A Potential 60 Billion in Sales Within Four Years

Oh dear, things just aren’t timing well for Ten Network Holdings [ASX: TEN]. The company really needs to put on a brave face right now.

But June is not a great month to do this if your share price stinks. That’s because over May and into June the selling pressure really comes on.

This comes about as every person sitting on a loss tries to flog-off the stock. And if you bought TEN in the last 12 months, you’re sitting on a loss.

What will most of these shareholders do? Get rid of it to write it off against the tax man as much as possible. The same dynamic happens every year. It’s only the ticker codes that change.

Knowledgeable buyers disappear until this all plays out. Consider that TEN is now down 83% over the year.

But it’s the story behind the scenes that’s really hammering the shares…

These three billionaires aren’t helping here

And now we know…

Ten has every chance of going into receivership. It needs to renegotiate a $200 million loan facility due in December to keep afloat. It’s not looking good.

The loan is from the Commonwealth Bank. But Ten only got access to the money originally because billionaires James Murdoch, James Packer and Bruce Gordon stood behind the channel as a backup.

All these guys have some skin in the game with Ten already. Now they’ve pulled out of any further guarantees. That’s hardly a sign of confidence in the future, is it?

That leaves Channel Ten shopping around to try and find a different lender, or perhaps fighting for a smaller loan with new conditions. That’s one option. A second is trying to renegotiate the content deals that are currently bleeding it of cash.

The Australian Financial Review reported Ten is forking out over a hundred million dollars for US content that isn’t rating, and so not generating enough advertising dollars. TEN is trying to renegotiate these deals. They might be able to. US studios aren’t so cocky about sales anymore either.

This aspect reminds me of (the now bust) Borders Books. Apparently most of the Borders stores were profitable when it went into bankruptcy.

But it was a couple of long term leases that it couldn’t get out of that drove Borders into the wall.

So there’s definitely a chance these US studios might let Ten off the hook. You won’t get paid if your customer cease to exist.

After June you could even consider look to trade TEN to the upside. There might be a new deal that sends the price up, or saves the company in the short-term.

The bad news will fully price in at some point, and the market will look to see what’s next. It might not be a bright future, but it could be brighter than it looks now.

It’s not my style to go hunting down in the gutter like this. But it’s always interesting to compare your impression of a stock in deep trouble with what the price actually does. The market is always looking ahead of what’s in the news.

I said you could trade TEN, if that’s your style. It’s not the kind of mess you want to get caught up in as a long-term shareholder. The business model would worry me more than anything else.

In TV, advertising brings cash into the company. And advertising is going online, mobile…and soon to augmented reality. I don’t see Channel Ten dominating any of those in the future, or any other TV station for that matter.

Advertising is changing as new formats emerge

Even glossy fashion magazines ­­are finally succumbing to the digital disruption. The Wall Street Journal reported over the weekend that hotshot brands like Louis Vuitton and Gucci upped their digital advertising to over US$1 billion in 2016.

Digital advertising in this sector is now up 63% since 2013. There’s going to be lost jobs and further titles keeling over here.

Apparently what’s kept the magazines propped up so far is how tightly interwoven the editors and titles are with setting the fashion agenda and new designs. But even this can’t save them.

Classic advertising can’t compete because it doesn’t give the same data, personalised campaigns and low overhead of digital. The luxury fashion brands are finding this out. Advertising is also shifting to ‘influencers’ who can promote brands via Facebook and Instagram.

The simple fact is TV stations, newspapers and magazines no longer control the distribution of content. So most of their power is gone.

And now we have Apple announcing augmented reality is coming in the very near future. Apple launched ARKit at their latest development conference. This will allow AR apps to run on its iOS mobile operating system.

AR is now the new front in the tech war.

Google, Snap, Facebook and Apple are jostling to lead the way. That doesn’t even mention the Asian brands moving into this space either. Apple has a head start because it controls both the hardware and software within its ecosystem.

One estimate I’ve seen says AR could hit 1 billion users by 2021, and generate US$60 billion in revenue. New advertising forms will spring from this.

Initially, it will probably look something like this. You point your phone at an object. A description or sales link could pop and overlay it. Apple used IKEA as an example. You can project a chair they sell into your living room. Does it suit? Good. Let’s buy it.

If you see something you like, you won’t even have to describe it in a search box. An AR tag will do it all for you, and give you relevant information, including where you can buy it.

And you thought it was easy to spend money now!

I’m pretty sure this future will surprise us with how it looks.

I’m also pretty sure that the big advertising bucks won’t be going any longer toward a style that includes a Harvey Norman chant and a slot between the nightly news.

Advertisers are going to new formats and mediums, and the dollars go with them. Invest with that in mind.

Best wishes,

Callum Newman
Editor, The Daily Reckoning Australia