Nine ducks bouncer from Ten
This only goes to prove how valuable exclusive A-grade sports programs are to television networks as they fiercely compete for ratings in a media market labouring in a harsh advertising environment.
Ten is miffed at even the suggestion that losing out to Nine and forcing it to pay a hefty fee for the cricket was a consolation prize. And we will never be sure what Ten's new boss Hamish McLennan's real agenda was.
If he was trying to monster Nine into paying more, he is clearly both a clever strategist and a consummate gambler.
Had Ten landed the cricket and a $500 million bill, it would have - at first glance - wiped out the majority of the company's profit.
But Ten would also have been counting on picking up additional advertising revenue from broadcasting the matches and mitigating some of the cost.
Ten maintains it always knew wedging itself between Nine and its cricket heritage would be almost impossible.
Under normal circumstances that would be a fair assessment. But Nine's current circumstances are anything but normal. Its chief executive David Gyngell has television in his blood and would have always fought hard to keep a major programming plank like cricket.
But this organisation is now majority owned by hedge fund lenders, who are watching the returns from every dollar spent and are short-term investors (having been recently converted from being Nine's lenders) in search of a well-priced exit.
All power to Gyngell in getting them over the line to support this apparently extravagant investment in ratings.
To be fair, Nine is already paying for the cricket (although only half as much) and will be attempting to recoup some of the price from its network affiliates.
The bottom line is that Nine can afford to pay the extra thanks to its recent recapitalisation and it can probably not afford to allow Seven to steal any more of its ratings lead.
Nine has been nibbling at Seven's supremacy for a year or so and while it is not close to pushing Seven off its perch, it has made some inroads.
Taking Nine to market in a float would have been a harder sell without the cricket.
Thus Ten may have been able to guess Nine management's desires but not its shareholders' views with any certainty.
Ten's stated rationale when it bid for the cricket was that it would have attracted an audience that was not typical to the network.
(As far as this deal goes, Ten still gets a little and far cheaper piece of the pie, which is the Big Bash games it will take from Fox Sports.)
Meanwhile, it demonstrates that Ten is back in the programming game. McLennan has already said he wants to skew the demographic into a slightly more mature segment - not just the young but the young at heart. Maybe he is a subscriber to the view that 50 is the new 40.
At the very least, taking a punt on programming is a shot in the arm for Ten, which needs to do something radical to arrest the spiral of falling ratings leading to falling advertising. The network is now operating with next to no debt, so has a bit of room to invest in programming, and we will now wait to see whether it tries a similar move against Seven to nab the tennis.
McLennan said at the release of Ten's dismal half-year results in April that the company was clearing the decks and preparing for the future. The management of Ten is focused on maintaining strict cost disciplines while stabilising revenue and improving the ratings performance. This will take time and we probably won't see much evidence of progress at the next profit result later in the year.
Nine, meanwhile, has apparently not only convinced its owners to raid the piggy bank for the cricket but also to buy Adelaide's Nine affiliate from WIN's Bruce Gordon and take an option on the Perth station.
Under the current 75 per cent audience reach rules Nine could pick up Adelaide, but Gyngell would need to convince Tony Abbott of the benefits of relaxing the rules in order to exercise the Perth option. To date, Abbott has shown little appetite for doing so, given the move is deeply unpopular with his National Party colleagues.
Frequently Asked Questions about this Article…
Nine Network won the rights to broadcast most of the major matches, and Cricket Australia pocketed about $500 million (roughly a half‑a‑billion dollars) under the deal described in the article.
Ten bid for the cricket to try to attract an audience different to its usual viewers, but it lost the main rights. The upside for Ten was that it avoided a potential $500 million bill and still landed a cheaper piece of the action — the Big Bash matches, which it will take from Fox Sports.
The article notes that a $500 million rights fee would, at first glance, have wiped out the majority of Ten's profit. Ten was betting it could recoup some of the cost through additional advertising revenue from broadcasting the matches — a risky strategy that depended on lifting ratings and ad sales.
According to the article, Nine could afford the extra spend thanks to a recent recapitalisation and because its new majority owners are hedge fund investors focused on returns. Chief executive David Gyngell also pushed to keep cricket as a key programming plank, and Nine is already paying for cricket (albeit only half as much previously) and will seek to recoup costs from affiliates.
The article highlights that exclusive A‑grade sports like cricket are extremely valuable because they drive ratings in a tough advertising market. Nine’s win is aimed at protecting and growing its ratings lead (and future float prospects), while Ten’s programming moves are a bid to arrest falling ratings and stabilise ad revenue.
Nine is now majority owned by former hedge fund lenders who are short‑term, return‑focused investors. Gyngell convinced them to back the cricket investment and to pursue regional moves — buying the Adelaide Nine affiliate from WIN’s Bruce Gordon and taking an option on the Perth station — moves that aim to strengthen the network’s reach and value.
Yes. Under the current 75 per cent audience reach rules Nine could pick up the Adelaide affiliate, but exercising the Perth option would require convincing the government (the article specifically mentions Tony Abbott) to relax the rules — something the article says has little political appetite so far.
The article suggests a few investor takeaways: exclusive sports rights can materially affect TV networks’ ratings and advertising revenue; big programming bets can compress short‑term profits but aim to improve long‑term value; recapitalisation can give a network the firepower to bid aggressively; and management moves (like Ten’s push to shift demographics and tighten costs) may take time to show up in profit results.
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