Tasty Media Minnows

With some investors in a flap over obvious takeover targets like the Ten Network and Fairfax, it would be shrewd to pay careful attention to smaller “new media” flavoured stocks that could just as easily end up on a media magnate’s shopping list.
We agree that it is a motley crew and that some, not all, of these stocks have potential. But by making sensible connections between existing empires and their future directions there is certainly some good value among those companies that are not so heavily exposed to doomed industries.

Of course, the prospect of media reform has hardly been a secret these past few months and there are some very hefty price/earnings (P/E) multiples already running in the sector with Seek, the online recruitment company displaying a dot-com boom style ratings of more than 50 times. At the other end of the scale, the well-regarded Southern Cross Broadcasting group remains at a subdued P/E of about 15 times.

Participating in some regional broadcasting, Southern Cross Broadcasting is also a successful metropolitan radio broadcaster. Recent excitement surrounding the stock is a consequence of both its reach and its highly regarded management team, led by Tony Bell. Another radio broadcaster with an extensive network is Austereo, which has also been the subject of much investor interest.

Unfortunately, Austereo's share register is dominated by Village Roadshow's substantial shareholding of more than 64%. Village Roadshow itself has been a disappointment with its cinemas and theme parks underperforming in recent years.

Separately, SP Telemedia is a well known broadcaster with the curious mix of broadcasting, production and telecommunications interests.

Austar, by far the largest of the 10 companies with a market capitalisation of almost $1.5 billion, is the largest provider of regional Australia's pay television services. As media expert Ivor Ries tells Alan Kohler in today's video interview, Austar and Foxtel would be a perfect fit.

It is important to realise the distinction between these companies as Village Roadshow, realestate.com.au and Seek are all content companies, not broadcasters. The changing nature of the delivery of services is not as crucial to them as it is to others. Importantly, realestate.com.au and Seek have their respective markets “stitched up”. Data available from Hitwise shows that realestate.com.au controls more than 30% of its market, and Seek 25% of its online space.

Of the companies in the list, the only one without a track record is the Macquarie Media Group. Of course, it does have several important names behind it such as Tim Hughes and the Macquarie name itself. At the moment, Macquarie has a network of radio stations to its name and a huge war chest for the sole purpose of making more acquisitions.