If you were planning on investing in the Nine Entertainment Co. (Nine) IPO…I’d think again. The days of ‘traditional’ TV networks are numbered.
Why? Because the digital world is taking over. And there’s already one internet TV streaming company gearing up to take on all TV networks. This company is the beginning of the new TV revolution.
Furthermore, if a secret trade deal between a group of pacific nations is ratified this company will get even bigger and more profitable…
When it comes to the Nine IPO the funny thing is that in their prospectus they’ve predicted their own death.
Here’s what the prospectus says,
‘Nine Network is primarily reliant on generating advertising revenue from broadcasting activities. In attracting advertising revenue, FTA TV broadcasters such as Nine Network compete primarily on the basis of audience share ratings, programming content and advertising rates. With the continued development of alternative forms of media, particularly digital media, Nine Network may face increased competition for advertising revenue.‘
‘Newer technologies, including streaming and downloading capabilities through the Internet, video-on-demand and other technologies, are increasing the number of media and entertainment choices available to audiences.‘
It also goes on to list other risks, such as ‘lack of popular programming content‘. To summarise it all here’s a simple translation,
‘We (Channel 9) are competing against the internet to make our money.’
Now I don’t know about you but I’d think Channel 9 are paddling up ‘that creek’ without the proverbial paddle. Their profits are at risk from the internet. In other words, online TV streaming companies.
The Secret (Useless) Trade Deal
You may have heard about a recent ‘Secret Treaty’ leaked by Wikileaks. If you haven’t, it’s a proposed trade agreement between the US, Japan, Mexico, Canada, Australia, Malaysia, Chile, Singapore, Peru, Vietnam, New Zealand and Brunei Darussalam.
The Wikileaks description says about it,
‘The chapter covers proposed international obligations and enforcement mechanisms for copyright, trademark and patent law, and includes the combined positions of all of the parties as they were by the end of August 2013.‘
This trade deal is to protect the profits of companies (predominately US companies). Piracy, intellectual property and industrial design protection are some of the key issues at stake.
If this treaty gets the green light it will hurt the consumer. Prices will rise. You’ll have to pay more for over the counter and prescription drugs. TV shows, music and movies will all cost more. It’s protectionism at its finest.
In its simplest form, piracy, IP theft and copyright infringement isn’t great. I’m of the opinion if you create original material you should have right to profit from it.
But at the same time I think prices should be more affordable. As it stands we already pay too much in Australia for TV, music and definitely movies.
My point is maybe the problem isn’t the piracy and infringement itself. Maybe the problem is why it’s happening in the first place.
Let me paint you a picture.
You head out to the movies. You book two tickets to see the new Hunger Games movie. At the ticket booth you shell out $19 for a ticket. You head to the candy bar. $15 for a small popcorn and coke. Of course you’re not on your own, so multiply all that by two. If you’re a family…well you get the drift.
Anyway, $68 dollars later you’re in your seat watching previews. All you can think about is the ridiculous cost even to just be there. You feel quite mad sitting there as you’ve dropped a fair bit of coin for something that could end up being crap anyway.
Now here’s the alternative.
You’ve practically got a cinema size TV’s at home. You want to watch the new Hunger Games movie. But it’s not out at the movies for another week. So? You can download a pirated copy for free from a Torrent site. You skip over to Coles while it’s downloading, grab a bottle of Coke and some microwave popcorn for about $3. You times that by…one, as that’s enough to cover everyone. You sit on the couch and start the movie pretty chuffed because you’ve saved $65.
Of course with the second option you’re breaking the law. But I’m pretty sure many of you do it anyway already.
So what’s a legal way of getting good content, at a fair price, without breaking the law?
Well I think Netflix [NASDAQ:NFLX] has it all figured out. In fact Netflix is the first legitimate internet TV streaming service, and it’s set to kill ‘traditional’ TV channels.
Here’s how it works. You log into Netflix through your TV. If you don’t have a TV you can use the computer, Apple TV, Blu-ray player, Xbox, PS3, etc.
Then you just find the show you want and stream it through the screen. Its on-demand TV. Of course this isn’t particularly new. But there’s a few things that indicate it’s the only way forward for TV networks.
Part of that is Netflix now produce original content. That is they make and screen shows that you can only get on Netflix. That means, Foxtel won’t get these shows and Channel 9 definitely won’t.
As a subscriber to Netflix the cost of subscription makes Foxtel look like the rip-off it is. It’s about $9 a month. Now that’s affordable to most people. Actually it’s affordable to over 40.4 million people around the world.
Of course you’re saying now, ‘That’s great Sam, but I can’t get Netflix in Australia.’
Good point. You can’t, yet. The main reason is Australia’s less than average internet infrastructure. Simply to get the best out of Netflix you need a decent internet connection speed. So blame the government for that one…
But it doesn’t mean you can’t capitalise on Netflix’s current dominance and future dominance of internet TV streaming. They’re so dominant, Netflix alone accounts for over 31% of all internet traffic in North America. That’s more than YouTube, Facebook, and iTunes combined.
When Netflix does come to Australia, and they will soon, it’s the end of TV stations like Channel 9. There’s simply no way they can compete with the likes of Netflix for content. So as people switch off from the likes of Channel 9, watch their profits fall away.
To me the Nine Entertainment Co. IPO looks toxic, and I’d avoid it at all costs. Particularly when you’ve got investable companies like Netflix that are way ahead in terms of content, innovation and technology.
Technology Analyst, Revolutionary Tech Investor