Seven reveals $105m cost-cutting drive as 'Wall of Sport' expectations crumble

Rosie Baker
By Rosie Baker | 2 November 2017

Less than a week after reassuring media buyers its massive investment in content would deliver an improvement in 2018, the network has embarked on a two-year $105 million cost-cutting drive to offset huge losses it expects from major event sports.

Speaking to shareholders at its AGM today, Seven revealed it will strip out $25 million per year in job cuts, and find savings of $50 million in 2019 to offset losses in "major one off events", the bulk of which is likely to come from paying over the odds for rights to the Summer and Winter Olympic Games.

The cost savings should help Seven produce solid FY18 EBIT of between $220 million and $240 million, which is slightly down on the $249.7 million in FY17.

Seven wouldn't reveal details on which jobs and how many will be affected as it streamlines its business to reflect changing market conditions. 

Seven West Media's newspapers and magazines divisions were the worst performing last fiscal but are also likely to have streamlined operations already.

Worner doesn’t believe the cost cutting will affect the outlook from advertisers and told the AGM the slate for 2018 is “one of the strongest content line ups we've had in a while … and the feedback has been very positive”.

He said: “Going forward we know there will be challenges, we’ve done a lot but more has to be done. However, we are aligned, our strategic goals are set and we believe we have the strongest set of media assets in the country from which to execute.”

He outlined the network would focus on its “core” business as well as a four-point growth strategy; capturing greater share of the total video market; growing our digital businesses; driving greater returns from our global production business; and using the enormous reach of our audience to drive growth in new businesses.

Is sport losing its shine?

The price Seven agreed to pay for major events like the Olympics a few years ago no longer reflect their potential market value today. Unless major events are based in our timezone with a significant Aussie interest, they won't deliver the audiences, advertisers and sponsorship interest to cover their cost.

Seven has long relied on a strong sports line up, and presented a strong slate of sports last week at its upfronts including the Winter Olympics, and Commonwealth games, Tennis Open, AFL and NRL.

The sheer weight of investment in Seven's 'Wall of Sport' has exposed cracks in the ad-funded foundations required to support it.

In his AGM address Worner said that Olympics revenue performance “was hindered by a soft advertising market” and that “some of our sports contracts … will not deliver the level of financial return that was anticipated at the time of signing these deals. Now that's not to say they are not valuable, but in light of market conditions the prices we paid are not sustainable.”

Seven is not the only network to pull back on sports rights. Foxtel CEO Patrick Delaney said earlier this year at The Radio Alive conference that Fox Sports can no longer afford sports properties it had chased in the past and so was shifting to more local codes than internationals.

The interest of tech giants like Amazon and Facebook in sports rights will only inflate their costs even further.

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