Cloud over Nine float as TV advertising begins shift online

Before you get too excited about the Channel 9 initial public offer, it could be worth keeping in mind that broadcast television may be on the cusp of seeing a large part of its revenues go online.

Before you get too excited about the Channel 9 initial public offer, it could be worth keeping in mind that broadcast television may be on the cusp of seeing a large part of its revenues go online.

In a note to US clients, Citi pointed out that the vast bulk of the shift of advertising spending online over the past decade or more has come from print media and direct mail promotions.

It points to US survey data recently released by Adap.tv and Digiday suggesting "marketers are increasingly looking to shift TV spend to the internet".

"This is consistent with our industry conversations and our forecasts for online video ad growth," the brokerage told clients.

"We view the positive outlook for online video advertising as positive for the largest providers of online video - namely Google (which has leading market share via YouTube) and AOL (which has a strong position via its Adap.tv, 5min and other video assets)."

The biggest threat traditional TV broadcasters face is clearly the internet.

This year is expected to be a watershed for Australia's broadcast industry. For the first time the amount of money spent on advertising over the internet will match the ad spending on free-to-air television. The gap is expected to grow in coming years with online taking the greater slice.

Besides appealing to advertisers because it produces detailed information of who is watching and, more importantly, what else they do, the internet also turns on viewers due to its easy availability and portability.

The collapse of traditional distribution has begun to realign the value of that content away from broadcasters and, in a model that resembles the distribution of music, returns revenue to the source. TV programs sold on iTunes, for example, deliver revenue straight to the studio, not the local channel.

On cue in the US on Thursday, DVD-rental chain Blockbuster said it had finally succumbed to structural shift in the broadcast market.

Blockbuster will close its DVD-by-mail service by the year's end and shut the remaining 300 storefronts it owns in the US. The moves don't affect Blockbuster's Australian rental shops or online service which are owned under a different franchise arrangement.

Dish Network, which bought the US Blockbuster business at a 2011 bankruptcy auction, said the stores and distribution centres will be closed by early January. Blockbuster had already shrunk from 3000 US stores three years ago, when it entered bankruptcy.

Blockbuster tried to emulate Netflix with its own DVD-by-mail, but it was hard to adapt when it had so many leases on stores that were suffering from sales declines.

Nine this week released its prospectus for the initial public offering, confirming that up to $700 million worth of shares will be for sale at $2.05 to $2.35 a share.

It puts a price tag of up to $2.2 billion on the group, which includes the Nine television network, Ticketek, and Sydney's Allphones Arena. Most of the proceeds will be going to shareholders selling down their investment, but $300 million will be raised from the issue of new shares to pay down debt to a net $600 million, and add to working capital.

According to the prospectus, Nine will report $1.57 billion of revenue for the year to June 30, generating a net profit of $139.5 million.

Despite a pick-up in consumer confidence, media executives have reported little sign of a turnaround in the industry with advertising sales continuing to be short. Fairfax Media's Greg Hywood drove home this point at Thursday's annual meeting.

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