Prime Media's earnings to fall

The regional broadcaster has reported a softening in the advertising market.

a woman

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Regional television broadcaster Prime Media (ASX: PRT), has announced at its Annual General Meeting (AGM), that it expects core net profit after tax to fall from $35.4 million in the financial year (FY) ended 30 June 2013, to within the range of $31 million to $33 million in the current financial year.

Prime Media, which recently extended its programming arrangements with the Seven Network, owned by Seven West Media (ASX: SWM), for a further six years to June 2019, broadcasts free-to-air television into northern and southern New South Wales and regional Victoria. This allows Prime to reach an audience of approximately 25% of Australia's population.

Recently Prime sold its interests in radio broadcasting, after the board determined the business could not achieve scale. The sale was completed on the 30 August 2013 for a minimum of $24.5 million with the proceeds applied to reducing debt. Given FY 2014 will not include 12 months of earnings from the radio business — which provided earnings before interest, tax, depreciation, amortisation and impairment of $3.3 million in FY 2013 — it was always going to be tough for Prime to report an increase in core earnings this year.

However the AGM update that "despite a strong start to the new financial year, the advertising market has slowed" is certainly less upbeat that the outlook provided back in August, which stated "solid bookings in first quarter of 2014."

Prime's outlook, which mentions that "a number of national advertisers appear to have adopted a 'wait & see' approach, which is perpetuating softness in the lead up to Christmas", doesn't bode well for investors in the television broadcasting space and comes at an inopportune time for both the struggling Ten Network (ASX: TEN) and Nine Entertainment, which is expected to list via an initial public offering (IPO) in the coming weeks.

Foolish takeaway

For investors in Prime, the highlight from the AGM was no doubt the mention from the chairman that the board supports the removal of the 'reach rule' that currently prevents Seven West from acquiring Prime. For shareholders, the removal of the reach rule would likely provide a catalyst for further share price appreciation, which has seen Prime's shares rally 34% in the past 12 months.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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