Seven West Media's rating has been downgraded by analysts following yesterday's financial results. Citi now rates SWM as 'neutral' as opposed to 'buy'.
That assessment is based on the fact that the rate of print revenue declines becomes harder to offset from such a dominant position in the TV market at a time of low growth.
“If revenue across the print assets continues to decline as levels seen in FY14 (at -10% decline), then the TV business needs to deliver “above market” advertising market growth rates … which could prove challenging given the TV share is already above +40%,” the bank said in a research note.
In essence, TV ad dollar growth would need to hit 4% to offset -10% print declines. Seven yesterday posted TV ad growth just shy of 3%.
Citi also factored cost growth of the business into its assessment. The bank, in line with SWM's own assessment, said that it expects Seven to again deliver a 40.5% share but that the cost of maintaining its position would increase 2% in 2015.
“It appears there’s a delayed cost of winning,” said Citi. “For Seven, delivering ratings success has come at a price, as content producers demand higher prices for their content during contract renegotiations. And sports rights are expected to follow a similar path, [because they] deliver guaranteed audiences and [are therefore] demanding higher prices.”
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day. Need a job? Visit adnewsjobs.com.au.
Have something to say? Send us your comments using the form below or contact the writer at brendancoyne@yaffa.com.au
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.