Plenty of cooks stir the pot at Network Ten
April 6, 2011
Elizabeth Knight
Ten Network will publish its first-half result for the 2011 financial year this week. It won't be pretty. Nor will it be unexpected. The fortunes of the Ten Network have been the subject of more newspaper column inches over the past six months than most companies three times its size.
Putting aside the fact that media loves talking about its own industry, Ten's problems - its earnings before interest tax amortisation and depreciation will fall 12 per cent from the equivalent half last year - are what inspired a bunch of financial luminaries including James Packer, Lachlan Murdoch and Gina Rinehart to buy in.
It is a classic renovation job. At first glance it looked simple enough - a lick of paint, some new carpet and the returns would be in the bag.
But the media world is a delicately balanced place in Australia. If you fiddle with one lever, the foundations could be compromised.
The initial architectural plans for the Ten overhaul were simple enough. Get the costs out and try not to damage the revenue line too much. The target was the expensive strategy of a news service. The second leg was to fix up or ditch the digital sport channel One HD, and the third part (although some dispute this) was to run Sky News as a replacement digital channel.
The logic for cutting the costs of the recently revamped Ten news is clear enough. It is expensive and not rating sufficiently well. It has already had its slot rejigged.
The sports digital channel is receiving an embarrassing 1 per cent of audience share. As such, it is just a waste of spectrum.
Overall there was, and still is, plenty of room for improvement. Once the new shareholders took control, the first step of getting rid of the incumbent management was executed swiftly.
Step two was to replace it. This is where the strategy hit its first real snag. Ten chose the No. 3 whiz kid at Seven - a move that upset that network's owners, the largest of which was Kerry Stokes.
In the intertwined Australian media landscape the ramifications are potentially large.
In the first instance, Ten and Seven are in a partnership to bid for the free-to-air rights for the all-important NRL football coverage Second, Seven is the part-owner of Sky TV, along with Murdoch's BSkyB and Channel Nine.
The final ownership complication is that the pay television outfit Foxtel is 25 per cent owned by Consolidated Media, whose major shareholders are James Packer and Kerry Stokes.
Until Ten raided Seven's management there had been a degree of peace in the media sector, but Stokes is unhappy about the management grab by Ten, and how this plays out is anyone's guess.
Packer's resignation from the board of Ten does not seem to have achieved its aim of placating Stokes.
At the very least, these hurdles may hold up the Ten restoration. But they do not change the reality that this is a network in need of some operational changes.
Six years ago Ten was the envy of the media sector. It was masterful at running a low-cost operation - its mainstays were a few soapies, some cheap news and lots of reruns of popular programs such as
The Simpsons and
Seinfeld. It was run on the smell of an oily rag, was enormously popular with the younger demographic and made stellar returns.
But since then its cost base has gradually grown at a faster rate than its ratings or revenue. This got worse when the government introduced multichannelling, which allowed all the networks to run several channels - which they ultimately stuffed to the gunwales with US sitcoms and reruns.
These new digital channels such as Go and 7Mate and GEM looked like clones of Ten's prime network service without the news.
Ten's attempts to differentiate itself from the new digital channels has resulted in it spending more on programming.
On a cost-to-ratings ratio basis, Ten is now higher than Seven. Attempting to match Seven by spending more and hoping that ratings and advertising will follow is extremely risky.
Ten's revenue has held up pretty well to date, which suggests that the remedy for Ten, in the short term at least, is to attack its cost base.
It could also bring some money through the door by selling its outdoor advertising business, thereby reducing its interest bill and giving it some breathing space.
This is exactly why the new major shareholders in Ten see there is an opportunity to reverse the earnings slide by bringing in a sharp knife.
What would hamper this new strategy is any disagreements between the major shareholders on the direction Ten could take.
There have been suggestions this week that Gina Rinehart is a strong supporter of a new current affairs pilot program anchored by the ultra-conservative journalist Andrew Bolt, whose opinions are in line with that of the high priestess of iron ore.
Apart from making money on the Ten turnaround, Packer will also be interested in the carve-up of sports rights, which could also form part of Lachlan Murdoch's thinking. Murdoch is a director of his father's News Corporation, which, along with Packer's Consolidated Media, owns Fox Sports - which bids against the free-to-air networks for various sporting rights. Taking One HD out of the game would work.
For the players that have taken a punt on Ten, the holy grail is easy to see, but the path to it could be rocky.
