* Nine shares debut just below A$2.05 IPO price
* International cricket rights jewel in Nine's crown
* Pay-TV operators threaten free-to-air sports coverage
By Jane Wardell and Jackie Range
SYDNEY, Dec 6 (Reuters) - Nine Entertainment Co. Holdings Ltd disappointed with a lacklustre debut on the Australian stock exchange, opening just below its initial public offering (IPO) price as investors fretted about the challenges facing old media.
The former No. 1 ranked station in Australia's free-to-air television market, seeking to claw back ground on rival Seven Network, launched the IPO to pay down debt after staving off receivership.
Shares in the media and entertainment company opened at A$2.02 on Friday, marginally below its IPO price of A$2.05, and last traded at A$2.00, valuing Nine at A$1.9 billion ($1.7 billion).
The listing comes about a year after U.S. private equity funds Oaktree Capital Group and Apollo Global Management took control of the company in a more than $3 billion debt-for-equity swap.
"I was expecting Nine to maybe have a little bit more of a bounce, considering that the IPO market had been a little bit stronger this week," said IG markets strategist Evan Lucas.
But with more than 70 percent of profits in 2014 set to come from free-to-air television, he said the challenges facing old media were at the front of investors minds as viewers migrate online.
"You've got to ask the question of how they are going to continue to generate (advertising) numbers and generate the money that they require," Lucas said.
Nine sold 175.9 million existing shares and issued 135 million new shares, including 0.9 million at no cost to employees, to raise A$636 million. The IPO price was at the bottom of the A$2.05-2.35 range.
Its debut was also weighed down by a bearish day in the market, Lucas said, with the broader market down 0.2 percent.
Nine has had a rocky time since former owner James Packer, son of media mogul Kerry Packer, sold to private equity at the peak of the buyout boom in two deals in 2006-2008, ending up in the hands of Oaktree and Apollo.
But ratings have stabilised, it's winning this year in the most important audience demographic for advertisers - peak night viewing for adults aged 16 to 54 - and may enjoy a viewing boost from the current Ashes cricket series.
The listing coincides with the second Test of the biennial Ashes series between Australia and England, which is currently underway in Adelaide. A national passion, cricket is the jewel in Nine's crown and a ratings blockbuster for the station.
Major sports events like the Ashes and the National Rugby League (NRL), for which Nine has partial rights, are key not only for the revenue they generate but for advertising upcoming TV shows as traditional networks struggle to retain viewers amid a significant shift to online viewing.
"Not only does it attract a good audience but it provides a platform to promote the rest of their schedule," said Luke Sinclair, an investment manager at Karara Capital.
The station earlier this year paid a record A$450 million ($411 million) to outbid Ten Network Holdings Ltd for the five-year international cricket broadcasting rights.
Ten has made no secret under Chairman Lachlan Murdoch, the son of media baron Rupert Murdoch, of challenging for sports rights. It picked up the domestic Twenty20 Big Bash League cricket for A$100 million and will likely take another shot at international cricket in 2018.
Nine is also under challenge from pay television.
Pay-TV operator Foxtel, owned 50/50 by News Corporation and Telstra, already has rights to broadcast much of the Australian Football League (AFL) and the NRL, the country's two most popular sports.
It is calling on the Australian government to relax strict laws that prevent sports such as the Ashes, US Open, Olympics and Wimbledon from being shown exclusively on Pay-TV.
Steve Allen, managing director of media consultancy Fusion Strategy, said he did not expect the government would change the laws at present as this would be unpopular with the electorate as many consumers still see Pay TV as expensive.
Oaktree and Apollo have trimmed their Nine holdings through the IPO and will hold 14 percent and 22 percent respectively.