Ten's elusive top-line program

Gina Rinehart's statements suggest Ten Network's woes are cost rather than revenue-related. But the axe has been swinging for two years, so perhaps the moguls would be better focused on the top line.

Is Ten Network’s biggest problem its costs or its revenues?

Gina Rinehart clearly thinks it’s a cost issue, saying the network should have cut costs more and sooner.

In that she’s on the same page as Lachlan Murdoch and James Packer, who boarded Ten two years ago with a conviction that they could make a lot of money by slashing what they believed was a bloated cost structure and returning the network to its previous profitable formula of targeting a youthful demographic.

Even James Warburton has jumped aboard, revealing on Thursday that Ten has revised down its cost base guidance from $595 million to $560 million. Ten pulled $42 million out of its television cost base last financial year so in a two-year period it will have slashed costs by $77 million.

Last year, while Ten was ripping those $42 million of costs out, the revenue from its core television operations fell a gut-wrenching $124 million. That initial question remains valid.

There is no doubt that the environment for media generally has been difficult, with advertising markets very weak. Ten has, however, suffered from some self-inflicted wounds, most notably a series of truly disastrous programming decisions that left it a distant third in the ratings behind Seven and Nine and barely in front of the ABC.

Indeed, while Ten said today that the advertising market had been weak in the first quarter of this financial year it also admitted that its own execution had been poor.

For any media business there’s far more leverage in the top line than in costs, so the larger problem for Ten isn’t that its cost base is too high, although it might still be, but rather that its revenue base has fallen apart because of poor programming and consequently shrinking audiences.

It is, of course, possible that there is some relationship between the cost-cutting and job-shedding and the implosion in its revenue base which appears to be continuing despite Ten’s assertions that its cost reviews haven’t and won’t impact its investment in programming. It is difficult to both shrink and grow at the same time.

It should be said that Ten’s chief executive, James Warburton, only moved into the position at the start of the year and therefore, while he might have to take some responsibility for scheduling, inherited the programming line-up from his chairman and last year’s acting chief executive, Lachlan Murdoch.

There’s been a lot of speculation about whether Ten’s mogul-laden board might be losing patience with Warburton but, given that he didn’t make the program buying decisions that created this year’s offer and was handed a destabilised and demoralised network, holding him responsible would appear a little harsh. He doesn’t, of course, have a programming background – he’s from the sales stream – which is Ten’s biggest problem at present.

He also made a mistake of his own by saying that after raising $200 million earlier in the year Ten didn’t need any more capital. On Thursday it unveiled another equity raising, this time for $230 million.

Interestingly, while Murdoch, Packer and Bruce Gordon have committed to taking up (again) their entitlements, Rinehart said today she hadn’t decided whether or not to support it. She owns about 10 per cent of the group.

There is a point where even billionaires have to decide whether it is sensible to throw good money after bad, although Ten will be in a net cash position of about $45 million after the raising is completed, which ought to buy Warburton some time to try to get the programming strategy right and convince advertisers Ten has something to offer and a viable future.

Ten still is heavily reliant on its two mature franchises, Masterchef and The Biggest Loser. If their appeal wanes next year it will be in even bigger trouble.

While Murdoch, understandably, couldn’t rule out yet another capital raising in future one suspects that this is the last capital Ten will be able to raise for the foreseeable future.

If there were a ‘’next time", Murdoch, Packer and Gordon would be likely to emulate Rinehart in having reservations about the common sense of throwing tens of millions of dollars more at a network that has already devoured hundreds of millions of their combined net worth.

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