CBS bid threat to rival shares

THE sale of the Ten Network to US media goliath CBS would likely cause havoc for rival broadcasters Seven West Media and Nine Entertainment, an analyst has warned.

Morningstar senior equity analyst Brian Han believes a CBS- controlled Ten could hit revenue share and margins at the two bigger free- to- air networks.

CBS, Ten’s biggest creditor, in August launched a surprise bid for the failing broadcaster, which entered administration in June when major shareholders Bruce Gordon and Lachlan Murdoch pulled their support after an existing funding deal expired.

Ten’s creditors last month voted overwhelmingly in favour of the CBS takeover, which included the acquisition of Ten’s digital channels and online platform, spurning an advance from Mr Gordon and Mr Murdoch, co- chairman of Townsville Bulletin publisher News Corp.

The Supreme Court dismissed an attempt by Mr Gordon to derail the CBS bid, although the pair indicated they intended to appeal the court decision and have yet to decide whether to block a final transfer of Ten shares to CBS.

Mr Han said CBS’s annual $ US3 billion ($ 3.8 billion) earnings and $ US2 billion free cash flow would help Ten retain existing rights such as Big Bash cricket, develop more premium local content and apply for marquee sports rights as they went up for renewal.

If CBS took control of Ten and succeeded in lifting the network’s share of the $ 2.8 billion capital city free- to- air advertising market, Nine and Seven’s valuation could fall by between 15 per cent and 27 per cent due to falling share values and lower margins, he said.

“While they may not mean much in Australia, where viewers increasingly favour local content over US shows, CBS’s general programming nous cannot be doubted,” Mr Han said in a note to investors.

He also noted CBS’s presence could further increase competitive intensity and boost programming costs across the industry.

“Such a step- up in competitive dynamic is the last thing the free- to- air TV market needs, given the structural pressures already decimating the industry,” Mr Han said.

He said TV’s share of Australian advertising had fallen from 32 per cent to 24 per cent in the past decade as advertisers shifted to digital.

Morningstar has for now maintained its $ 1.50 fair value estimate of Nine and 73c valuation for Seven.