Welcome to spring, the time when Australians traditionally clear out their clutter and prepare for the year ahead. This year, Hugh Marks and the team at Nine Entertainment Co (ASX:NEC) seem to be getting in on the act.
If recent rumours are true, Nine is looking for buyers for its stake in the Australian News Channel (owner of the Sky News Australia network). This would follow up its recent sale of its $33m stake in Southern Cross Media Group (ASX:SXL).
It is not hard to see why Nine might be losing interest in the broadcasting medium it helped introduce in 1956 when Bruce Gyngell welcomed the nation to television. The Australian free-to-air advertising market has declined by around 1.5% a year since 2011, a trend which is expected to continue. Channel Nine’s operating profit is also 11% lower than in 2012, the first year of results after its IPO.
Pay television has also come under extreme pressure as faster download speeds have led to people embracing digital streaming services such as Netflix (NASDAQ:NFLX). Researcher Roy Morgan estimated in a recent report that more people now have a streaming video on demand (SVOD) subscription than Foxtel subscription. Unsurprisingly, Foxtel’s average revenue per user has been falling, something that may continue with the announcement of a cheaper package that includes no set top box.
This is a global trend, especially in North America. People are shunning television broadcasts of sporting content and turning to digital mediums. Sporting bodies in America have started selling more broadcasting rights to digital providers such as Yahoo (NASDAQ:YHOO) and Twitter (NYSE:TWTR) as well as launching their own digital streaming services.
In fact, Bloomberg recently reported that some television channels have been forced to give away advertising slots during NFL games due to a fall in viewers. ESPN (owned by The Walt Disney Company (NYSE:DIS)) has lost more than 10 million ESPN subscribers since 2013, a big reason for its recent activity in acquiring a stake in the MLB’s digital streaming business and its reported interest in acquiring Twitter and Netflix.
It’s a big call to turn your back on the industry that used to be your bread and butter. But if the rumours of Nine are true, that’s what it’s doing. One shouldn’t conclude this is a foolish move, either. Dumping the declining parts of the business in order to focus on digital distribution and content ownership might be the best strategy to deliver a sustainable, growing business. In fact, such are the changes in this industry it may be the only one.