As the company looks to mainland expansion and cable-TV services, analysts are tuning out The Sars outbreak has presented Television Broadcasts (TVB) with an unconventional business scenario of more viewers but declining revenues. According to Nielsen Media Research, during the first three weeks of April - when the crisis was at its worst - some fringe-hour programmes on TVB Jade had an increase in viewership of more than 60 per cent. Yet, the broadcaster saw advertising fall by up to 7 per cent for the first four months of this year, according to Media Partners Asia. Television companies have nonetheless benefited from Sars, according to Stephen McKeever, media analyst at Lehman Brothers, who said stations such as TVB had been less affected by the outbreak than any other media. 'TV viewership [has been] at record highs as people have been forced to stay at home,' Mr McKeever said, meaning that 'TVB has likely gained market share at the expense of other media'. With the virus now largely out of the way, market watchers can get back to the serious business of weighing up the blue-screen blue chip's pros and cons. TVB's share price surged 13.5 per cent from late May until the start of this week, before dropping 1.07 per cent yesterday to close at $27.80. According to a consensus estimate by Thomson First Call, the stock is trading at a pricey 21.2 times this year's expected earnings. The company is by far the most dominant broadcaster in Hong Kong's two-horse terrestrial television race - TVB has about 80 per cent share of the market against Asia Television's (ATV) 20 per cent. But a major concern with TVB for some time now has been growth. Many analysts say the company is unable to take up any more market share locally, leaving it nowhere to go but down. TVB's medium-term prospects, therefore, rest with two potential areas for expansion: branching out into Greater China and entering the pay-TV cable market. Speculation resurfaced last week that landing rights in southern China were imminent, contributing to the surge in TVB's shares. TVB has been in talks with the State Administration of Radio Film and Television for some time now and its case was strengthened when ATV received China rights late last year. However, TVB moved quickly last week to quell the rumours, saying approval was unlikely in the near future. Media Partners Asia executive director Vivek Couto said: 'Hopes of TVB getting landing rights in Guangdong have been around for an eternity but have intensified of late after speculation over potential ATV agreements with Guangdong cable operators on sharing advertising revenue.' However, Mr Couto said, even if it were to secure these rights, TVB - which already has high ratings in Guangdong because many buildings transmit its signal illegally - may have to accept a 'much lower revenue-sharing percentage than previously assumed'. Plus, any of the TVB programmes aired in Guangdong that were not produced in-house could require licensing from outside content providers and drive up costs, he said. The company's immediate prospects, therefore, rest with pay-TV. Having found a partner in Intelsat earlier this year, TVB, which has a 49 per cent stake, is set to launch its cable television network Galaxy Satellite in the fourth quarter, and take on i-Cable, the only other significant pay-TV operator in the Hong Kong market. TVB is confident its 20-channel service will break even within four years. But South China Securities analyst Anthony Teoh said he was not convinced. He said TVB's attempt to go head-to-head with i-Cable would become a 'no-win situation' for both companies. 'Hong Kong is not big enough for two cable-TV operators,' Mr Teoh said, pointing out it took i-Cable seven years just to break even. Mr Teoh said TVB's Galaxy venture would significantly 'eat into their profits' and, as a result, he had a 'sell' recommendation on the stock. Merrill Lynch forecasts Galaxy will lose more than $300 million every year until 2005. Deutsche Bank analyst Vineet Sharma was also less than positive on Galaxy's prospects in such a tough market. But he said at TVB's level 'the deal looks quite attractive because TVB will make money not just from Galaxy's revenue streams but by selling content to Galaxy'. Overall, Mr Sharma was bullish on TVB's prospects. He said valuation was a key driver behind the stock's recent rally. While Hong Kong's economy was unlikely to rebound this year, TVB - with interests outside the territory - would recover more quickly, he said. Mr Sharma expected Hong Kong's economy to pick up next year, meaning the broadcaster was looking at 10 per cent growth.
