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TV tanties

The ball-up for the next AFL and NRL free-to-air broadcast rights contracts hasn’t been bounced, but both teams at Channels Nine and Seven have shed some (debt) weight in preparation.

 

Nine’s sale of its events business (mainly Ticketek) and now Seven West Media’s early conversion of its prefs plus the entitlement offer have put both teams in a position to eliminate their respective debt capital.

 

Nine is saying it will increase its $150m buyback and raise its dividend payout ratio while Seven West Media is saying it will reduce debt with the proceeds.

 

That is just the public posturing whereas it seems clear that both are arming themselves to snap up broadcast rights to the two key season-long sports codes. NRL and AFL matches haul in viewers to create the illusion that each channel has the most viewers and can therefore justify the advertising rates they charge and the market share they deserve.

 

If the respective codes are smart (and that’s a big ask) they will adopt a new approach to the rights by splitting them into packages.

 

The NRL, for example, should partition its 3-game State of Origin series out from the regular season competition.

 

The aim of doing so would be to increase the aggregate amount achieved by opening up the content to more competitive bidding.

 

Of course, the commercial FTA networks (realistically only Nine and Seven) are relying on the fact that the anti-siphoning rules remain in place thus preventing Foxtel from being a direct bidder for the various rights packages. As usual, Foxtel will simply have to cuddle up to each network once the initial FTA contracts have been decided and then negotiate their own secondary deal to offset the total cost to each network.

 

In effect, Nine and Seven are relying on Foxtel’s balance sheet to supplement their own bids – a bit like borrowing from Mum and Dad to help buy a car.

 

Ten Network remains on the long term injured list and doesn’t look fit for duty any time soon, unless its various shareholders allow Foxtel to buy a stake and it raises some fresh capital, yet again.

 

Ten’s first half television EBITDA result of $7.5m on $309m of revenue demonstrates amply how pitiful its business has become. Ten’s bleating about changing the media rules and the licence fee regime echoes that of its competitors and rings hollow given the extensive protection the sector still enjoys such as the moratorium on a fourth commercial network and the anti-siphoning rules.

 

Nine will look closely at buying Southern Cross Media (SXL) but the appeal of buying a struggling radio and regional television business might not add much value. Nine would also be thinking about tidying up its long term relationship with WIN Corporation whose owner, Bruce Gordon, has recently clocked in with a 2% stake in Nine Entertainment Group.

 

Nine also needs to take care that its STAN joint venture with Fairfax doesn’t end up becoming a black hole in the SVOD market. Nine has already coughed up $50m into this venture and it will almost certainly need more if it is to stave off the undoubted threat from Netflix.

 

Seven West Media marches to its own tune and always has the capacity to surprise investors. Its Achilles Heel remains the print media businesses and the ongoing migration of advertising spend from mainstream media to the internet.

 

Both Nine (NEC) and Seven (SWM) look a bit cheap but there are better investment opportunities in REA and SEK for example.

 

TEN simply doesn’t stack up on any measure and would be better off if taken private by its major shareholders.

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