UPDATE 2-Australia's Ten H1 profit down on costs, ad market

(Adds detail, shares)

By Michael Smith

SYDNEY, March 28 (Reuters) - Ten Network Holdings Ltd. (TEN.AX), Australia's third-biggest TV broadcaster, posted a 12 percent fall in first-half profit on higher costs and a subdued advertising market, but tipped an improved performance this year.

Ten, which has been put up for sale by majority shareholder Canada's CanWest Global Communications Corp. CGS.TO, said an Australian election later this year would boost ad spending and its TV profits should improve after winning back market share.

Ten executives declined to comment on the sale process which, according to local media reports, has attracted little interest because of Ten's high valuation.

"The revenue numbers at the TV level were where we expected and an improvement on last year. I don't think the result changes the metrics of the sale at all," said Craig Shepherd, an analyst at Commonwealth Securities.

Ten said net profit for the six months to Feb. 28 was A$37.7 million ($30.4 million), compared to A$42.9 million a year earlier and just below an average of three analyst forecasts of A$42.8 million.

Ten shares were flat at A$3.20 after rising as high as A$3.25. The stock is trading well below a January high of A$3.65.

CanWest, which owns a 56.4 percent stake in Ten, asked interested bidders to submit offers for the company in January.

Merrill Lynch Global Private Equity MER.N and private equity firm Hellman & Friedman had been taking a look, media reports and sources have said.

Ten, which regained more than 30 percent of the metropolitan TV ad market in the period, said its core television business and outdoor advertising business Eye Corp recorded strong revenue growth in the second quarter.

However, television costs rose 6.6 percent in the first-half as it invested in new TV programmes to win back ratings, offsetting a 0.6 percent rise in revenue.

Analysts said Ten had improved its cost structure and earnings at its Eye Corp outdoor advertising business had taken a hit due to start-up losses from new investments in the United States and Europe.

Executive Chairman Nick Falloon told reporters there were signs a subdued ad market was improving and the election due later this year would help growth.

In past national elections there has been a significant boost in TV advertising spending as the major political parties vied to get their message across.

Falloon said he was "reasonably confident" that Ten would achieve its goal of beating last year's TV earnings.

In the first-half, Ten's television earnings before interest, tax, depreciation and amortisation (EBITDA) fell 8.7 percent to A$142.4 million.

Ten, whose programmes include Big Brother and Australian Idol and targets the 18 to 49-year-old demographic, has a market value of about A$3 billion including the CanWest stake. ($1=A$1.24)