Investment Matters

Media is not homogeneous

One of the big talking points in recent weeks has been the appointment of administrators to Channel 10.  This sits against the backdrop of Australia’s decade-long political saga around cross-media ownership and media reform.

Your exposure to media

Noting the developments in relation to Channel 10, this week we take the opportunity to review and contrast our position in HT&E (formerly APN News & Media) and Southern Cross Media – and, in particular, our comfort with the radio space.

Looking deeper

From a top down perspective, the following graph shows the seismic shifts that have been occurring within the media sector.

The rise of digital and the internet has been almost overwhelming.  It has clearly fundamentally changed FTA (free-to-air) TV and newspapers, and created new and exciting forms of advertising communication for consumers.  It is these changes, combined with a bad business plan that have ultimately led to the decline and sorry state that Channel 10 finds itself. 

The impact of internet advertising’s rise

The overall effect of digital media has been to suppress the valuations of ALL media assets.  The ability of investors (with the rise in ETF’s and passive funds, combined with computerised trading algorithms) to differentiate among similar assets is at an all-time low.

Radio’s resilience

What is less apparent in this graph is the stability and slow and steady growth of radio - our preferred medium - on a risk/return basis.  Radio’s share of advertising spend (which in itself has continued to grow) has been slow and steady.  It now accounts for around 7.5% of advertising expenditure.

We put this down to an increasing realisation that, as other traditional formats become less effective (audiences decline), radio still offers a very strong return on investment for advertisers.  It remains (even if still relatively underappreciated) a very effective mass medium.

Whether it ultimately gets to the same advertising share as other countries (NZ = 13.3% for instance) remains to be seen.  However, we remain upbeat about its performance into the future.  Both Southern Cross and HT&E are cashflow businesses, with good steady growth perspectives.  This, combined with the ~7% dividend yields, offers excellent value for those prepared to invest and watch the industry grow.