Nine profits tumble 7% amid ‘disappointing’ ratings and revenue performance

Nine Entertainment has reported an after tax net profit for 2016 of $120m, down 7% from last year, with the network describing the performance of its core, free-to-air business as “disappointing”.

Nine Entertainment cpo

Nine also warned of a “flat-to-down” FTA ad market over the next year after a 2% decline in metro markets in 2016 and a sharp 6.2% fall in the regions.

Releasing its financial results to the market this morning, Nine said revenue fell 6.5% to just under $1.3b, with group earnings before interest and tax falling 7.1% to $201.7m.

The revenue decline reflected a “lower revenue share of a soft market”.

Inclusive of the licence fee reduction, worth $11m to Nine, EBITDA fell almost 11% to $183.5m.

The company also reported a $46m ‘specific item’ relating to its ‘life of series obligations’ deal with Warner Bros – an agreement which obliged Nine to buy US drama and comedies no matter how they performed in the local market. Factoring in the item, after tax profits sunk to $74m.

Nine said it has reached an in-principle agreement to terminate the “onerous” loss-making deal.

Nine chief executive, Hugh Marks, said: “The ratings and revenue performance of our core free-to-air business was disappointing in the first six months of calendar 2016 due to a combination of the challenging ad market and poor programming outcomes.

Hugh: "The ratings and revenue performance of our core free-to-air business was disappointing in the first six months"

Hugh: “The ratings and revenue performance of our core free-to-air business was disappointing in the first six months”

“However, we are taking positive steps to regain momentum in our ratings and revenue, with a well advanced content plan for 2017 incorporating 50% more premium local television content.”

Nine admitted its poor ratings were largely the result of fewer hours of premium Australian content, an issue it has pledged to address by increasing its commitment to local premium content, on an hourly basis, by around 50% in 2017.

New content includes locally produced dramas Doctor-Doctor and House of Bond as well as reality/entertainment formats including Australian Ninja Warrior, Hamish & Andy and This Time Next Year.

A sluggish advertising market also impacted its result, with the metro ad market falling 2% across the year with the March quarter particularly tough, down 7%. The June quarter fall was “more modest”, resulting in a second half decline of almost 4%.

The regional FTA market “under performed again”, with revenues tumbling 6.2%.

“In an increasingly competitive market, Nine Network’s Metro FTA revenue share declined by 1.9 percentage points to 37% for FY16, the March quarter marking the low”, the company told the market. “Revenue trends have improved from the March quarter, notwithstanding the distortion of the Federal election and the lead up to the Olympic Games.”

Turning to the Warner Bros deal, Nine said it was negotiating to exit the agreement but warned it would incur a further cost of $86m that would be payable over 2018 and 2019.

Under the arrangements, Nine was obliged to purchase a list of US drama and comedies for as long as new series were released and irrespective of how they performed in the local market.

Describing the costs as “onerous”, Nine said its exit from the deal “crystalises what would otherwise be a recurring liability”.

Elsewhere, digital EBIDTA increased 19% to $26m – and now generates 13% of total earnings – despite a 6.5% decline in revenue to $150m.

Looking ahead to the current financial year, Nine said the metro market is expected to be flat at best – and possibly down –   while regional markets are again likely to underperform “although the recently renegotiated affiliate agreement with Southern Cross is expected to increase share and provide an offset for Nine”.

It said initial results from the deal were “very positive for revenue share”.

Marks added that Nine has made “considerable progress” on repositioning the group as a “diversified and flexible television and digital media business”.

The rebranding as has also provided a “market-leading platform for the future”, he said, and described streaming operation Stan as “clearly the leading domestic player in a growing space.”


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