Who would want to own a TV network in 2017? The breaking news earlier today that the Ten Network – one of Australia’s three major free-to-air TV broadcasters – has been placed into voluntary administration truly brings home the terrible predicament of ‘old’ media.
In the case of the Ten Network, it faces the perfect storm of declining free-to-air TV audiences and resultant decline in commercial revenue, declining individual network share, an onerous programming contract with US studios CBS and 21st Century Fox (which has cost the Network an estimated $900 million over the past six years) and a crippling legacy licence fee levy first imposed by the Australian Government back in 1964.
While the Ten Network is in the news today, it is not alone. In the first quarter of this year Seven West Media revealed a 90% drop in first-half earnings, and 30% decline in underlying profit. Nine Entertainment reported revenue declines of 4.5% and net profit after tax decline of 4.3%.
This highlights the challenging environment facing free-to-air broadcasters. No longer the media giants of the past, they have been well and truly disrupted by Google, Facebook and Netflix. Morgan Stanley has predicted that times are only going to get tougher for the TV market, with FTA TV’s share of the total ad market tipped to continually decline over the next three years.
But it may not be all bad news for the Ten Network. Voluntary administration will give them some breathing space to work out a plan to reduce costs and hopefully return to profit. There will probably be an opportunity to rid itself of the crippling content deal currently in place for US programming, which was negotiated years ago when Australians could not get enough of US programmes on FTA TV (rather than binge watching on Netflix as they do today).
The Government has also proposed sweeping reforms to legacy broadcast licencing fees, which are yet to pass the Senate. The fee will likely change from one based on revenue (currently a whopping 4.5%) to one based on how much of the spectrum the networks use. This change will save broadcasters $400 million over the next four years if it is passed, and save the Ten Network $50 million annually. Its aim is to level the playing field for traditional broadcasters trying to compete with newer players like YouTube and Netflix.
So, should you be worried about whether you’ll still be able to watch your favourite shows like MasterChef on Channel Ten in the future?
The answer is probably not. The most likely outcome is that with significantly reduced costs, the broadcaster will be far more appealing for a buyer. This could be private equity firms or cashed-up investors. Names that have been mooted include Gina Rinehart (who already has an 8.2% share in the Network), Hungry Jacks’ Jack Cowin or possibly Bruce Gordon, James Packer and Lachlan Murdoch who could convert their debt to equity and become the outright owners of Ten.
Time will tell. We certainly live in an interesting era, far removed from the big-spending TV heyday when owners like Alan Bond, Kerry Packer and Christopher Skase were media royalty and the cash flowed endlessly. But one thing’s for sure, TV will never return to its Golden Years. To survive it must build on its strengths, meet the needs of viewers by continuing to make content available on demand and across many platforms, and be quick to adapt to the inevitable and escalating change ahead.
Jo Stone is Director of Strategy at BCM