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Foxtel in the Ten house

Rumblings of a takeover of the destitute Ten Network by Foxtel and other parties is growing louder.

At stake is more than just a valuable free-to-air commercial television licence.

The billionaires club that bought into Ten needs a solution to an embarrassing situation. Starting back in 2010 when James Packer and Lachlan Murdoch divvied up a parcel of 17.8% of Ten at $1.50 per share, they were quickly followed by Gina Rinehart charging into the fray at $1.58 per share for her initial 10% stake.

Spare a thought also for long time Ten executive Grant Blackley who was only briefly in charge of the cameras until he was shunted aside by Seven refugee James Warburton who lasted only marginally longer. Lachlan Murdoch kept the seat warm for former News Corp acolyte Hamish McLennan to take over the toughest gig in TV.

Ten was losing audience share faster than bachelor Blake Garvey sheds girlfriends forcing the company to raise two licks of equity capital in 2012 amounting to $430 million. The first tranche was raised at $0.51 per share then in December it put the hat out again at a humiliating $0.21 per share.

That dark period was close to the nadir for Ten. Even though it has barely recovered much audience share, it has at least repaired its balance sheet and jettisoned a large dollop of cost/talent/programming that was not working for it.

But after Ten’s tummy tuck, there’s not much left to chew on.

The programming cupboard is jockey-thin living off the advertising scraps from the other networks.

The troupe of executives brave enough to stick around with the oxygen masks dangling before them have very little chance of reviving the patient without any decent content.

And at this juncture, that is probably why the network is prostrating itself in front of its logical saviour, Foxtel.

Jointly owned by Telstra and News Corp, Foxtel has an absolute feast of content to fatten up Ten’s woeful schedule. What’s more, News Corp owns Fox Sports which has a delectable dossier of sporting content that Ten can honestly not dream of affording.

It would be like the rains deluging Lake Eyre.

Of course, nothing is that straight forward and Foxtel has been entertaining a private equity player, Providence Equity Partners, according to press reports.

Then there is the not insignificant factor of the ACCC that will scrutinise any deal between a free-to-air commercial broadcaster and the country’s dominant subscription TV provider with big-pocketed shareholders behind it.

There will undoubtedly be some major pass interference from Tens’ competitors, Seven West Media and Nine Entertainment, who won’t want to see Peewee Herman Ten turned into Godzilla with News Corp’s immense clout behind it.

Ten’s most long-suffering major shareholder, Bruce Gordon, has his own agenda. He is the proprietor of WIN Corporation which is a regional affiliate broadcaster of Channel 9. So he has a complicated outlook on how things should turn out.

Ten’s market capitalisation has dwindled to under $600 million making it a minnow, but its strategic importance in the media market is substantially greater.

As the rules sit today, the government won’t allow another commercial TV licence and the free-to-air networks have a head start on bidding for sports broadcasting rights that are crucial to hauling in audiences. That makes Ten an attractive target if a suitor can fill the content void.

While all this fiddling about is going on, Ten is likely to miss out on the ‘svod’ craze; subscription-video-on-demand.

Already, Stan and Presto are in the market as the locals rush to beat a potential Australian launch next year of the US goliath of svod – Netflix. Yet another local partnership between Foxtel and Seven could be off the drawing board before Ten can get its crayons out.

There will be room for one, maybe two genuine players in this lucrative market and at this rate we can’t even see Ten at the table unless it can squeeze its way onto someone else’s ticket.

In our view, Ten doesn’t have much of a future in its current shape as a standalone free-to-air broadcaster. The current shareholders simply won’t accept that as its fate so the question becomes, what next?

There are several possibilities but it does seem as though joining forces with another player is a necessary step to salvation. And it’s not just a matter of throwing more capital at the problem.

Ten doesn’t have the luxury of waiting for the advertising cycle to turn upwards either. It can’t rely on the market to throw it a token amount of spending just to keep Seven and Nine from further domination of TV ad spending.

The next episode in this drama probably has to come sooner rather than later. The plot is thickening with what appears to be plenty of behind the scenes manoeuvring.

Script writers couldn’t have dreamt this one up. Billionaires losing money in a bad investment is one thing but watching them sort out the mess is quite another. Maybe there’s a reality show in that idea?

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