Ten’s interim result (for the six months to the end of February) was bad – a loss of $243 million after tax, with a write down of $290 million in the value of the TV licence (and write downs totalling $304 million all up).
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Should we be optimistic about Australian media stocks after the Ten Network’s first half results today? ‘No’ is the short answer. The prospects for Seven West Media, APN News, Prime and Southern Cross Austereo (the old analogue favourites) remain very different to those for Ten – a bit more positive in some cases.
Ten’s results confirm remains the disaster it was for most of 2012, and why it is a one off situation that only a strong surge in ad revenue growth across the economy and media sector can help, or some sort of corporate activity (with the old story of a News Corp/News Ltd driven bid to fix up Lachlan Murdoch’s embarrassment).
Seeing that has been denied, Ten is at the mercy of market sentiment – yesterday’s gains of around 1.5c (or 5%) was a reaction to the belief that all the bad news about Ten is in the market. In some respects Ten remains a stock that will be driven by investors looking for short term trading gains rather than income (which will be a long time coming).
People interested in the stock should heed the warning implicit in the write down in the value of the company’s TV licences and the lack of any earnings guidance from management. In fact the only guidance issued was for the network’s TV costs. That tells us Ten’s outlook for TV advertising and other revenue sources is clouded (another way of saying weak) because of its unknown ratings performance in coming months. That’s also despite signs of a recovery in the domestic economy.
New CEO, Hamish McLennan said in a statement that “Given the uncertain outlook for the Australian economy and media advertising markets, it is important to keep costs under control and constantly look for new efficiencies." And while that is admirable and aimed at the big end of the market, media companies grow by selling more papers or their advertising time at higher prices or finding new TV programs that viewers flock to, and advertisers are willing to pay higher amounts to sponsor or support in some way.
In fact, the outlook for Ten is for more misery. The next six months of the year are the toughest in TV with ad spending lower than the Christmas – influenced first half. Nine and Seven have the hit programs and the big winter sport (NRL and AFL) while the ad market is down around 4% from last year, and Ten’s ratings are still weak.
Ten has abandoned the 16 to 39 viewers, again and will concentrate on the older 18 to 49 age group, again. Previous managements of Ten have made that switch, to varying degrees of success (such as several years ago when Masterchef Australia burst on to our screens and made Ten a lot of money). Seven and Nine target that demographic and the biggest of all, the 25 to 54 group where much of the spending on food, retailing, cars etc is concentrated.
TEN FY13 H1 Results Presentation
Ten’s share of TV advertising has dipped to around 20% – 22% in recent months and looks like continuing around those levels. The impact of the cost cutting and staff retrenchments last year was seen in a 10.6% cut in TV production costs to $247 million. But now Ten’s management and the board have to realise that you can’t cost cut your way to growth in TV. Just look at the way Seven and Nine have revived themselves in the past decade – cost controls, but programs viewers want to watch and advertisers underwrite (The Voice, My Kitchen Rules, Underbelly, Desperate Housewives, House Husbands, 60 Minutes, The Block etc). So new programming viewers want to watch is what is needed, not more cost cutting.
Ten’s biggest program is Masterchef Australia – fading, but still has some viewer clout. Poor ratings for it later this year could very well undermine the tentative change in sentiment about the company and push it back into crisis. Good ratings could improve Ten’s standing in the market. But the program’s ratings have faded last year and that was also evident in the performance of the recent spin off, Masterchef The Professionals.
Ten’s interim result (for the six months to the end of February) was bad – a loss of $243 million after tax, with a write down of $290 million in the value of the TV licence (and write downs totalling $304 million all up). That was in addition to slump in TV earnings and revenue as the group paid the price for a clutch of programming failures in late 2012. That was expected, what wasn’t was the write down, although you could argue it was also a case catching up to Seven West Media and the Nine Network which revealed write downs in their intangibles last year.
Ten’s TV ad revenues dropped 16% to $301.7 million for the six months to the end of February from $358.3 million for the first six months to 2011-12, as the company’s share of TV advertising slumped in tandem with the slide in ratings. That was expected as well, but underlines just how badly the network is performing.
The group reported earnings before interest, tax, depreciation and amortisation of just $34.9 million, compared with the $56.8 million reported for the same period of last year and $95 million for the six months to February, 2011. If you are interested after all this red ink, Ten said it made an underlying profit (ignoring the impact of the write downs) of $6.8 million, less than half the $14.8 million reported for the same period of 2011-12. Naturally there’s no dividend. But debt is now just $1.2 million, which is a positive.
The new Ten CEO, Hamish McLennan, a former News Ltd executive (and still chairman of REA Group, 62% owned by News) now has it all before him. The typical trick of blaming the departed CEO has been made with the write downs in today’s report.
Now it’s up to him and the board to pull the network’s fortunes out of the slump that have clouded Lachlan Murdoch’s move into the share register and the chairmanship of the network, along with those of James Packer, Gina Rinehart and Bruce Gordon (who controls the WIN regional TV Network affiliate of Nine and the NIne stations in Adelaide and Perth).
And finally, with the shares down 84% in the past two years, there is one more hurdle for the struggling company to overcome – relations with its regional affiliate, Southern Cross Austereo are bad. The latter has complained about the impact Ten’s poor ratings is having on its revenues and TV earnings. Southern Cross has tried to tempt Nine into a marriage, but that depends on the abolition of the 75% audience limit. We won’t know until June on that, but the betting is that the rule will remain, which if it does, will help Ten.
But if that happens watch for Southern Cross to either agree to a new, lower cost affiliation agreement which will hurt Ten’s revenue and tiny earnings). This is a source of revenue and potential volatility in the short term at least.
Can Ten turn it around? Post your comments below.
