THE DISTILLERY: Seven West spotlight

One jotter says Seven West Media's downgrade speaks volumes for the media sector, while others debate just how large the Reserve Bank's rate cut should be next month.

Seven West Media went into the ANZAC Day break by sparking worries about the broader media market and disappointing proponents of greater market transparency. Those are the thoughts of The Australian Financial Review’s Ben Holgate and Fairfax’s Ian McIlwraith. Also in this morning’s edition of The Distillery, one commentator has put his chips on the table and urged the Reserve Bank to cut more than 25 basis points from the cash rate, while another explains how you only need look at the resumes of the central bank’s best and brightest to see that a rate reduction is a lock.

But first, The Australian Financial Review’s Ben Holgate says the Seven West Media downgrade speaks volumes about the state of the media sector generally.

"The big outcome from Seven West Media’s earnings guidance on Tuesday is that any optimists on the advertising market have had to take a cold shower. Australia’s biggest listed media company by market capitalisation, which owns the leading free-to-air TV network plus newspapers, magazines and internet assets, announced it expected earnings before interest and taxes to be between $460 million and $470 million in the 2012 financial year… It seems metropolitan free-to-air TV ad market growth is likely to decline in the low to mid-single digits in the June half. Things may pick up in the December half, but I’m keeping my shower lukewarm.”

Fairfax’s Insider columnist Ian McIlwraith argues that Seven West Media’s shock downgrade late Tuesday evening demonstrates the ineffectiveness of ASX requirements, because Seven admitted profits would fall short of expectations without comparable figures.

"Technically, they did not have to because the seven year-old ASX guidance note covering the issue is so poorly written that it gives companies the latitude to interpret the requirement in the least-helpful fashion. (The ASX has secured this clearly ‘Top Secret’ document by making it unprintable from its web page - nice touch for an organisation trying to ensure transparency.) News flash ASX and corporate watchdogs: retail investors do not, for the most part, have access to consensus earnings estimates of brokers, or keep files on forecast results. So when a company such as Seven West makes a statement that it thinks earnings before interest and tax are likely to be between $460 million and $470 million, how on earth can they know whether that is halved, 20 per cent down, or 2 per cent down without comparative numbers?”

Meanwhile, The Age’s Tim Colebatch has put his chips on the table when it comes to the Reserve Bank.

"Next week it has two choices. It can cut its losses, fix the problem quickly, and move on to the next page. That means cutting interest rates by at least 0.5 percentage points now, and by more ahead if the economy continues to underperform. Or, if its priority is to preserve its pride, it could make just the usual cut, of 0.25 percentage points, and go on issuing rosy forecasts as if nothing had gone wrong. That would be irresponsible, but not unlikely. The economy needs a decisive lift; a small rate cut will not give it. Mortgage rates are now at 2005 levels, appropriate for an economy growing fast. Small business overdraft rates are at late 2007 levels, appropriate for an economy overheating. Now we are slow, and cold. Even a 0.5 percentage point cut - assuming the banks pass it on - would still leave rates too high.”

And The Age’s Malcolm Maiden points to the influence of the Massachusetts Institute of Technology’s place in the resumes of our central bankers – starting with the influence of Bank of Israel governor and former IMF chief economist Stanley Fischer – as reason to believe the Reserve Bank will cut next month.

"Fischer and another MIT professor, the late Rudi Dornbusch, were the key influences on the MIT alumni inside our central bank - Philip Lowe, who replaced Ric Battellino as deputy governor in February, Guy Debelle, who took on Australia's key market co-ordination job on the cusp of the global crisis in 2007 when he became assistant governor (financial markets), Christopher Kent, a former head of economic research, who took Lowe's role of assistant governor (economic) when Lowe was elevated to deputy governor and heir-apparent to the current governor, Glenn Stevens, and Jonathan Kearns, the central bank's head of economic research. Fischer was a curator of MIT's hands-on economic management culture when they studied there in the '90s. Dornbusch was the PhD adviser for Lowe, Debelle and Kent… The MIT influence is a reason to be confident that the Reserve is not ideologically wedded to a high interest rate policy as it shepherds the economy through the resource boom. With inflation contained, it can move to support the struggling non-resources economy, and it will.”

While we’re on interest rates, The Australian Financial Review’s economics editor Alan Mitchell says you can pencil in a cut next month, with the subsequent reductions to depend on how the economy shapes up over the next few months.

The Sydney Morning Heralds Jessica Irvine says the tax system is hopelessly skewed against young people, while adding that she doesn’t want to start a phony generation war. The Sydney Morning Herald’s Ian Verrender says the high Australian dollar, driven in large part by the resources boom, does have one crucial benefit for the economy – low inflation. The Australian’s John Durie agrees, saying it is clearing a path for the Reserve Bank to cut interest rates.

In company news, The Australian’s Bryan Frith says it’s now time for Pacific Equity Partners to "put up or shut up,” given their dance around Australian Takeovers law has now almost stretched into a seventh month. The Age’s Eric Johnston has got a hold of Genworth Australia’s accounts, which show how quickly the company went from healthy profits to worrying downturn, derailing its float plans. The Australian’s John Durie notices that Apple, once considered a bit of a failure in the Chinese market, is now booming there.

Meanwhile, The Australian’s John Durie says Financial Services Minister Bill Shorten is tipped to support calls for more independents on superannuation fund boards, but won’t back calls for a majority. The Herald Sun’s Terry McCrann picks up where The Age’s Adele Ferguson left off last week, trashing the ASX’s recent reforms. The Australian’s Rowan Callick encourages Canberra to engage more strongly with Asia, if for no other reason than to insulate us further from the calamities in Europe.

And finally, Fairfax’s Natasha Hughes says you shouldn’t be afraid of wearing a tie even in situations where everyone else says they’re redundant. It’s the most debatable piece of the morning.


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