Ten boss shows an appetite for risk

Hamish McLennan has his work cut out turning the network around, writes Elizabeth Knight.

After less than five months in the job, Hamish McLennan should still be in his honeymoon period at Ten Network - his halo still bright and his freshly minted strategy still embraced by the board.

But Ten has some unusual form when it comes to chief executives. Only six months after McLennan's predecessor, James Warburton, started in the top job, network chairman Lachlan Murdoch was already looking for his replacement.

Running the third-rated free-to-air television network, which has been punching well below its weight, is no easy task. No one, including McLennan, says the network can be turned around in less than two to three years, but equally it can't be allowed to fall off a revenue and ratings cliff as it did last year under the previous management.

When McLennan arrived, Ten could not afford mistakes but neither could it afford the status quo. He has needed to make his mark quickly.

Over at Nine, David Gyngell is poking sticks at Ten, saying the market isn't big enough for three profitable networks - with the clear implication that Ten would ultimately have to quit.

"I don't agree," McLennan says. "We would all be better off talking the free-to-air TV industry up, not down."

This stack of issues is formidable enough. When you add in an ailing share price, the soft advertising market and the fragmentation of TV's traditional audience, McLennan's task is sufficiently herculean that one wonders how he retained a relaxed air on Friday, draped on the leather couch in his office.

McLennan inherited a mess, but also some valuable observations about what not to do when it comes to the Ten board - a group dominated by the wealthy and powerful such as Murdoch, Gina Rinehart and Jack Cowin.

He will play smarter politics and has already shown he has a mandate to take more calculated risks.

The decision to put Ten's hat in the ring for cricket's broadcasting rights set McLennan apart from Warburton. It was a gutsy piece of strategy that relied on Nine's Gyngell being unable to allow his network to be divorced from its cricket legacy. Ten's bid had to be eye-watering enough to damage Nine but not so high that Nine would walk away.

It worked. Ten picked up some cricket programming (the Big Bash League) and Nine was left to sort out how to convince its hard-nosed hedge fund shareholders that blowing a big hole in the sports programming budget would enhance the group's financial position and its ability to get listed on the stock exchange.

Nine's solution was to spend more money and buy the Perth and Adelaide affiliates from Bruce Gordon's WIN television.

Gyngell gets the extra earnings but loses the annuity stream paid by Perth and Adelaide for affiliation fees. It is a juggling act that only stacks up if Nine can rip sufficient costs out of these two stations - thereby extracting what is referred to in management-speak as synergies.

It will be a challenge worthy of Gyngell's talents given Gordon's legendary reputation for running his businesses on the smell of an oily rag.

Ten tried the same trick soon after with Seven - trying to hijack its Australian Open tennis coverage. The plan failed but highlighted McLennan's willingness to flex some muscle despite its weaker financial position.

Last year, Nine was pursuing a different agenda - a merger with regional television network Southern Cross, now off the table as Nine has emptied its financial arsenal.

But both Southern Cross and Gordon are still looking to do a deal with a metropolitan network - and Ten ticks the boxes for both.

Southern Cross is in the weakest negotiating position as its debt levels are too high. Thus, a merger of the two operations allowing Southern Cross to piggyback Ten's almost debt-free balance sheet holds plenty of appeal for the regional broadcaster.

This puts Ten in a relatively strong negotiating position. On Friday, the two re-signed their program affiliation agreement and Ten managed to extract a higher fee.

Meanwhile, Gordon is also understood to be romancing Ten over a merger with WIN. He already owns 15 per cent of Ten, and a deal with his regional TV group would make him emerge the largest shareholder in the new network.

(Either of these deals would require the government to relax rules on TV audience reach but this is considered a near certainty over the next six months.)

However, it would not be surprising to see a deal emerge soon after, and at this stage Southern Cross appears to be in pole position.

Ten also needs to be smarter about how it competes with the big boys of free-to-air television in programming - in much the same way it did in its glory years under the stewardship of John McAlpine.

Some cricket, rugby union, formula one, the Winter Olympics and the Commonwealth Games are a cost-effective entry point for Ten but there is destined to be more.

"We need to be more adventurous in programming. Until MasterChef (which was introduced by Ten), cooking hadn't been exploited by reality [TV] and now there is a proliferation of cooking shows ... we need to look at the next greatest thing," McLennan says.

He says reality TV has traditionally driven Ten's success but "we have under-indexed on investing in those and good shiny-floor shows. We had X Factor in the first year and let it go."

The industry understands that networks and their success can be cyclical. Nine reigned supreme for many years until its former boss David Leckie moved to Seven. Under McAlpine, Ten did not win the ratings war but its cheeky, cheap and focused model won it better returns.

The ratings fortunes of any of them can be turned around by even three big hit shows. "You look at the way Australian Idol and Big Brother completely transformed this network," McLennan says.

He is attempting to marry more sport, shiny-floor shows and reality TV with selling this to an older demographic - or at least an audience that pushes the shopping trolley rather than one that (until recently) has been sitting in it.

The youth market (in TV terms) is dead. They get their entertainment via means other than free-to-air television, they don't spend much, and are (like all viewers) promiscuous in terms of network loyalty.

Old is the new black in a more fragmented television market. And here is why.

One million Australians will turn 50 this year. Ten's former target market of under 40s is shrinking. In 1993, 61 per cent of Australians were under 40. This year, that proportion will be 53 per cent. In 2033, it will be 49 per cent.

Between 2002 and last year, the number of people aged 35 to 49 watching prime-time free-to-air TV increased 3 per cent, while the number of people aged 50 and older jumped 30 per cent. Viewership from all other age groups declined.

And most importantly, about two-thirds of the $2.8 billion television advertising market is directed at campaigns aimed at those between 25 and 54.