Australia’s free-to-air broadcasters collectively face years of declining revenues and profits as audiences continue to switch to pay-V and online media.

That’s according to IBISWorld’s FTA Broadcasting in Australia report, which forecasts industry-wide revenues will fall at an annual rate of 0.2% in the next five years to $5.6 billion in 2018-19.

The market researcher estimates 2013-2014 revenues at $5.7 billion, with profits at $540.7 million (a profit margin of 9.5%) and a wages bill of $607 million.

By its reckoning industry revenues fell by an average of 0.7% in the past five years although there was a slight uptick of 0.1% in the current fiscal year.

“The audience of free-to-air TV is projected to decline despite further developments in commercial and digital TV,” it says. “Advertising will continue to be diverted away from costly mainstream media in favour of direct promotional activities. Although pay-TV services have reached saturation, demand for free-to-air TV programs will continue to fall due to the rapidly growing popularity of online digital media.

“Viewers are able to stream TV programs online and watch shows before they are broadcast on free-to-air TV. This trend is expected to persist over the next five years, contributing to the industry’s decline.”

IBISWorld surveyed 18 broadcasters including the ABC and SBS. In overall market shares Seven West Media led the field with 22.3%, followed by Nine Entertainment Co. with 19.7%, the ABC at 11.7% and Ten Network Holdings at 10.8%.

The report notes 16 new standard and high definitions free-to-air TV channels were introduced in the past five years. But it says each of these multi-channels has operating costs of $20 million- $22 million and they attract little additional advertising revenue.

Online TV streaming platforms is anticipated to be the biggest threat to the FTA industry over the next five years, it says. “Revenue from advertising is anticipated to grow marginally, but not enough to contend with the popularity of online media platforms. The total minutes of TV watched by audiences is also projected to decline, as consumers spend more leisure time on social media websites, playing video games and streaming programs online.”

The report forecasts profit margins wil decline to 8.8% of revenue in 2018-2019 as TV networks struggle to compete with external broadcasting platforms.

In contrast to that pessimistic outlook, Credit Suisse media analyst Samantha Carleton this week rated APN News and Media (which owns the Australian Radio Network), Seven West Media and Prime Television as her top media picks.

“These companies have strong or improving market share positions and are likely to deliver solid growth over the medium term,” she said in a briefing to investors.

Carleton sees a potential break-up of APN as likely and is impressed by SWM’s 7% dividend yield and Prime TV’s 8%. She believes a take-over of Prime by SWM is on the cards when the audience reach rules are abolished next year.

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