Australian media shake-up may help sector
ReutersMastheads for Fairfax Media publications The Age, the Sydney Morning Herald and the Australian Financial Review.
SYDNEY (MarketWatch) -- The Australian media sector appears to be in the first stages of a major shake-up, which some analysts say is sorely needed judging by the share price performance of some firms so far this year.
That restructuring announcement was followed by News Ltd, the publisher of The Australian newspaper, stating that it would reduce its divisions on the east coast of Australia to 5 from 19 and would cut jobs, although it didn't specify how many.
Most Australian-focused media companies geared toward traditional print publishing and free-to-air television are looking at a very poor share-price performance year-to-date.
For example, compared to an almost flat performance for the benchmark S&P/ASX 200 index (XJO) , Fairfax shares are down 20% so far this year and are hovering around all-time lows.
Rival broadcast commercial television operator
News Corp., on the other hand, has seen its shares gain more than 13% in Australia so far this year. The firm publishes newspapers in Australia, but also has exposure to large offshore media operations.
Investors have punished share prices for some Australian media firms recently in reaction to an evolving technological landscape, a stagnant legal backdrop, and gathering clouds over the Australian economy.
"A lot of media assets are suffering in the change from print to new media," said Leon Pasternak, vice chairman at Bank of America Merrill Lynch's Australian-based operations.
Broadcast free-to-air television firms are taking a hit from dwindling Australian consumer confidence, while Australian media law isn't particularly even-handed, given that metropolitan publishing and broadcasting is often tightly regulated compared to limited oversight for Internet publishing, Pasternak said.
Companies aren't standing still in this environment.
Media analysts at Goldman Sachs said that they believe a 2 billion Australian dollar ($2 billion) offer last week from News Ltd. to buy pay-television firm Consolidated Media Ltd. (CMJ) (CMJFF) was partly due to Consolidated Media's improved growth profile "as a result of cost synergies and reinvigorated subscriber growth, driven by the new [Australian Football League] rights deal."
Last year, the Australian Football League awarded the rights to show matches for five years from 2012 to
The Goldman Sachs analysts said that the Australian Football League deal is "positive for the pay-TV industry in Australia" and is likely to lead to increased subscriber growth in 2012 for the service "after a difficult two years for the industry."
Watch big investors
Shareholders trying to unwind or take up positions in the sector may also play a role in shaping sector performance going forward.
News Corp.'s proposed deal for Consolidated Media, for example, will involve Kerry Stokes' Seven Group Holdings. Ltd (SVW) (SVNWF) , which has a 24.4% stake in the firm, along with well know investor James Packer, who holds 50% of the firm.
Packer is reported to be trying to exit his media interests to bulk up in casinos. Seven Group Holdings' Chief Executive Peter Gammell, meanwhile, said Tuesday that the company was still examining options surrounding the bid. Read more on Seven Group's comments on bid.
Fairfax's restructuring announcement was closely followed by speculation about ownership changes after it emerged that mining magnate Gina Rinehart's firm Hancock Prospecting upped its stake in the firm.
Australian media assets are broadly attractive to investors, said Pasternak at Bank of America Merrill Lynch, as they are closely aligned to the nation's economic growth, and Australia is outperforming other economies.
With a bond market in its infancy, Australian investors frequently face a choice between cash and equities, he said.
If deposit rates are falling, "then [economic-growth-linked] investments become more attractive over time," Pasternak said.
In addition, there's going to be "significant" merger-and-acquisition activity in the sector, he said, "as it's in a state of change."
UBS media analysts said that any tick up in deal activity would help lead to broad outperformance for media firms against other sectors going forward.
A better performance for the sector "hinges on two key drivers" they said -- more M&A moves and a recovery in the Australian advertising market.