How Ten can stop being the biggest loser

Ten’s share price has jumped since Hamish McLennan's appointment, but the fundamental driver of the broadcaster’s earnings - better programming to bring in bigger audiences – is still languishing and must be his priority.

Since appointing new chief executive Hamish McLennan just over two weeks ago, Ten has enjoyed a strong bounce in its share price. McLennan was appointed early evening on February 22, and Ten’s share price the day prior had closed at 29.5 cents. The day of his appointment the price bounced to 32.3 cents off the back of an active day of trading which saw over 10 million Ten shares change hands, closing at 31.5 cents.

As it turned out, McLennan himself was a large contributor to this trading volume, purchasing over 3.3 million Ten shares worth $1 million on the day he was appointed. In McLennan’s own words, this was a “sign of (his) enthusiasm” for the network and its prospects. Since then, Ten shares have continued to rally. This Monday they were sitting at 37.5 cents a share, and last week reached a high of 38.5 cents, a place they hadn’t been since October of 2012.  A 20 per cent bounce but a long way from the value it enjoyed only three years ago when it was trading close to $2 a share. Nevertheless, it’s clear investors and analysts are seeing something at Ten they like.

McLennan addressed two key areas of Ten’s strategy that needed further work just days after his appointment. The chief marketing officer that James Warburton brought in, Tony McMaster, was relieved of his duties following a lethargic marketing program for Ten’s key early year programming pillars Masterchef, Mr and Mrs Murder and Can of Worms, with no replacement announced as yet. Secondly, McLennan publicly stated that Ten would be more aggressive in terms of competing for key sports rights – including the Australian Open Tennis and the cricket – in an attempt to reclaim some ground when it comes to live sport.

The chances of Ten scoring either the cricket or the tennis at a sensible price are slim. The tennis is just too important to Seven as a marketing vehicle for its key programming for it to not match any bid Ten may serve up, and the cricket will likely stay at Nine. The key challenge for Ten with any sporting rights content is to demonstrate to the body in question that Ten is the best partner for the code in terms of production, revenue and audience. Ten has access to the capital to spend up on expiring rights, but there is more to these deals than pure price and the likely scenario is that the real winner from Ten throwing its hat in the ring on these deals will be the sports themselves.

Are the above moves reason enough for a 20 per cent bounce over two weeks? It’s hard to say. On those acts alone, probably not – but the market is feeling optimistic about what other issues McLennan can sort out when he officially starts next Monday. The biggest one is going to be tough – getting Ten back on track when it comes to programming. While Ten’s share price may be up, it’s on air performance isn’t and continues to disappoint.

Last week Ten had its worst week of the year – finishing with just a 10.3 per cent share for its main channel for the week and failing to score one show in the top 30. Masterchef, which peaked at around 1.2 million metro viewers, drew just 721,000 on Sunday. Elementary rated 1.2 million just a month ago, yet Sunday the week before rated just 712,000 – a drop of 41 per cent. Weeknights have been especially brutal for Ten – its 5pm news bulletin has been steady but aside from that there hasn’t been much to celebrate. Mr and Mrs Murder dropped 17 per cent of its audience last week – dipping from 712,000 viewers to 598,000 viewers. Imports such as The Simpsons, Glee, Idol and Law & Order are struggling, and local shows like The Project and Can of Worms are no threat to competing shows in the same timeslot.

This rocky start to the year will surely impact Ten’s third-quarter earnings, and if left unaddressed will make for a grim second-half result, especially as Ten’s group performance is now entirely reliant on television advertising revenue. Ad share is determined predominantly by ratings share, and in this area things aren’t getting better for Ten. The Biggest Loser launches another remixed format this Sunday, and you can be sure the first thing McLennan will be doing Monday morning as he settles in at Saunders Street will be review its performance. Ten has been pushing ‘Loser’ hard, but the issue it faces right now is that it simply doesn’t have the audience volume to really give the show the rev it needs to deliver big numbers.

Simply, the network needs a handful of shows each delivering 1-1.2 million per week in the five metro markets each and every week to compete at the level it needs to. This is priority number one for McLennan and is unlikely to be something that can be fixed in the short term. Programming is a long game and the moves that will be made in then next three months aren’t likely to make a difference to what is on our screens for another 12-18 months. The obvious quick win McLennan can achieve is in the area of operational cost savings, looking to trim fat where possible. However, Ten is regarded as relatively lean so meaningful gains here will be difficult to find. The other area McLennan will no doubt be looking at is M&A.  

According to documents filed with the ASX in February, Ten has access to $150 million in loan facilities if required and will no doubt be looking closely at available opportunities around digital and transactions in order to beef up its offering. A not so crazy idea in the current advertising climate would be for McLennan to look at emerging businesses – digital or otherwise – that could benefit from and scale as a result of Ten’s current assets, audience and national footprint.

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