Last year was profitable for many, with the broader share market returning just over 15%. Despite ongoing negative headlines, the media sector was quietly generating a 66% return. Leading the charge were Twenty-First Century Fox (ASX: FOX) and Southern Cross Media Group (ASX: SXL), while Ten Network (ASX: TEN) and Fairfax Media (ASX: FXJ) were the laggards.
However, fresh challenges are looming for established media companies, according to a report in the Sydney Morning Herald. Overseas companies are now competing for your eyeballs, including the Guardian Australia, one of Australia's top 10 websites and the Mail Online, the biggest English-language website in the world.
Unfortunately for the print media, digital is now commanding more than 30% of advertising dollars, which in part reflects the rise of Google and social media. Media buyer Harold Mitchell is expecting this to rise to 40% by 2015/16, with digital taking share from other mediums. This explains in part why the 66% rally in share prices did not translate into a surge in advertising for traditional media, with experts predicting growth of only 1-2% this year.
TV is retaining its status as the largest single advertising medium with 31% of the national ad expenditure. However, even the value of sporting events, the holy grail of content, is eroding. One example is the Australian Football League creating its own in-house website and its richest team, Collingwood, has also built its own TV studio.
Foolish takeaway
Analysts are expecting increased revenue this financial year at Nine Entertainment (ASX: NEC), Ten Network, REA Group (ASX: REA) and Seek (ASX: SEK). Falling revenues will afflict both Fairfax and News Corp (ASX: NWS), while Seven West Media (ASX: SWM) will remain relatively flat.
REA Group is likely to be the major beneficiary of this clear trend in advertising, in my opinion. The real estate-focused digital advertising company has developed a strong brand courtesy of its first-mover advantage and has a durable competitive advantage over potential rivals.
