The Southern Cross Media Group Ltd (ASX: SXL) share price closed 5% lower yesterday after the company said it will outsource its television and radio broadcast rights to Broadcast Australia (BA).
What did Southern Cross announce?
Under the agreement, Southern Cross will transfer transmission assets to BA, and BA will provide Southern Cross with managed and maintenance services for more than 500 radio and TV transmission services around Australia.
Southern Cross said the transition to BA will commence over the next few weeks, with priority to be given to the company's most important markets.
Southern Cross said it expects to complete the transition to BA by March 2020, with the agreement lasting for an initial term of 15 years.
The company said the previously announced outsourcing of its television playout operations to NPC Media is progressing well and is also expected to be completed by the end of this financial year.
BA is part of BAI Communications, a global communications infrastructure group with operations in Australia, Canada, Hong Kong, the United Kingdom and the United States. BAI Communications has a long history of broadcast and telecommunications network solutions.
In Australia, it is best known for being the long-term managed transmission broadcasting services provider to the ABC and SBS.
What impact does this have on Southern Cross?
The transaction will result in a non-cash loss of $9.2 million from the sale of Southern Cross' current broadcast transmission assets to BA, and this will be recorded in the 2019 financial year.
According to the release, BA will be responsible for all future operating costs and capital expenditure associated with Southern Cross' broadcast transmission requirements and the transaction is expected to deliver future cash flow savings to the company.
Management said the outsourcing will deliver reliable and standardised performance across Southern Cross' transmission network, while mitigating capital expenditure and other risks associated with its current ownership of transmission assets.
Southern Cross (SCA) Chief Technology Officer, Stephen Haddad, said:
The outsourcing is a logical step for SCA, consistent with the group's strategy of delivering content and media platforms and moving away from asset-intensive activities that can be delivered by specialist service providers.
He added:
With the transition of television playout to NPC Media, the use of Telstra's DVN network for distribution and this outsourcing of transmission services to BA, SCA has created a streamlined and efficient service that minimises the cost of delivery of broadcast radio and television to SCA's licence areas.
Foolish takeaway
I'd expect to see the Southern Cross share price potentially fall further this morning, given the $9.2 million loss to be booked in its FY19 results.
As the company proceeds with the transition, the streamlining of management processes is likely to result in lay-offs for the group, which should cut back some employee expenses for the Aussie broadcaster.
At the time of writing, the Southern Cross share price is trading at $1.20 per share, and remains 20% higher, year-to-date, with a market capitalisation approaching $1 billion.
