Treasure Chest: The Media Outlook, Old & New, In 2013

This story features NEWS CORPORATION, and other companies. For more info SHARE ANALYSIS: NWS

By Greg Peel

It will be next year when a significant milestone will be passed in Australia's media history. For the first time, Credit Suisse forecasts, digital media will surpass free to air television as the country's largest advertising medium.

As 2012 comes to a close, it will be remembered as a year in which local FTA TV as we know it went very close to turning up its toes. The Seven Network, now under the Seven West Media ((SWM)) banner, is still kicking along but Channel Nine was saved at the eleventh hour by the skin of its teeth and the Ten Network ((TEN)) is rapidly back-pedalling. All three networks have spent the twenty-first century attempting to use previously unquestionable muscle to maintain an aging status quo and hold off the digital pretender. All three have been shown up as being smug incompetents.

They have all been shown up by the ABC in particular, which without a commercial agenda has embraced digital media from day one. They have all scrambled to take the first step by introducing digital sub-channels, and have signed up to the Freeview collective to service digital recorders, but beyond that they have resisted the growth of cable television and internet-based television at every turn. Moreover, they have attempted to secure this resistance through leaning on (threatening?) the government.

Increasingly such efforts are to little avail.

The print media has already suffered from slow-mover syndrome, and 2012 has also been a year in which, arguably, industry icon Fairfax Media ((FXJ)) came rather a little too close to obsolescence. Fairfax, and its print media rivals, are also now scrambling to catch up but they are some way behind. 

Rest assured no one saw the tablet coming.

The print-to-digital shift is accelerating, Credit Suisse notes. For print businesses, structural changes are likely to outweigh cyclical impacts (ie the economy) over the next twelve months. Credit Suisse suggests the structural shift in television will be slower, hence cyclical fluctuations and changes in ratings and revenue share are likely to have a greater impact in 2013. The believe advertising spend will remain subdued in 2013. By contrast, digital businesses will continue to report solid growth over the next twelve months, they believe.

The media stocks Credit Suisse suggest will provide the greatest total shareholder return in 2013 are Seven West Media, STW Communications ((SGN)) and Carsales.com ((CRZ)) – the old, the transitional and the new.

Seven West is old media but will benefit from the aforementioned slower digital revolution in television and the company's own dominant momentum in TV ratings and ad market share, as well as its dominant position in WA newspapers. STW is a company well-positioned to benefit from the structural shift from print to digital, having moved ahead in digital marketing offerings while still servicing the old print and TV guard. STW is the dominant player in ANZ but boasts growth upside potential in Asia. Auto advertising is a less volatile market than employment or real estate, and Carsales is the dominant player while still offering good value in PE terms, Credit Suisse suggests.

Credit Suisse has set Outperform ratings for SWM, SGN and CRZ. For other media sector stocks under coverage, the analysts provide Neutral ratings for News Corp ((NWS)), Ten Network, Prime Media ((PRT)), Trade Me Group ((TME)) and REA Group ((REA)) and Underperform ratings for Fairfax, APN News & Media ((APN)), Southern Cross Media ((SXL)), and Seek ((SEK)).

Where the argument is not one of old versus new, extended valuation is the primary issue.
 

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