A turnaround at Ten is looking more remote

While Ten Network's revenue share continues to slide, competitors Seven and Nine are grabbing historically high shares of 40 per cent. A weak advertising market isn't helping matters.

This was always going to be another difficult year for Ten Network but its efforts to try to win back lost ratings and revenue share while continuing to cut costs are still losing traction.

Ten revealed today that it expects its television revenues for the financial year to be about 3.5 per cent to 4.5 per cent below those generated in 2012-13. Given that revenue was up 4.4 per cent in the first half on the back of the successful Big Bash cricket schedule and the Sochi Winter Olympics, that points to a torrid second half.

Meanwhile, in a reprise of the first half trends, television costs (excluding those associated with the Winter Olympics and Glasgow Commonwealth games, which are estimated at $55 million) are expected to be up 8 per cent.

To some extent one would expect that during this period of the attempt to turnaround the network’s sliding fortunes costs would rise faster than revenue. Hamish McLennan, if he wants to make Ten a profitable network, has to invest in better programming to eventually drive a bigger revenue share.

Despite the success of the Big Bash and Sochi, however, Ten hasn’t been able to translate that into ongoing ratings and revenue. Indeed, in recent months Ten’s revenue share has dropped below 20 per cent while its competitors, Seven and Nine, are grabbing historically high shares of around 40 per cent.

Ten said today that its revenue share for the nine months to May was about 20.7 per cent, but that includes the bump provided by the two big sporting events. It has had something of a ratings fillip from the launch of this year’s series of Masterchef Australia and Offspring, but that doesn’t appear sufficient to regain revenue share.

McLennan has been forced to respond to the network’s predicament with more cost-cutting to try to free up funds for investment in better primetime content. The most recent bout was the controversial slashing of its news programming. Ten said today the benefits of that program wouldn’t flow through to earnings until next financial year.

Compounding the degree of difficulty for McLennan in stabilising Ten’s performance -- let alone turning it around -- is a weakening advertising market for all media. Television advertising generally is flat-lining in the context of declining consumer confidence and spending.

In the medium term, both the audiences and advertising markets for the networks are likely to shrink and fragment under the continuing impact of pay television, their own digital channels and the growing threat of IPTV.

The $200m four-year debt facility Ten put in place last year with the support of guarantees from three of its major shareholders Bruce Gordon, Lachlan Murdoch and James Packer at least means it has a measure of balance sheet stability while McLennan continues to try to find the right balance between revenue and costs. It’s a daunting task in an increasingly difficult environment.

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