Constrained by circumstance – what Seven’s AGM really told us about Australia’s media industry
Seven's underwhelming AGM is a sign of things to come for most of Australia's established media players who have no obvious direction to grow in, predicts Mumbrella's Paul Wallbank.
Thursday’s Seven West Media’s annual general meeting gave us a layer cake of announcements from both proprietor Kerry Stokes and CEO Tim Worner indicating the direction of both the company and the broader industry.
While both Stokes and Worner focused on the media reforms, overpaying for sport and wanting to cut childrens’ TV production, the underlying themes were far bigger changes in both the economy and society which go beyond the media industry.
With Stokes describing this year’s results as “disappointing”, something shared by the stock market which pushed the SWM share price down by over 6% in the hours that followed, the immediate outlook for the company and the industry wasn’t particularly bright.
Stokes claimed that the uncertainty surrounding CBS’ acquisition of Ten is creating doubt around further industry mergers. This is true, however, a much bigger barrier to Australian media consolidation is the companies themselves are expensive and, with declining profits, not particularly attractive to shareholders and lenders.
Increasing profits by cutting costs is the obvious way to make assets more attractive but it also gives lie to the claim the government’s media reforms were about protecting Australian media jobs.
With Seven, along with Nova, looking to reduce costs in its regional newsrooms this tells us that when the media concentration arrives, it is only going to accelerate job cuts across the sector, regardless of promises to provide industry scholarship and trainee programs.
Neglecting the kids
During the shareholders’ meeting, Stokes flagged winding back children’s TV obligations as an upcoming political objective for the commercial TV operators. Complaining about the burden of producing children’s TV, isn’t new. But Stokes’ statement indicates that after successful lobbying for licence fee reductions, pressure will now be brought on Canberra for Free TV to cast off its responsibilities delivering children’s television.
“The burden on us to produce in that genre is quite onerous,” Stokes said.
“We are being forced as a free-to-air television network to produce a high number of children’s programs most of which of similar genre are available on ABC channels or online or on various other offerings for free and we have real trouble trying to get any revenue back from that expenditure.”
Beyond Peak Sport
CEO Worner also issued another warning about the price of sports rights needing to come down, following his suggestion back in August that the until-now rising costs have hit a ‘tipping point’.
“It became evident that in light of this softer market outlook, some of our sports contracts,
predominantly related to major one-off events, will not deliver the level of financial return that was anticipated at the time of signing these deals,” he said.
“Now that’s not to say they are not valuable, but in light of market conditions the prices we paid are not sustainable. As an organisation, we pay a lot of money for rights, to deliver Australians some of the best sporting action live and free. The value we bring – that free-to-air television brings – to sporting codes, has simply not been recognised and will need to be in any future sports rights deals.”
Back in 2014, Seven argued that its winning $200m bid to air the 2016 and 2020 summer Olympics and the 2018 winter Games was “good value”.
Half way into that deal, Seven is now signalling that it won’t make back its investment on the Olympics.
The comments were of course also intended to manage expectations of rights holders when it comes time to renegotiate the next deals with the likes of AFL, Spring Racing Carnival and Tennis Australia.
A turning cultural tide
While sports and kids’ programming are on the chopping block for Australian commercial TV, so too is the industry’s management culture.
The offhand, and somewhat complacent, dismissal of the Amber Harrison scandal – when a former member of staff went public on her affair with Worner – at the AGM is jarring in the post-Weinstein world.
“As detailed in two separate, successful NSW Supreme Court judgments, your company acted
professionally and appropriately in the handling of a matter involving a former employee,” said Stokes in his address.
It’s unlikely in today’s climate that Seven, or any other Australian listed company, will get off as lightly as the senior management and board did in that sorry episode when the next scandal blows up.
Meanwhile, a far greater problem facing Seven, the local media industry and Australian business in general is they have nowhere else to grow.
The local TV networks, along with the supermarkets, telcos and banks, have been allowed to grow too big and are too dependent upon the Australian economy for growth. Now the Aussie economy is flat, their profit opportunities too are limited.
Finding growth offshore and in new markets is something Isentia tried to do and while the media monitoring company’s management can be criticised for how its executed its growth strategies, at least its Asian and King Content adventures were an attempt to break out of the straitjacket of the local market.
Companies like Seven, Nine, Ten, Southern Cross Austereo or Fairfax have no such opportunities or management inclination to find new markets – News Corp is a totally different beast.
That constraint on growth could turn out to be the biggest challenge of all facing Worner and Stokes along with the rest of Australia’s media bosses through the rest of the decade.
800m of debt constraint in Seven’s case.
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You only have to go back a few years to get a handle on the challenge for media companies. Every year agencies and TV got together and negotiated how they would divvy out the clients money for the year. In exchange for tickets to the AFL, trips to the snow etc a very happy ecosystem grew up simply because TV and other traditional media were the only way to aggregate a large audience.
So here we are – 4 or 5 years on and Facebook and Google have the audience. Because media agencies were caught not doing exactly what the clients trusted them to do the clients went looking for ways to get the audience and more importantly for ways to ensure they had transparency. Facebook and Google provided self service, no commissions and most importantly the audience.
So in my opinion this is not just about media it’s about the agencies as well. The toothpaste is out of the tube.
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Not just 4-5 years. The seeds were sown in the mid-80s when first Bob Hawke succumbed to the big end of town’s wishes by creating “aggregation” in regional areas followed by Paul Keating abolishing the “two-station-rule” to again help the major media players at the expense of the small-to-medium. The result has been an ongoing saga of takeovers by outfits with deep pockets (or friendly banks), but without a clue as to what “broadcasting” was all about other than the bottom line. Now we have reached the inevitable point that those big players are discovering that they are, in fact, minnows as far as the rest of the world is concerned, hence Google, Netflix, CBS, etc.
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Agree completely. Add to that the additional kickbacks to large agencies from the media that clients have been unaware of. The day will come when all clients will employ in house media professionals with full control and cut out these intermediaries completely.
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