Investors in ASX media stocks such as HT&E Ltd (ASX: HT1), Southern Cross Media Group Ltd (ASX: SXL) and Macquarie Media Ltd (ASX: MRN) will no doubt be following closely the news that iHeartMedia, the largest radio station operator in the United States has filed for bankruptcy. This comes just months after Cumulus media, the second largest radio network in the US also filed for bankruptcy.
Besides the fact that HT&E Ltd operates the iHeartRadio brand in Australia, I think this could have a longer term structural impact on the broader industry.
To put it into context, iHeartMedia is not a small company as it has more than 850 radio stations and over US$6 billion in annual revenue. Despite that, it still had to file for bankruptcy.
WHY?
Declining advertising revenues have led to struggles to pay its US$20 billion debt. I think this is a trend that could extend to Australia for the following reasons:
- Content on demand. Much like video on demand pioneered by Netflix, consumers are moving away from listening to live radio and more towards podcasts, audiobooks and music streaming through Spotify (which, interestingly, is looking to IPO). This lowers the number of radio listeners and consequently, the radio station's ability to earn higher advertising revenues.
- Online advertising. With the rise of online platforms such as Facebook, Google and Twitter which can deliver more targeted and effective advertising, it's easy to see why companies would choose to advertise online and not on the radio.
When both the largest and second largest companies in an industry file for bankruptcy, then you know there are some structural issues affecting that industry.
I won't rush to buy any radio shares anytime soon.
Instead of investing in media stocks that face an uncertain future, I'd rather invest in this emerging technology trend.
