Is the internet killing pay-TV?

Implications for Cons Media and its potential acquirers

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 22, 2012 8:00 am AEST

James Packer's Consolidated Media Holdings Limited (ASX: CMJ) yesterday reported a 12% fall in full year net profit to $85m compared to last year, mainly thanks to acquisition costs associated with Foxtel's takeover of AUSTAR.

Foxtel, which is 25% owned by Cons Media, 25% by News Corporation (ASX: NWS) and 50% by Telstra Corporation (ASX: TLS), contributed $42m to Cons Media's underlying net profit.

In good news out yesterday morning, Foxtel, in partnership with Channel 9, the free-to-air TV channel, has retained the National Rugby League (NRL) broadcasting rights for another 5 years at a cost of over $1 billion. Free-to-air rivals Channel Ten – owned by Ten Network Holdings Limited (ASX: TEN) and Channel 7 – owned by Seven Group Holdings (ASX: SVW), had also submitted bids.

In addition, Foxtel gained the rights to deliver NRL games over mobile and tablet to subscribers. Whether the new NRL deal and mobile rights will allow Foxtel to increase subscribers is another story. The pay-TV operator is coming under increasing pressure from broadband internet players and Apple and Google TV pay-per-view models, which are cheaper options and allow subscribers to customise their content easier than through a Foxtel subscription. In the last year, the company increased Foxtel subscriber numbers by just 30,000 to a total of 1.68 million. Including AUSTAR, Foxtel has 2.3 million subscribers.

Cons Media's other business is a 50% share in Fox Sports (Australia) alongside News Corp. Fox Sports contributed $49m to Cons Media's underlying net profit, but this has been falling over the last four years, as costs have risen more than revenues, due to investments in new technology.

That probably won't be a problem for Cons Media for long. News Corp has submitted a bid for $3.50 per Cons Media share, with James Packer and the Australian Competition and Consumer Commission (ACCC) giving their seal of approval to the deal.

It's not yet clear whether Seven Group Holdings will make a competing bid for Cons Media, but the company has applied to the ACCC for approval so that it too can make a bid. Seven holds more than 25% of Cons Media, with James Packer holding just over 50%.

The Foolish bottom line

There are still a few hands left to play in the Cons Media game. The problem for any acquirer is that both the Foxtel and Fox Sports businesses appear to be facing a number of headwinds. Whether these are structural changes or just part of the business cycle remains to be seen.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.