Ten tentatively changes the channel

Given that Ten Network had warned the market in February that its first half result was going to be a shocker, the more interesting aspect of what its new chief executive had to say was always going to be about the future. James Warburton was, however, quite cautious about the rate at which the struggling network can be turned around.

That caution is understandable. The advertising market is weak and advertisers aren't committing beyond the short term, making it difficult for Warburton to be certain about his revenue outlook.

Moreover, after Seven Group took successful legal action to prevent Warburton crossing immediately to Ten in the middle of last year, Warburton wasn't in place at Ten until the start of this year, which meant he inherited a programming slate and strategy put together by acting CEO, Lachlan Murdoch.

While Warburton has tinkered with the schedule, finessing Ten's news and current affair line-up and, after a false start, bolstering its Sunday evening offering, it will take some time before he has the ability to put his own stamp on the network.

In the meantime he is focused on delivering continuing cost reductions – television costs were down 2.4 per cent in the half and the EYE Corp outdoor advertising business's cost base was cut 2.4 per cent. For the full-year, television costs are expected to be five per cent, or $30 million, lower than last financial year's.

The advertising environment and the relatively limited flexibility he has on programming explains why Warburton said the full benefits of the turnaround he is pursuing will take "some time" to filter through and that implementing the strategy he has for Ten will require "vision and patience".

Ten says that, despite the 11.3 per cent fall in television revenues and 40.2 per cent fall in the division's earnings before interest, tax, depreciation and amortisation, it is improving its competitive position and is focusing on the broadcasting ‘fundamentals' of ratings and revenue.

It acknowledged that, while there have been some modestly encouraging signs of early improvement from the changes to its schedule, it would need more investment in programming – paid for out of the cost reductions – if it is to be competitive and that in the meantime 2012 is going to be a difficult year, with Seven absolutely dominant and Nine owning the rights to the London Olympics.

Ten has previously announced a strategic review of the EYE Corp business, generally interpreted as a signal that the business, whose EBITDA slumped 35.6 per cent to $7.1 million (cash EBITDA was only $2 million), is on the market.

With net debt of $410 million and interest costs which, at $19.5 million, absorbed almost 40 per cent of the group's earnings before interest and tax, the $150 million-plus the market thinks the business might be worth would be useful both in terms of balance sheet stability and for Ten's earnings.

Warburton, once regarded as the heir apparent to Seven's remarkable David Leckie, appears quite pragmatic about the state of the network he inherited and the time it will take to generate any real momentum.

Ten's heyday was when it focused on being the lowest-cost of the free-to-airs and targeted and dominated niche demographics rather than competing head-to-head with Seven and Nine. It's heading in the right direction on costs but Warburton will probably need a couple of years and a lot more tinkering to completely rebuild the programming schedule to his liking.