Ten chief gets rude Wake Up call

When Ten Network chief executive Hamish McLennan fronted an investor briefing on Wednesday afternoon to make his pitch on the future of the struggling broadcaster, the last thing he needed was a report on another round of cost-cutting at the network.

It might go some way to explaining why the company denied the Fairfax Media report that quoted McLennan saying the initiative, dubbed the "Cost Out Program", began six weeks ago.

The truth is, it may not be seen as bad news by investors, who are very awake to other bad news at Ten. The network's much-anticipated morning show, Wake Up, has halved its audience since launching last week. It now has fewer viewers than its predecessor, Breakfast, which was axed this time last year due to poor ratings.

It highlights the risk to investors of watching Ten throw money at shows that may not rate. And disasters such as Wake Up are not the only issue. As one rival put it recently, Ten's audiences are so low it is effectively programming in space. Even its good programs are failing to gain traction because the network has fallen behind even the ABC as priority viewing.

"No matter what they put to air, they are always the third or fourth-choice channel," Fusion Media's Steve Allen said.

A big part of this problem was Ten's failure to bag any first-tier sporting events such as AFL and rugby league, which, though expensive, would have brought in guaranteed audiences.

Ten is now gambling on the attraction of cricket's Big Bash league, and one-off events like the Winter Olympics and Commonwealth Games.

The network is now at a juncture where it has to invest heavily in future programming - adding about $100 million to its television costs this year - when its ad share, and revenue, are at rock bottom.

It has forced the company to seek debt guarantees from three of its billionaire shareholders, Lachlan Murdoch, James Packer and Bruce Gordon, to enable it to get a $200 million "covenant lite" loan to allow the media group its big gamble on programming this year.

It won't come cheap. And not just due to the fact that, if Ten continues to perform badly, the billionaire guarantors could end up with security over all of Ten's assets.

This level of investment, plus weak ad revenue share, means the company may lose money again this year.

UBS said Ten's ability to bounce back from a record-low audience share will be severely impeded by its lack of top-tier sports. The broker is expecting its ad revenue share to recover to 22.5 per cent in 2014 from its current level, which may be barely above 20 per cent.

The competitive landscape is not expected to get any easier.

Seven reported this week that it is on track to repeat last year's record performance and capture more than 40 per cent of the metro television market's $3 billion of ad revenue. Nine will hit the ground running when it relists as a public company next month, with plans to compete heavily for market share against Seven.

If there is any solace for Ten investors it comes from Seven West Media's chairman, Kerry Stokes, who said this week that the commercial television market was vibrant enough for all three players to prosper.

"Most people have underestimated the value of the broadcast platform," he said after Seven West's shareholder meeting. "Free-to-air is a very strong medium with a strong future, we are in more difficult times - as all media is - but broadcasting is a very strong platform, and I think people will do well whichever company they are interested in."

These are not empty words from Stokes. Through various Seven entities he has a 2.4 per cent stake in Ten.