The most gripping season of Nine Entertainment’s recent history might come to a conclusion within the next day or two, the question is what plot points will be left unresolved for the next. This morning, Australia’s business commentators lay out the events leading up to this high stakes game of chicken where a few billion is being bet to secure a few million.
Fairfax’s Elizabeth Knight explains why this debt battle is so different from the variety that we’re used to seeing.
"Under a more usual case, these tier 1 lenders with security over Nine’s assets would install a receiver, sell the business and take the money. Goldman Sachs’s mezzanine lenders would get nothing and the equity holders would be mere bystanders. But this is not normal. There are complications because the hedge funds want to swap their debt for equity, rather than take the money and run. This is because when the advertising drought breaks and Nine's revenue picks up it will be worth more, and the hedge funds want a piece of that action. Under this scenario, if Goldman can get its hands on a bit of the Nine equity it could also rescue some of the $1 billion it ploughed into the company when the media market recovers.”
Like Knight, Business Spectator’s Stephen Bartholomeusz is puzzled by the "relatively inconsequential” sum of money that the lenders are feuding over. The gap between the proposals on either side is about $70 million, but billions are in play.
"The senior lenders are said to be confident that they could recover their exposures from an administration, or perhaps acquire Nine themselves in a debt-for-equity swap negotiation with the administrator. The downside risk is that Nine’s business would be disrupted and perhaps destabilised if it fell into administration, with a question mark over the status of some key programming contracts and speculation that Kerry Stokes’ Seven West Media has been dangling a prospective safety net in front of Nine’s chief executive, the well-regarded David Gyngell, offering him its CEO role. With the advertising market still deteriorating and Nine yet to receive the full revenue benefit from its rating resurgence this year it wouldn’t be the best of times to put a television network up in a distressed sale.”
Given Knight’s point about the hedge funds wanting to hold out until the rebound in advertising revenue, this report from Fairfax’s Adele Ferguson and Michael Idato report about the slump in ratings for Ten Network’s Emmy-award winning drama Homeland should be seriously worrying.
"The huge audience drop for Homeland raises serious questions about the challenges facing traditional TV. The brutal reality is this: content that has screened in other parts of the world is increasingly subject to online piracy and other bypassing platforms such as iTunes, DVD and websites that allow internet browsers to get around ‘geo-blocks’ on content. More and more Australians are signing up to US iTunes accounts to download shows from the US. They buy US iTunes gift cards on eBay.com and use them to buy content from the US iTunes store, which has US shows' day and date. Others set up a US IP address to access Hulu, which provides TV shows for free. The IP address tricks the Hulu site into thinking that you are in America and therefore entitled to see the content. These shows are always without the ads and can be watched at any time, rather than at a time dictated by the TV stations.”
Once you add in illegal downloads, the audience really thins, curbing the gains in advertising rates.
In other company news, The Australian Financial Review’s Chanticleer columnist Tony Boyd speaks to National Australia Bank head of business services Gavin Slater about the advances the company is making in IT.
Boyd explains that this is a big deal – not so much the technology, but the fact that Slater is talking about it.
Australian IT upgrades (in fact, IT upgrades period) have a reputation of being more expensive and laborious than they appear in the beginning. Hence, Slater has waited until $3 billion of spending over the past three years is behind him before speaking openly about it.
Meanwhile, Fairfax’s Peter Ker has cleverly compared the rate of return on BHP Billiton’s $US1 billion bond issue to Fortescue Metal Group’s latest refinancing arrangements. Short on words and long on sense, it shows how BHP is paying 4 per cent on its loan compared to Fortescue’s 5.25 per cent. Business Spectator’s Stephen Bartholomeusz picked up on the same point in his piece on Fortescue’s improving funding situation.
In other news, Fairfax’s Peter Hartcher gets props for pointing out that Australia should spread its bets across Asia more broadly, rather than focusing so closely on China.
That’s not to say that we should engage less with the Red Kingdom. Far from it and The Australian’s Michael Sainsbury reports on the growing confidence of economists that the Chinese economy has bottomed out. However, as Hartcher points out China has the world’s fastest ageing population and no unique institutions.
Engaging with Asia more broadly is probably a good idea.
And finally, The Australian’s John Durie brings comments from Australian Super boss Ian Silk that his industry needs to do a better job communicating with its members – a worthwhile concession.