new compelling partnerships and co-productions across Nine's diversified media properties. I'm tempted to invest in Nine for some growth also, perhaps the most painful aspects of big broadcasters having to recalibrate their businesses to meet modern consumer expectations may settle for awhile before the next big round of mergers and acquisitions. Just keep an eye open on those streaming services too!
