Despite an explosion in the number of television stations, the majors are still great businesses.
There are more television stations than ever before. For viewers it means more choice. For investors however, it means television stations aren't the cash cows they once were.
They can still be good investments, however. Television is still the best way to channel advertising directly into the public's living rooms. This makes it the single most effective way to market mass produced goods and to create the brands that are needed to sell them.
Of the major commercial UK channels, Five is owned by RTL Group (Brussels: RTL) and Channel 4 is run by a publicly owned company.
Listed on the London Stock Exchange are ITV
(LSE: ITV)
and British Sky Broadcasting
(LSE: BSY)
. Of these ITV, whose share price has been under pressure recently because of bad press, looks better value with a price-earnings ratio of 15.6 and a dividend yield of 3.3%. BSkyB, on the other hand, has a price-earnings ratio of 18 and is yielding 2.4%.
There are also a large number of satellite and digital stations that often have tiny audiences. These all need shows to broadcast, it means that companies owning the rights to shows are able to earn royalties from repeats long after they were originally shown on the major channels.
It also means that there is an increased demand for new content and work for companies that create it.
RDF Media
(LSE: RDF)
is such a producer of content. Its output includes Wife Swap,Location, Location, Location, Ladette to Lady, and How to be a Property Developer. In its latest results, it announced that it increased turnover by 23% and pre-tax profit by 26%. Currently, it is on a prospective price-earnings ratio of 12.6 and is yielding 1.6%.
Ten Alps
(LSE: TAL)
produces much factual programming including a series of training videos for Public TV, a "television station" for the public sector. They are also making a number of documentaries. It doesn't pay a yield, but is on a price-earnings ratio of 11.7.
Shed Productions
(LSE: SHDP)
makes, amongst other things, Bad Girls and Footballers' Wives. The most recent results show turnover up 46% and pre-tax profit 22%. It has a forward price-earnings ratio of 14 and a paltry dividend yield of 0.85%.
Shed also demonstrates the risk inherent in the sector - it lost business when ITV didn't commissioned a sixth series of Footballers' Wives.
This demonstrates that real power lies with the the buyers of content, that is the television stations and, in particular, the commissioning editors of those television stations.
That's why I think the stations are the better investments, because they're the ones with the barriers to entry. For this reason, although the share price of ITV might not be exceedingly cheap at the moment, it does look tempting.
