Nine Entertainment Co Holdings Ltd (ASX: NEC) saw its share price plunge as low as $1.20 in early trading after a disappointing trading update, losing more than 20% of its value.
The commercial TV media company reported that a weak March trading quarter has lead to a fall in revenues of around 11% compared to the third quarter of the 2015 financial year (FY15).
The free-to-air (FTA) television broadcaster says the advertising market is subdued, and ratings were softer than expected. Nine's Summer of Cricket saw 30% of scheduled play days lost to adverse weather, not to mention the standard of the competition. Australia won the test series against the West Indies comfortably, and then won four of the five one-day internationals (ODI) against India, before losing all three T20 clashes with India.
The broadcaster also blamed the earlier timing of Easter this year and the absence of the Cricket World Cup event this quarter.
Nine says that the free-to-air advertising market is expected to see low single-digit decline in FY16, compared to its guidance of 'flat to down marginally'. Regional advertising revenue for July to December 2015 slumped 6.6% while metro was down 0.4%.
This could be the start of the slide, and the sliding advertising market could well accelerate falls.
Nine has also lost some market share, and it's expected to be ~37% for the year. Both Seven West Media Ltd (ASX: SWM) and Ten Network Holdings Ltd (ASX: TEN) appear to have taken some market share from Nine. Ten had 23.2% of the metropolitan TV advertising market in the second half of 2015, its highest level since June 2012. Nine had 38.2% according to Free TV Australia.
Foolish takeaway
The arrival of video on demand services and the continued trend of advertising moving from FTA to online have put immense pressure on the FTA broadcasters. As we've been saying for some years now – they need to adapt quickly or face the prospect of dying a slow and painful death.
