Network Ten is undergoing a transformation program to reduce costs and increase profitability after posting a $2.4 million earnings loss in the first half of FY17.
Ten's results came in spite of its largest gains in commercial TV revenue and audience share in the past five years. The network has warned investors to expect a full year FY17 EBITDA loss of up to $30 million.
At the heart of Ten's problems are a weak FTA metropolitan advertising market, which contracted 5.6% in the first half of fiscal 2017, and escalating TV costs, which increased by 7.4% in a period of heavier investment in programming.
“The business has to change,” Network Ten chief executive Paul Anderson said in an investor call today.
“We've increased our revenue and revenue share in a market gone back by 5% in a quarter. We have to change our business and effectively reduce our costs with the state of the advertising market.”
Ten's revenue increased by 2.1% to $341.4 million while it's commercial TV revenue share jumped 1.8 points to 25.5%.
This is a solid result in the context of a declining ad market, but hasn't translated to profitability – a worrying sign for the free-to-air television.
Ten's gains in commercial TV revenue share were more than offset by a contracting ad market, which meant extra investment in programming led to an EBITDA loss of $2.4 million. This compares to a $10.1 million gain in the same period last year.
Ten's ability to commercialise its revenue in respect to audience share increased from a power ratio of 0.92 to 1.00. This means Ten is geting better at commercialising audience share increases but it's still not enough to deliver profit.
A loaning concern
Also concerning shareholders will be the expiry of a loan facility that Ten is renegotiating for either an extension or new loan.
Securing the $250 million facility is one of the conditions for Ten to continue trading as a going concern. Anderson stood firm in the face of questions about whether the failure to secure the loan could send Ten into administration.
He said Ten's board are confident the network will be able to deliver enough earnings confidence to guarantors to secure the facility due to a company-wide transformation program that will run well into FY18.
The program will streamline the business by focusing on cost reduction programs across all areas, which is likely to affect local programming. Anderson said existing contracts with US production houses are not under consideration.
Ten has scaled up investment in content over the past year. This included new productions like Australian Survivor, which posted reasonable ratings, but not at the sort of levels that might justify its high production value and cost.
Securing another rights contract with Ten's highly successful Big Bash League coverage could test the network's mettle for balancing costs with high quality content. The rights are likely to double in value from the current deal and Ten will face stiff competition from Nine and other networks at the negotiating table.
Given Ten's precarious fiscal position, it is unlikely to pay over the odds to renew the rights deal, but one option that is theoretically possible is a joint bid with Foxtel (which part owns Ten) if the network is unable to compete alone.
Anderson says that MCN's dynamic trading platform, which began for Ten in February, and programmatic trading, to be launched later this year, will provide greater certainty to advertisers investing in the network.
Ten's immediate focus will turn to restoring a recent ratings slump with the launch of MasterChef Australia next week.
It's a welcome return for one of Ten's premium and ratings safe properties after the network's prime time audience shrank more rapidly than contestants on the failed reboot of Biggest Loser.
Ten will hope the weight loss program, which adopted a transformation theme, isn't a bad omen for the network’s journey ahead.
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