Just a day after The Australian Financial Review (AFR) released details of alleged discussions between leading Australian pay-television company Foxtel (which is jointly owned by News Corp (ASX: NWS) and Telstra Corporation Ltd (ASX: TLS)) and hedge fund Providence over a potential takeover of struggling free-to-air television network owner Ten Network Holdings Limited (ASX: TEN), comes news of Google's bold plan.
According to the AFR, Google has plans to launch an online-only YouTube "television" channel aimed at the Australian youth market. Reportedly, Google is hoping to snare around $300 million in advertising revenues from the commercial networks owned by Seven West Media Ltd (ASX: SWM), Nine Entertainment Co Holdings Ltd (ASX: NEC) and Ten Network.
Given consumers' love affair with internet enabled devices and changes in viewing consumption habits, no doubt the report will have free-to-air stations plus their advertisers sitting up and taking notice.
What should shareholders do?
If you're a shareholder in Seven, Nine or Ten and you're not aware of the structural challenges facing the industry, well….you should be!
Increased competition from online sources which can launch from anywhere in the world and potentially with much lower cost structures are a serious threat to the established players. Not only can the new competition make growth very hard to come by, but established television networks are also at risk of losing advertising revenue dollars.
Given the headwinds, investors should take a conservative approach in their valuation of free-to-air broadcasters and should also watch closely to see how their companies are tackling and adapting to the structural challenges.
