THE DISTILLERY: Showtime for Ten

Jotters delve into the reasons behind a deteriorating Ten, debating whether James Warburton or its board are to blame.

Is Australia’s most embattled free-to-air TV network struggling with ratings or costs, and is that because of its board or chief executive? Those are the two questions being addressed by Australia’s business commentators this morning in relation to Ten Network. The broad conclusion is that it’s both on both accounts.

Fairfax’s Elizabeth Knight passes on the musings of a fund manager that investing in a company with billionaires on the register is a disaster recipe because they can afford to lose their money.

"The Ten board was damning with faint praise for its chief executive, James Warburton, in what was a fairly frank assessment of the network's performance over the past year. Execution was a problem, ratings are abysmal, the advertising market is soft for all the networks but worse for Ten, and a cost-cutting program has been limp. But it left lingering questions about where the finger of blame should be pointing for the dismal and worsening ratings and revenue performance, particularly since August. Maybe Warburton's talents don't match the hype that surrounded him last year when Murdoch executed a high-profile kidnapping from the Seven Network. The aggressive court case launched by Seven against Warburton elevated his status to a level that few could live up to. Having said that, there is a very blurry sense of who is actually running the show at Ten.”

The Australian Financial Review’s Michael Smith is similarly aware that Warburton’s transition from Seven to Ten is backfiring in a huge way.

"Warburton’s defection may now prove his undoing as he struggles to rebuild a company in crisis amid speculation Ten’s high-profile board is running out of patience. ‘It seems to be the board that is setting him up but the problem for the board is if they force him out what is their plan B? So far, at every turn, they have had no plan B,’ said one media buyer, who did not want to be named.”

Business Spectator’s Stephen Bartholomeusz is the only commentator that really comes to Warburton’s defence, pointing out that his predecessor made the majority of the programming decisions so responsible for this year’s poor ratings.

"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.”

There’s also speculation emerging that Ten might be taken private by its superstar shareholders and board members, something The Australian’s Richard Gluyas picks up on.

"The 27c-a-share theoretical ex-rights price on an expanded capital base of 2.5 billion shares suggests a market capitalisation of $675 million. Some analysts, though, predict that the stock will drift down to 20c, capitalising Ten at $500 million. At that price, Ten is spare change for the billionaires' club, with Gordon sitting at 14 per cent, Rinehart on 10 per cent, and both Packer and Murdoch at 9 per cent. Gordon, Packer and Murdoch pre-committed to the capital raising, with Rinehart, like Ten's institutional shareholders, having until 4pm today to make up her mind. In the sweep of media history, Ten now stands at a crossroads.”

Fairfax’s Adele Ferguson is also on the privatisation theory this morning, but approaches the issue by questioning the necessity of the capital raising.

"A report released on Thursday by BBY media analyst Mark McDonnell boldly states: ‘We do not accept the chairman's [Lachlan Murdoch's] description of this raising as 'prudent' - a better term would be excessive, given the resulting net cash position and the practical effect of almost halving the value of shares from already historic lows due to the massive dilution.’ McDonnell believes Ten's latest equity raising – the second in six months – could well be a form of creeping privatisation by a few ‘insiders’. It is an interesting theory, given the equity issue will thrust Ten from a net debt position to a net cash position. On the face of it the move seems extreme, given it has been achieved at a massive 38 per cent discount that will result in up to 2.5 billion shares on issue.”

The Australian’s Bryan Frith points out that Ten shareholders are being even harder done by with this capital raising than the last, because it’s non-renounceable.

"A renounceable offering is more equitable because it enables shareholders who, for whatever reason, don't take up their entitlements to sell the rights. With a non-renounceable issue the benefits of a shortfall go to the underwriter and sub-underwriters.”

In other company news, The Australian Financial Review’s mining reporter Jamie Freed explains how Rio Tinto’s attitude towards the timelines for its Simandou iron ore project have become noticeably more flexible.

The Australian Financial Review’s Matthew Stevens explains how the senior management changes at BHP Billiton has pushed the managerial control of Olympic Dam down a level, reflecting just how diminished the project is as a priority for the mining giant.

Fairfax’s Malcolm Maiden makes the observation that GrainCorp’s decision to conduct a bottom-up valuation in response to an improved offer from Archer Daniels Midland, rather than using its existing models, buys more time for a counterbidder to emerge.

The Australian Financial Review’s Chanticleer columnist Tony Boyd says new Citigroup chief executive Mike Corbat should hop on a plane and see how Australian banks keep a lid on their cost-to-income ratios.

Meanwhile, The Australian’s Glenda Korporaal takes a look at the cost blowouts at Australia’s LNG developments – which really are staggering – on the back of increasing labour costs, as other international gas sources head for development. The Australian’s Andrew Burrell reports specifically on the usually unflappable Chevron Australia boss Roy Krzywosinski, who is really starting to run out of patience with Australia’s cost of doing business.

And finally, Fairfax’s Michael Pascoe reports on how New Zealand is showing up Australia as the equal first nation when it comes to minimal corruption.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free