At Seven’s AGM on Wednesday, Seven West Media chief executive officer Tim Worner reiterated what many media executives have been saying for the better part of the past three years: the advertising market is short.
"Live sports like the AFL and the summer of tennis [are] also very much in demand. Outside of those major events, the market is still short," he said.
Worner went on to say that the network was also buoyed by the appetite for ‘tentpole’ programming (non-sports event programming), such as The X-Factor and My Kitchen Rules.
It demonstrated that the Australian TV market, is becoming an increasingly two-tiered programming equation.
On one hand, you have the scarce and valuable: popular live sports such as AFL, NRL and international cricket, and reliable but still appealing reality franchises such as The Voice, The X-Factor and My Kitchen Rules. On the other hand you have local and imported drama, comedy and panel shows, which can generate strong ratings but can also regress over time and lose viewers.
In the past, drama and comedy – in particular, US-based formats – have been bedrocks for networks and their success. During Nine’s slimmer ratings years it was Two and Half Men that kept ad dollars flowing in, and Seven rebuilt in the early to mid-2000s off the back of huge demand for US formats such as Lost and Desperate Housewives. With the rise of torrents, viewers can bypass the networks and find these shows minutes after the US air date easily accessible online. Torrenting has become a normal household activity in Australia and popular torrent sites see 1 million Australian users per month.
Worner’s comment – especially the part about the tennis – would have caused some frustration for Ten chief executive Hamish McLennan.
Ten badly wanted the tennis, but the Tennis Australia board went with Seven, despite all reports suggesting Ten would outbid the incumbent. Not only does the Australian Open deliver Seven a big marquee sales product to woo the market with between July and November, it also delivers the network the most valuable marketing platform for the 2014 programming year ahead when it airs in late January. This is where Seven shines: it knows how to deliver strong numbers to its programs and markets significantly better than its competitors.
The challenge McLennan faces at Ten is significant and is made all the more complicated by the two-tiered TV economy. He must reverse the fortunes of a network that has bled revenue and profit over the past three years, has lost most of its shareholders value over the same period, and he must do it with less money than his competitors and without any proven significant sports or event TV franchises. He now has $200 million to play with, but is it enough to acquire a handful of formats and programs to turn things around?
On top of this, Ten is a network with a single revenue stream: advertising. Both Nine and Seven, and even Fairfax, have diversified over recent times and have numerous revenue streams. Nine has Ticketek, Nine Events and the various digital elements of Mi9. Seven has Pacific Magazines – which is an ad-led business but generates strong circulation revenue, as well as Yahoo!7 on top of the TV networks. Seven has stated in its mid-year strategic presentation it wants to focus more on end user revenue products and will pursue this in 2014 and beyond. Fairfax has stated the same: it has Stayz and RSVP generating user revenue, Domain, events and circulation which in some way help hedge against the fortunes of the large scale advertising market. Seven, Nine and Fairfax realise they have a strong audience footprint, and realise future growth is unlikely to come from advertising alone.
It is unfair for the spotlight to be so bright on Ten’s breakfast/morning strategy. Sure, the breakfast ad market is significant, but it is one part of a multi-part puzzle. In a fully functioning media business it would be one contributor among many to a successful operation.
The challenge at Ten is investors want answers and actions, and so far the most loud and visible has been around breakfast. Anyone expecting a two-hour breakfast light entertainment show to turn around a network is fooling themselves. However, in the absence of anything else as tangible, that is where the media focus is squarely at in regards to Ten and its future. The bigger story should be the positive take-up of the TENplay catch-up TV service.
McLennan is adamant he is not cleaning up Ten for a sale, despite rumours circulating to the contrary. He may be telling the truth, but given the state of the media industry right now one has to wonder how long the days of the single revenue stream media company will continue to exist. This isn’t the case just for Ten – there are plenty of other local media operators who suddenly find themselves in a similar predicament (Southern Cross Austereo and APN are two that come to mind). All three are solely reliant on the whims of the advertising market – a market that is increasingly unpredictable and volatile.
This is not to say these companies are not valid businesses, but could they be better placed within the confines of a more diversified parent. Look at great media businesses around the world: Google, Fox, Disney. They generate revenue from numerous areas and leverage their diverse assets to build the overall position of the group. Most single revenue stream media businesses find themselves in the same situation: a highly competitive, highly commoditised market that makes growth increasingly difficult.
The abolition of the dated reach rules that govern media operators in this country would allow for consolidation within Australian media assets. This consolidation is most likely not a nice thing to have, but it is increasingly necessary.