ACCC will not oppose Murdoch and Gordon's joint acquisition of Ten

Pippa Chambers
By Pippa Chambers | 24 August 2017

The ACCC will not oppose the joint acquisition of Ten by media moguls Lachlan Murdoch and Bruce Gordon.

In an announcement from the independent authority and competition regulator, it said Gordon's Birketu and Murdoch's Illyria's proposed joint bid to acquire Ten Network Holdings, with each to take a 50% in the media business, was permitted to go ahead. It would operate as a joint venture entity.

Ten, which holds commercial TV broadcasting licences in Sydney, Melbourne, Brisbane, Adelaide and Perth, operates free to-air channels Ten, Eleven and One as well as online catch up service Tenplay, was put into voluntary administration on 14 June this year and receivership on 1 July.

At the time Ten said it had already made progress on its transformation process with initiatives expected to increase earnings by $50 million in FY18 and more than $80 million per annum by FY19. It had also made progress renegotiating new content deals with US production houses.

“The ACCC considers that this deal is unlikely to result in a substantial lessening of competition in any relevant market, despite it lessening competition via a greater alignment of Mr Murdoch’s, Mr Gordon’s, and Ten’s interests,” ACCC chairman Rod Sims said.

The ACCC said it does not have significant concerns about the potential for overlap between Gordon’s WIN interests and Ten as the networks are broadcast in separate geographic areas.

“Our review focused on how the transaction would result in an expansion of Murdoch interests in Australian media, when they already have a significant influence in newspapers, Foxtel, radio, and television production,” Sims said.

“We considered whether the acquisition would significantly reduce competition, by causing a reduction in the quality and range of news content, or increasing the negotiation power of the combined Ten/Foxtel/News Corporation.”

No competition - Ten suffers lowest news ratings 

The ACCC considered feedback from a wide range of market participants, including broadcasters, sports rights holders, independent content producers and advertisers.

“On the issue of the effect on competition in the supply of news services, the ACCC took into consideration competition from news providers on other media platforms and in particular, the other free-to-air networks, given Seven and Nine have a stronger position in the market than Ten. Ten news in particular suffers the lowest news ratings of the three commercial networks and has a relatively small online presence,” Sims says.

The ACCC also considered the impact on competition in the acquisition of sports rights and other types of content. The parties will continue to face competition from the remaining free-to-air networks as well as streaming services for the acquisition of content.

In assessing the effect on the advertising market, the ACCC took into account that Ten and Foxtel are already commercially aligned through their MCN joint venture. MCN acts as an agent for both Foxtel and Ten to sell advertising.

“The ACCC is not oblivious to the fact that significant influence can be exerted through partial shareholdings and family connections, however the ACCC did take into consideration that this is a proposed 50% acquisition by Illyria,” Sims says

“Even though incentives to compete may be weakened if the proposed acquisition proceeds, Ten and Foxtel/News Corporation will remain competitors in a number of markets and will be subject to our competition laws which prevent them from making anti-competitive agreements.”

Sims said while this transaction will result in some reduction in diversity across the Australian media landscape, it has concluded it would not substantially lessen competition, which is the test the ACCC is required to assess acquisitions against.

He says as the Australian media market is becoming increasingly concentrated the ACCC will continue to closely examine future media mergers in light of the impact any future loss of competition may have on both choice and quality of news and content produced for Australian audiences.

Who owns what?

Birketu is wholly owned by Gordon and currently owns approximately 15% of the shares in Ten. He controls private Australian media company WIN, which owns commercial television broadcasting licences across Australia. Birketu and WIN hold 14.97% of the issued capital in Nine Entertainment Co.

Illyria is wholly owned by Murdoch and currently holds 7.44%of the ordinary shares in Ten. Murdoch is co-chairman of News Corporation and executive chairman of 21st Century Fox. He also holds various interests in News Corporation, 21st Century Fox, Fox Sports Australia, Foxtel, Endemol Shine and the Nova Entertainment Group.

Ten also has a 24.99% interest in Foxtel's sales house MCN.

Murdoch and Gordon threatened to sue Ten's directors just prior to the business being placed into administration, the Australian Financial Review's Chanticleer column alleged bcak in June.

The column also alleged that Ten's attempts to renegotiate a new content deal with the Murdoch-controlled 21st Century Fox stalled until one hour after Ten was placed into voluntary administration.

Negotiating new content deals with CBS and 21st Century Fox was a crucial part of Ten's recovery plan to secure an extension or new loan facility. Ten had already negotiated a new deal with CBS, the column said, but 21st Century Fox was not returning calls until after administration proceedings had begun.

Chanticleer said it had obtained the legal letter, which was served on behalf of Murdoch and Gordon's investment companies by law firm Fort Street Advisers.

The letter said Murdoch and Gordon were aware Ten would need to draw down up to $150 million on its current loan facility to by the end of this week to pay its bills, and that unless Ten could find alternative finance it would need to enter into voluntary administration.

If Ten failed to prevent a draw down on its current loan facility, “they will reserve their rights to pursue the statutory compensation rights they may have against you personally”, the letter is alleged to have stated. At the time Fort Street Advisers told AdNews it would not be commenting on any of the allegations or events leading up to Ten's administration.

What are Ten's cost/debt problems?

Ten's biggest problem is that it spends more than it makes.

In the first half of FY17, Ten grew its revenue by 2.1% to $341.4 million while its commercial TV revenue share increased 1.8 points to 25.5%. During this same period costs increased by 7.4% to $349 million.

The strange irony about Ten's predicament is that it had a strong 2016 calendar year on a programming and ratings front, but this has been achieved in a declining metro TV ad market, which shrunk 5% in the first half of FY17.

Even though Ten's ability to commercialise its revenue in respect to audience share increased from a power ratio of 0.92 to 1.00, its debt problem is so severe that is hasn't been able to turn gains into profit.

The major costs that are crippling Ten are expensive content deals with US production houses 21St Century Fox and CBS, which cost it $150 million each year.

These are long-term deals negotiated at a time when US TV shows delivered good ratings. Since Netflix and Stan launched, consumers have been switching to SVOD platforms for US content and this has devalued their audiences and worth on commercial FTA.

There are also questions about whether Ten paid over the odds for these deals in the first place. It has struggled to keep a lid on programming costs for some time and doesn't have the size or financial muscle of a Seven or Nine.

Another major cost is TV licence fees

See:

Ten goes into voluntary administration

Murdoch and Gordon 'threatened to sue' prior to Ten administration.

Murdoch and Gordon form joint venture to clear Ten's debts, restructure business.

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