Questions of value at CanWest

Canwest MediaWorks is undervalued by the market, according to chief executive Brent Impey.

Responding to questions at the result briefing this week about what the shakeup in Australian media law could mean for the company, Impey warned New Zealand investors they had "no one to blame but themselves" if overseas companies swallowed up local enterprises.

Impey might be right, but it is not just Kiwis who have undervalued CanWest's New Zealand assets.

And there is no certainty an Australian media company would want to buy Canwest.

Before the New Zealand float in 2004, majority owner CanWest MediaWorks in Canada sought to merge TV3 into the Australian Ten Network, but its board resisted the CanWest offer as being too high.

Selling CanWest NZ to Ten, or splitting the assets, suggests synergies between the two countries.

But they don't always work.

The Australian Nine Network took an option to buy Prime NZ, thinking it could build up ratings with Australian programming. However, most Australian fare just did not rate. Nine dropped its option and Prime was sold to Sky in February.

PBL thought it could cut programming costs by using its combined cross-Tasman buying muscle to secure Hollywood content. But US television studios benefit from the existence of two separate markets and resisted Nine's merger attempt.

Many investors did not understand the dynamics of the TV business when CanWest floated, though their knowledge was improving, Impey said.

As ABN Amro Sydney analyst Fraser McLeish says, media is a cyclical business.

Television costs are largely fixed but its revenue from advertising is sensitive to the economy.

A tightening economy often means decreased advertising spend, says Communication Agencies Association president David Walden, who remains upbeat about the current climate.

Impey points to Advertising Standards Authority ad revenue figures for the radio market over the past 15 years, which show a compound annual growth rate of 4.4 per cent. His TV chart shows a 4.7 per cent growth rate.