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Regional television networks enjoy increase in advertising revenue

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A curious trend emerged in the half-year reporting season among Australia's television companies. Something worthy of investigation by Detective Humphrey Goodman.

The media market is used to seeing decline after decline in advertising revenue as viewers turn off the television and switch on their computers and devices.

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The numbers are in and there has been movement in the rankings across every category.

But in February two results stood out – Prime Television and Southern Cross Media. (The third regional network, WIN Television does not publish any financial results.)

As metro stations like Nine reported a 5.3 per cent decline in television revenue and Ten issued a profit warning, the regional networks appeared to be doing not so badly.

Prime revealed a 7.6 per cent increase in its advertising revenue for the July to December 2016 period, with a profit of $17.4 million. This is a reversal from the first half of the 2015-16 year when Prime reported a 7.7 per cent drop in advertising revenues.

Southern Cross Austereo reported a 15 per cent increase in revenue for its regional television and radio segments.

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There do seem to be key differences between Australia's regional and metropolitan audiences, such as taste in shows. Seven's My Kitchen Rules and Nine's Married At First Sight do well in both markets, but regional viewers love the ABC's Death in Paradise – staring Detective Goodman – and Midsummer Murders much more than their city cousins.

The lack of high-speed internet connectivity in regional areas is another difference – video streaming can't really compete against broadcast television when internet connections are slow or unreliable.

WIN chief executive Andrew Lancaster has a simpler theory. He believes there are fewer distractions in country areas and people have more time at home when their daily commute takes just a few minutes each way.

But there have also been commercial changes that brought about the recent bump in revenues.

Prime's general manager of sales and marketing, Dave Walker, attributes Prime's gains to the Rio Olympics and AFL grand final, along with some small adjustments to sales techniques.

Prime has the benefit of being aligned with Seven West Media, which spends millions on the broadcasting rights for live sports like AFL, the Australian Open and the Olympics. Seven had a 4.6 per cent increase in advertising revenue and affiliate fees during the last half-year period.

"We did a really good job with the Olympic Games back in August in terms of monetising the Games ... And we did a great job with the AFL," Walker tells Fairfax Media.

Prime's sales teams were more flexible with their advertising packages and signed up a record 12 partners. But there is also a general sense that advertisers are coming back to regional television after moving too quickly to other mediums.

"Some of those advertisers and brands were quick to move to digital and what I sense is that the results were not quite what they expected and they are moving back to TV again," Walker says.

Even with the roll-out of the national broadband network Walker does not expect to see many changes in viewing habits, even though many of his viewers will, for the first time, be able to stream Netflix, Stan and Amazon movies

"I'm not sure that the speed of the internet will affect what they watch and what they don't watch," he says.

Prime's chief executive, Ian Audsley, played down expectations that the interim growth might continue, telling investors ad revenue is likely to decline in early 2017 and the "regional television advertising markets continue to be challenged by declining audiences and the growing popularity of new and alternative technology platforms," he told the market on February 24.

Meanwhile Southern Cross Austereo's results reflect the first full six-month period after it switched network affiliations. In regional Queensland, southern NSW and regional Victoria it now broadcasts Nine's content rather than Ten's. (Southern Cross still broadcasts Ten in northern NSW and southern South Australia, but Seven in Tasmania and Darwin).

Southern Cross is the second-biggest media company in Australia with a market capitalisation of $992 million, after Seven West Media with a market cap of $1.05 billion. Southern Cross is larger than Nine, four times bigger than Ten and nearly 10 times the size of Prime.

"We are not noticing anything different in the market," Southern Cross' chief sales officer Brian Gallagher told Fairfax Media.

"What is happening is we are doing everything different to the way we used to do things."

His sales teams now hunt aggressively for brands under-spending in regional areas and uses data and research to convince those brands to increase their spend, he explains.

And unlike Audsley, Gallagher believes the increasing ad spend is a long-term trend, not a blip. "We will drive growth and it will be a rising tide our competitors will benefit from. That's fine. Regional markets are growing economically, in population size and sophistication … [and] national advertisers are under represented in regional [areas] so it's low-hanging fruit," he says.

Southern Cross and Nine recently announced they will open 15 new local news services in country areas. Broadcasting local news increases ratings and reach, which attracts more advertisers, he adds.

The latest data from SMI shows that in January 2017 total advertising revenue for the three regional networks was $15.9 million, a 3.4 per cent increase on January 2016. But in February ad revenue dropped again, down 8.4 per cent compared to a year ago, from $17.4 million to $15.9 million.

 

But this is hardly a return to the good old days. Just two years ago the three regional networks took in $20.4 million in advertising revenue in January.

This is why executives continue to ask the federal government for cuts in their licensing fees. And on Monday the Senate will debate media-reform legislation, which, if passed, would pave the way for takeovers that are currently banned through ownership restrictions.

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