Ten boss shows appetite for risk
Hamish McLennan has been quick to flex his strategic muscle, 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 freshy 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-rating free-to-air television network, which has been punching well below its weight, is no easy task. No one, including McLennan, says that turning the network around can be achieved 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 former management.
When McLennan arrived, Ten couldn't 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 be run out of Dodge.
"I don't agree. We would all be better off talking the free-to-air TV industry up, not down," says McLennan.
This stack of issues is formidable enough. When you add in an ailing share price, a 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 yesterday 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 - Murdoch, Gina Rinehart and Jack Cowin. He will play politics smarter and as such has already shown he has a mandate to take more calculated risks.
The decision to put Ten's hat in the ring for the right to broadcast the cricket set McLennan apart from Warburton. It was a gutsy piece of strategy that relied on Nine's David 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 walked away.
It worked. Ten picked up some cricket programming (the Big Bash) and Nine was left to sort out how to persuade 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 undertake a stock-exchange listing.
Nine's solution was to spend more money and buy 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 are 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 spotlighted McLennan's willingness to use strategic leverage despite Ten's weaker financial position.
Last year Nine was pursuing a merger with regional TV network Southern Cross. That is now off the table as Nine has emptied its coffers. But both Southern Cross and Bruce Gordon are still looking to do a deal with a metropolitan network. Ten ticks the boxes for both.
Southern Cross is in the weakest negotiating position as its debt levels are too high and it is bumping up against its debt covenants. Thus a merger of the two 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 negotiation position when it comes to terms. On Friday the two re-signed their program affiliation agreement and Ten managed to extract a higher affiliation fee.
Meanwhile, Bruce Gordon is also believed to be romancing Ten on a merger with WIN. Gordon already owns 15 per cent of Ten and wants to backed in his regional TV group, after which he would emerge as the largest, and controlling shareholder, in the enlarged network.
(Either of these deals would require the government to relax TV audience-reach rules, but this is now considered a near certainty to happen over the next six months.)
But it wouldn't be surprising to see a deal emerge soon after, and at this stage Southern Cross looks 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, formula one, the Winter Olympics and the Commonwealth Games are cost-effective entry points for Ten, but there is destined to be more.
"We need to be more adventurous in programming," says McLennan. "Until MasterChef [introduced by Ten] cooking hadn't be exploited by reality TV and now there is a proliferation of cooking shows. We need to look at the next greatest thing."
Traditionally reality TV has driven Ten's success, he says, but adds: "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 go in cycles. Nine was supreme for many years until boss David Leckie moved to Seven. Under McAlpine Ten didn't 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 by even three big hit shows. "You look at the way Australian Idol and Big Brother completely transformed this network," says McLennan.
He is trying to marry more sport, shiny floors and reality 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 television terms) is dead. They get their entertainment by means other than free-to-air television and 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 TV market. And here is why. This year 1 million Australians will turn 50.
Ten's former target market of under 40s is shrinking. In 1993, 61 per cent of Australians were aged under 40. In 2013, the proportion will be 53 per cent. In 2033, it will be 49 per cent.
Between 2002 and 2012, 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. All other age groups declined.
And about two-thirds of the $2.8 billion television advertising market is directed at 25-to-54-year-olds.