Seven West Media's $50 million downgrade of its earnings forecast spells trouble for the wider industry, with further downgrades expected across the sector.
On the evening of Anzac Day Eve (24 April), Seven West Media revealed it was downgrading its forecast for earnings before interest and tax (EBIT) to between $460 million and $470 million, down from previous expectations of $515 million.
The company said in a statement: “Throughout the current financial year (2012) the wider advertising market has trended below the prior year. The group anticipated an improvement in those conditions in the final quarter of the current financial year.
“Based on conditions now becoming evident in all segments (TV, newspapers and magazines), the previous expectations of the market strengthening in the final quarter are unlikely to be met.”
In the television space, Seven is the clear market leader, in terms of both ratings and revenue. According to Standard Media Index figures from March, which measure media booked through media agencies, Seven was the only free-to-air commercial network to record growth in ad bookings, while Nine and Ten both saw declines.
Meanwhile, Seven has also been the ratings leader for some time. However, over the past fortnight, its ratings have suffered at the hands of Nine, which has seen phenomenal success with its program The Voice.
Marked analysts have said a downgrade from a market leader is a bad sign for the media industry in general. Hamish McCathie, managing director of Pulse Markets, told AdNews,“This is very concerning for the media industry, which is in a bit of trouble. Investors are looking to get into the financial sector more than the media sector at the moment. I don't expect the television or media markets to turnaround until mid 2013. It's pretty slow.”
Cox Media principal Peter Cox said the downgrade is “scary for the industry”. “Considering the strength of the Seven, this is scary. Nine is powering with The Voice, but it will find it hard to monetise its gains because the people that paid early are committed to not paying more. The ratings are also a terrifying outcome for Ten.
“The prices Seven paid for the AFL are also a concern. The cost of sport is increasing so it's becoming harder to monetise and is affecting the bottom line. If Seven is having trouble, imagine the trouble Ten and Nine will be in when they bid for the NRL.”
Another media analyst, who preferred to remain unnamed, said other companies will most likely downgrade their forecasts. “Ten has already downgraded for the half year to 31 August. If Seven has downgraded with only two months left in its year, one would expect Ten to downgrade again, as it has four months left. Ten needs about 25% ratings share which is just isn't getting.
“With interest rate falls, which take time to filter through, there will be no relief in the six months to 31 December. The whole calendar year is gone. There probably won't be any relief until 2013.”
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