First there was the Grand Prix. Next came the reported $500m bid for cricket rights, then Ten secured the 2014 winter Olympics. So, can sport save the ailing network? In a feature that first appeared in Encore, Nic Christensen investigates.
The television sports rights bidding process is a bit like a game of poker.
Check, fold or bet. Those were the options for the Ten Network last week when it had to finalise its bid for the cricket rights.
While many had expected the struggling network to raise the bet and challenge the incumbent Nine Network, few insiders tipped Ten’s new CEO Hamish McLennan to go all in with a reported $500m bid, over five years, aimed at prising one of Australia’s most beloved sports away from the network where it has been for 32 years.
The size of Ten’s gamble surprised many media buyers. While few are willing to speak on the record about the bid, a number expressed concerns about the amount of money involved and the overall strategy behind chasing a summer sport that plays out largely during a non-ratings period.
“It’s a fuckload of money,” says a senior media buyer.
“And when you’ve just done two capital raisings that have not even covered the price of the bid, you have to wonder what they’re thinking.”
“Yes, it’s an expensive gamble and it’s very difficult to know how much they have to spend,” says another senior media agency executive.
“They have some key investors who have fairly deep pockets but how deep those pockets will go in order to keep the station alive and bring it back to what it once was is really the question.”
“The cricket alone won’t secure the long-term health of the network.”
Sources close to the Ten bid have disputed the reported $500m figure suggesting it is far more complicated with the deal including a contra agreement, perhaps as high as 50 per cent if the network is successful, that would see Cricket Australia given a significant amount of airtime to on-sell in lieu of cash.
But even with such a contra deal, TV insiders say the bid dramatically eclipses the estimated $45m that Nine currently pays for its seven year rights deal and that if Ten is successful in winning the sport, the network could lose as much as $40m a year.
Sources at Nine say it’s a 50/50 bet whether they will enter the fray and try to counter Ten’s bid. And while Nine might well be smarting at potentially losing an important franchise, the network certainly can’t say it wasn’t warned.
From the moment he took the role, Ten’s new CEO Hamish McLennan made it clear he felt the network needed a better hand if it was to improve its lacklustre ratings. In an interview with The Australian Financial Review in February, days into the job, McLennan spoke about the network’s need to “build some momentum”. He also flagged the network’s interest in what has been a mainstay of the Nine lineup for three decades telling the paper: “Cricket’s a valuable property. We will certainly consider it. It comes down to securing those rights at an appropriate price.”
At the time, many in the industry wondered if this wasn’t just bravado but McLennan also signalled to The Australian that he would soon commence a sports spending spree when he told the newspaper that “cricket is the priority for now” and that tennis and Olympics rights were also of interest.
Fast forward three months to this week when the network made its first acquisition, confirming it will broadcast the 2014 Sochi Winter Olympics. McLennan is believed to have spent around $20m to secure the rights although the network disputes this figure, with a spokesman for Ten describing much of the commentary around the Winter Olympics bid as “wrong and ill-informed”.
But in trumpeting the win, McLennan said: “We are delighted that Ten will be Australia’s Olympics network in 2014. The agreement with the IOC delivers on our strategy to increase our investment in premium sport. We are also confident that Australian viewers and advertisers will embrace our coverage.”
This viewpoint is shared by his chief operating officer Jon Marquard who, in an interview with Encore, was asked whether the Ten network could handle a sport or two and joked “or even three”, signalling the network’s broader intentions. While Ten currently holds the rights to the Formula One Grand Prix and MotoGP, it does not currently have a hand in any of the broader franchises such as NRL, AFL or cricket.
With cricket negotiations ongoing, Marquard is contractually prevented from discussing the network’s bid for the sport but agreed to speak about its broader strategy.
“Sport is very important. As you know we bid very aggressively for the NRL rights,” he says. “But certainly under Hamish there has been a renewed interest in it and that just happens to coincide with some premium rights that have become available.”
While there has been much commentary and speculation on the Ten sports strategy, especially around the cricket bid, Marquard is coy about suggestions that sport will be a loss leader for the network.
He told Encore: “We don’t talk about the individual economics of any particular sports deal but like every investment we make, (sport) will be well measured and thought through.”
This perspective isn’t shared by media analyst Steve Allen who questions how any network can make money after paying the price tag being touted in media reports especially when cricket is thought to bring in around $60m per year in advertising revenue and cost around $10m to $20m to produce.
“I don’t think either Nine or Ten can make money from it at that price. Nine is in a better position to make money from it, and that’s not to discredit the Ten sales team, but Nine has a very long history with cricket and it’s been a premium product for them for 20 years,” he says. “If Ten gets the rights they are going to have to build it from the ground up. Nine are not going to help Ten whatsoever and most of the media buyers and sponsors aren’t going to give Ten an easy time. Therefore some of the premium is going to disappear if it does change telecasters.”
Marquard says the network is confident it can maintain the premium on any successful sports bid and says its shifting focus is about broadening the target demographic.
“We have to consider why sport is important. It’s one of those things that has broad demographic appeal across the country,” says Marquard.
“While sport tends to have a slightly male skew, good sport − premium sport − appeals to all demographics.”
