Seven’s Warburton on Stan Sport & Kayo’s ‘airline broadcast wars’, $70m of Olympics advertising, and the Google deal

Seven's chief executive officer James Warburton and chief financial officer Jeff Howard speak to Mumbrella's Brittney Rigby about how JobKeeper saved 120-150 jobs, locking in eight out of 12 sponsors and $70 million in advertising for the Olympics, the Google News Showcase deal, and sport streaming competitors.

Seven’s investor call yesterday morning featured chief executive James Warburton telling a story of improved numbers: Profit is up, although revenue fell. And debt and costs are down, in a big way.

The TV and publishing  company took an axe to its net debt pile during the half year ending December, cutting the roughly $570 million it owed by 42%. And it paid down an additional $150 million after the half year ended, meaning the level is set to fall under the 2x mark by the end of the year, excluding one off events.

The business posted a $116.4 million net profit, expects $110 million of its $170 million cost savings program to be realised this year (offset by 1-2% inflation), and has identified a further $30 million in cuts.

Seven’s share price currently sits at 50c, edging close to its 52-week high of 52c and up from the 36c it started 2021 on. According to Warburton, it’s a “very compelling story” indeed.

Warburton and Howard presenting to investors yesterday

‘There’s been a lot of people that have left the business’: Achieving those cost cuts

Chief financial officer Jeff Howard tells Mumbrella “there’s been savings across the entire business”, including Seven’s broadcasting unit and West Australian Newspapers.

“We’ve taken costs out of almost every line of the P&L,” Howard says.

“There’s been savings from a content perspective … there’s been a lot of people that have left the business, unfortunately, over the last 12 months [including around a quarter of its advertising team]. And while we’re not looking at further redundancy programs at the moment, we continue to look for ways to make the business more efficient and a better way of doing things if we can find them.

“It’s been pretty thorough, looking at every line of the P&L, taking costs out everywhere we can without impacting the quality of the content and the product.”

Seven won’t be returning the $33.4 million it received in JobKeeper payments, which saved more than 100 jobs. Super Retail Group returned $1.7 million after recording a $170 million net profit, while Toyota handed back over $18 million to the government.

“We would have had to have retrenched between 120 and 150 employees if we hadn’t secured those funds,” he says.

Staff took a 20% pay cut and funded liquidity of the business, certainly through those early days of coronavirus. So it [JobKeeper] did its job. And we also created hundreds and hundreds of jobs by continuing to invest in production through that period, and sport, and everything else we do.

“So we’ll emerge out of this in better shape and obviously pay a lot higher tax on the way through, notwithstanding what we’ve paid in tax over the last eight or nine years.”

‘You’ve got people with a billion dollars of sports rights offering them to Telstra customers for $5’: Going up against Stan Sport and Kayo

Nine’s Stan Sport will launch this Friday with the rugby season as a $10 per month add on to a standard Stan subscription, while Foxtel’s Kayo has launched a freemium model and given some Telstra customers access to $5 subscriptions (down from the usual $25 a month). Yesterday, Warburton told investors “we want to be in the SVOD [streaming video on demand] space … [we will] continue to push that strategy”.

But he’s not convinced by the approach of his competitors, likening it to the battle between Qantas and Virgin in 2013-14, when the airlines flooded the market with domestic flights, pushing down the price of airfares.

“Stan Sport and Kayo remind me of the airline broadcast wars. You’ve got people with a billion dollars of sports rights offering them to Telstra customers for $5,” he says.

“You’ve got both who have been talking about inflationary sports rights, making bodies like the rugby union and the netball extremely happy in terms of forcing prices up.

Warburton isn’t convinced about the sustainability of competitors Kayo and Stan Sport

“And they’re both selling packages, which no doubt will be in loss. How long and how sustainable will it be in their cases? [That’s] something that I find will be fascinating to watch.”

‘$70 million of advertising locked in’: The Olympics

Almost a year ago to the day, Warburton said he was giving “absolutely no thought” to the prospect that the virus could delay or cancel the Tokyo 2020 Olympics. This time around, he isn’t so bullish, although he and chief revenue officer Kurt Burnette remain confident.

Burnette told Mumbrella a week ago that “we’re not putting our heads in the sand”, but “we are in market currently talking about what will be the largest digital audience event in history and the largest and most watched event this year by a country mile”. The biggest sporting event in the world will draw anywhere from 1.3 million to 1.7 million capital city viewers each night, he promised.

And if it doesn’t go ahead? There’s a contingency plan.

“We’re prepared for both scenarios, but the mail coming out of the IOC and out of Japan is that it’s unequivocally going ahead and we’ve prepared for that scenario,” Warburton notes.

“We’ve sold eight of our 12 sponsors, got some $70 million of advertising locked in.

“If it wasn’t to go ahead in the COVID world, as could always be a chance, we’ve got enough content obviously to cover that period as well. So we’re prepared for all the different scenarios.”

Tokyo 2020 is still set to become Tokyo 2021

As for Seven’s other sports rights, the business pointed to “onerous sports contracts” as one source of ongoing cost savings. Seven remains tied up in a Federal Court dispute with Cricket Australia as it tries to reduce the price of its $450 million deal, similar to its renegotiation with the AFL last year.

Howard tells Mumbrella the cricket is “not part of the savings that we’ve assumed, but there was one contract that we were able to exit from that’s not sport, that’s a long standing piece of content that we no longer take.

“So we’ve been able to reverse an onerous provision and that results in a $10-11 million cash saving every year. It’s not sport.”

Neither Warburton nor Howard would be drawn on the details of that contract, except to say it is categorised as entertainment. The network axed My Kitchen Rules, House Rules, and Plate of Origin last year.

A deal that ‘fairly remunerates us’: The Google News Showcase agreement

The media business also used its investor presentation to swiftly mention a deal that had been lodged with the stock exchange just minutes prior: Seven has signed a letter of understanding with Google to be paid under its News Showcase program. It’s the first big media company to do so – others are still negotiating with the tech giant – and suggests that the heated News Media Bargaining Code debate between publishers and platforms may finally be cooling down.

Google has flagged the code would be workable if News Showcase sat underneath it, and acted as the mechanism through which to pay for news. And news outlets would still be able to proceed to arbitration under the code should disagreements arise. It’s a far better result for both parties than Google pulling search from the market, and, by doing so, pulling swathes of traffic from news sites.

Publishers signed up to News Showcase have their content featured as panels, with more detail and real estate than the usual snippets

Warburton is adamant the News Showcase contract, which will be official when a long form agreement is lodged within 30 days, results in fair payment, although he won’t say how much.

“All media organisations have been dealing with Google for a period of time. It’s no surprise that the code’s coming in,” he says.

“So everyone’s negotiating. The code will be … in place extremely shortly. That doesn’t change.

“With the code, it’s negotiate. If you can’t reach an outcome, then you can fall back on arbitration. And so our view is we’ve had a very, very proactive relationship with Google for a long period of time. And we’ve been able to negotiate an outcome that we’re both happy with and that we feel fairly remunerates us in terms of what we create.

“We’ve been able to get that deal done … It’s a deal that we wanted to do.”


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