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What Lady Mary Crawley can teach the Ten Network

Four years ago everyone was writing ITV’s obituary, but the network has turned around, with hits such as Downton Abbey. There is a lesson in that for the struggling Channel Ten.

There is a way back for a stricken free-to-air TV network, and Ten’s newbie CEO, Hamish McLennan, would do well to look to Britain’s ITV, which has gone from a basket case several years ago to a profitable, cashed-up giant responsible for hits such as Downton Abbey.

If you want more detail, read the company’s 2012 profit statement. The shares closed at 119 UK pence on Wednesday after the result, and yet four years ago, they were trading at 22 pence and every man and his dog was barking that the company was dead and buried, thanks to the internet, the dominance of the BBC and BSkyB, and the UK’s slide into recession.

Put simply, the keys for McLennan to drive Ten’s recovery are good people, good programming ideas, and a solid, supportive chairman who has a vision for the company and does what he says he will do. ITV has a strong, articulate chairman in Archie Norman (who helped revive Coles in Australia. He would be ideal for Ten, but wouldn’t countenance the dominance of the Murdoch clan at the broadcaster). McLennan has to have as much control as possible over the Ten business.

ITV doesn’t have a major shareholder’s family company edging into the business to produce a news and current affairs program, as News Limited is doing with Ten’s Meet The Press. ITV has none of that insider, big shareholder rubbish to eat away at resources, revenues and profits. Through clever programming and sticking to a five-year recovery and rebuilding plan, ITV has rebounded from near death to a position of considerable strength. Revenues were up 3% in 2012 to £2.19 billion (more than $A3.2 billion). Pre-tax profits rose a modest £21 million to £348 million (or more than $A510 million), and the company is paying only its second dividend since it was formed back in 2004 by the merger of Carlton and Grenada.

Online, pay and interactive revenues are up 26% to £102 million (or around $A150 million), while income at ITV Studios, the in-house production arm responsible for programs such as Mr Selfridge and Celebrity Splash (to be seen here on Seven) lifted by £100 million to more than £700 million (or more than $A1.05 billion).

The improvement at ITV came in a year when the BBC had the London Olympics and coverage of the Queen’s Jubilee, which lifted its share of viewing. But ITV, thanks to programs like Downton Abbey (and despite weakness for stalwart shows like The X-Factor and Dancing on Ice), the network managed to outperform the near recessed UK economy. And it reckons that ad revenues are looking up, with a 5% rise predicted for the three months to the end of March.

Adam Crozier was brought in as CEO of ITV in April 2010 after heading up The Royal Mail, the Football Association (a very, very big deal in the UK) and a career at ad group Saatchi and Saatchi, which ended in 1995 when he was joint CEO. The man who brought him in was Archie Norman, who told the May 2010 AGM that ITV needed shaking up big time:

The board fully recognises that ITV is a challenged business. Gone are the days when we can take for granted the steady growth in advertising.. This is a five-year journey. It’s not that we are not interested in this year’s profits and the next — we are very interested — we will make the right decisions to create shareholder value over three to five years. Where that involves investing a bit more money today even though that may not help next year’s results but will benefit in three years’ time, we will do that. Instant change is really no change. This isn’t superficial. It’s fundamental.”

Norman said ITV would have to develop its presence on non-traditional platforms including the internet, video-on-demand and mobile phones.

All that has come to pass, and the company is three years into that plan. UK analysts point out that ITV’s cutting and rebuilding has been drastic (as befitting a media company in deep shit). The program budget remains at levels reached in 2009, but ad revenues have risen £300 million (or 25%).

The lessons for Ten from ITV are that the key is to sweat the assets harder, keep costs under control (especially for programming), try to invest in new programs (and make them yourself if you can) that viewers can grow to like and return to watch. Don’t go for the one-off big hits like a mega-sports contract with doubtful prospects. Go for one that will boost earnings and ratings and not waste money. ITV bid strongly for the 2010 soccer World Cup (a guaranteed winner with England playing), which helped start the rebound in 2010, with profits boosted by that and Downton Abbey’s first year.

But the real key is to have a good CEO who knows what they are doing and a chairman who knows what’s needed and is not afraid of taking calculated risks. So far that is not Lachlan Murdoch. McLennan has to resign his chairmanship of REA Group, 62% owned by News Ltd, and Ten has to find an independent-minded chairman. That’s the biggest challenge of all. Kerry Stokes has just under 5% and will sit and wait to make life tough for Ten, should News Ltd appear on the scene.

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