And it’s this demographic question that appeals to the country’s media buyers. Ten has traditionally pursued a younger audience of 16 to 39-year-olds but is now trying to broaden this to a wider 18 to 49 audience, in part to make up for the loss of younger viewers to competing platforms such as online.
CEO of media agency UM Mat Baxter says it is clear that Ten is focusing less on a youth audience and broadening their appeal in the marketplace.
“Does cricket help do that?” asks Baxter. “Yes it does because cricket has an enormously wide appeal from an age standpoint.” This view is shared by Zenith Optimedia CEO Ian Perrin who says Ten’s cricket bid needs to be viewed in the broader spectrum of the network’s programming. “They need to connect with more Australians than they have historically and therefore they need to look for programming that will bring in more demographics than they currently are,” says Perrin.
“They will certainly reach a lot more people but whether they become too old, that is the question.”
PART OF THE STRATEGY
Alex Pekish, group media investment director at Aegis Media, says sport is likely to be part of a wider strategy. “Different forms of the cricket appeal to different demographics,” he says.
“What cricket will do is allow Ten to promote their schedule to a broader audience.” This strategy worked brilliantly for Nine which launched Celebrity Apprentice off the back of the 2012 Summer Olympics. The so-called ‘halo effect’ is clearly in the forefront of Ten executives’ minds.
COO Marquard says: “Good sport will attract even casual viewers because people want to know about it. It is part of the Australian fabric and that is why networks do what they do. We try and cater our programming to appeal to a broad base.”
However, there are cynics who question whether Ten has the content to cross promote if it does pick up a major sports franchise such as cricket.
One television insider told Encore: “Right now they haven’t got anything to promote. What are they going to promote, the News at Five? They can’t − they’ll have the cricket at five.”
Another industry figure says depending on the size of the sports rights investment, “they could soon come to regret it” with the outlay potentially crippling any further spend on the network’s other programming.
Media buyers are also concerned. One media agency CEO says: “I reckon if you’re going in at $500m (for the cricket) you’d have to have a billion total to be able to do the job you need to do.”
“Whether they’re tapping up Gina, Lachlan and co. I don’t know but they are going to need more cash to make this work,” says another media buyer.
Ten’s chief operating officer insists the network is committed to having a breadth of programming to promote. “Absolutely, the strategy is not just about sport. While sport is an integral part of any network’s programming, it can’t be the only thing. You have to make investments elsewhere,” says Marquard.
“Last week we announced The Bachelor and that has been incredibly well received. That will be the first of a number of other programming initiatives that the network will announce in due course,” he adds.
WILL NINE LET GO?
Ultimately, Ten’s fate is in Nine’s hands and it depends on whether the network is willing to let go of a franchise it has held for more than 30 years.
Sources have told Encore that Nine executives are genuinely undecided about whether to counter McLennan’s bid. Nine bigwigs are also conscious that Ten’s strategy may be a diversionary tactic with the aim of gaining the advantage in other sports negotiations down the track.
Another complication is legal action launched by Cricket Australia against Nine in the Victorian Supreme Court last week. While the exact nature of the action is confidential, Encore understands the sports body is seeking clarification on whether Nine’s last rights clause, which allows them to see and match a competitor’s bid, applies to the domestic cricket and in particular the Big Bash League, which launched after Nine’s seven-year contract began.
Last week Nine managing director Jeff Browne commented to Encore’s sister publication Mumbrella: “We have a 32-year relationship with Cricket Australia and I’m very confident that we will be able to resolve any issues between us sensibly and through direct discussion.”
Privately, Nine executives are disappointed with the Cricket Australia court action although the network fiercely disputes media reports that Browne and Nine CEO David Gyngell threatened to sue the sports body to prevent them taking the test and one-day international matches to Ten.
Ten’s all-in bid has raised the stakes and makes it far less likely there could be a deal between the networks where Nine retains the rights to the international forms of the game while Ten takes the domestic matches and Big Bash League.
Adam Hodge, strategy director at Octagon Australasia, a leading sports and entertainment marketing company, believes a focus on the Big Bash could certainly work for Ten.
“Big Bash is definitely a younger form of the game from a fan’s point of view,” says Hodge. “Based on my understanding of Ten’s audience, I would say yes. They have always pitched themselves as having a younger demographic and being proud of that. It could definitely work for them.”
Ten’s Marquard refuses to discuss anything to do with the cricket but does hint that the broader appeal of Big Bash is on their agenda.
“(We’re interested in) sports that have worked to broaden their appeal among families and women, whether that’s cricket, AFL, NRL or rugby. All the majors have done that assiduously,” he says.
“What we see for sport is something that appeals not only to a very targeted niche audience but something that appeals across the board.”
Were the two free-to-air networks to strike such a deal it would lock out pay-tv provider Fox Sports which has worked to build the Big Bash over the last two years. Fox Sports declined to be interviewed for this piece.
Nine has until early June to decide if it will match Ten’s bid for one of Australia’s most beloved sports and what is unclear is whether it will bet or fold.
“Everything is up for grabs,” says one media buyer. “We’ll just have to see where the chips fall.”
This story first appeared in the weekly edition of Encore available for iPad and Android tablets. Visit encore.com.au for a preview of the app or click below to download.