Oh dear, as good as the PBL result was, and as good as Nine’s television
business performed, it failed in perhaps the most crucial metric of
them all in the eyes of the Packers. Television costs.
Those profligate
buggers at Willoughby are still spending like drunken soldiers and Nine’s
profit margins remain well under its share of the national TV
advertising market.

And no matter the spin put on it, the results at Nine have been made to look good by the biggest advertising spend in years.

Costs rose at half the rate of revenue 6.5% versus 12.8%, but that gain
in sales came in this huge ad boom. Nine’s gross profit margin rose to
32.5% from 28.5%. Again not bad, but compared to Ten, still well short.

Nine’s share of revenue in the TV industry was nearly 40% in the year,
so the long stated goal of Kerry Packer to get to where the profit
margin is close to the revenue share, remains as distant as ever.

It could even up, if the current sales boom collapses. Not much chance
of that in the next month or so, judging from reports on bookings for
November and December, but emulating this sort of performance will be
much tougher next year.

Costs in the news and current affairs area at Nine have risen to meet
the challenge from Seven, especially in the evening news slots and
especially in Sydney and Nine has spent heavily to make sure its
Olympic coverage outshone Seven’s in content(but not viewers).

Nine will have to again look at Ten report a sharp gain in revenues,
based on its 30% overall share and a gross margin around 38% (which it
did in its latest report a couple of months ago).

Its that sort of efficiency that Kerry Packer dreams of and has pushed
his executives, including Alexander, to achieve. So far those efforts
have failed and Alexander has retreated to Park Street to oversee ACP
and learn about gaming and gambling.

That’s left David Gyngell, Kerry Packer’s godson in charge but under
pressure from the board and Alexander to take greater control over

That’s a situation Alexander feels more comfortable with, managing from afar.

So what happened in the year to June? Well, we all know that apart from some unpleasantries in the Sydney
market and at times nationally, especially between 5.30 pm and 7.30 pm,
Nine dominated TV in the 12 months.

That produced a 12.8% rise in revenue on the back of a 13.9% rise in
gross ad revenues at the company’s three major stations in
Brisbane(QTQ), Sydney(TCN) and Melbourne(GTV).

In dollar terms, Nine’s revenue amounted to $862.8 million from the $764.6 million of the previous year.

Costs jumped 6.5%, the largest in the empire and greater in percentage
terms than the rise in overall group revenue.Costs at Nine in 2004
totalled $582.7 million compared to $546.9 million.

That left earnings before interest, tax, depreciation and amortisation
at $280.1 million compared to $217.7 million) And it also firmly
established TV as the second most important business in terms of
profits after Crown, and well ahead of ACP.

Now CEO, John Alexander(and the man who had charge of Nine while costs
accelerated in the 2004 year) tried to suggest that “The increase in
costs of 6.5% largely reflected increased licence fees and extra
investment in local production”.

The cost rise without higher licence fees was 5.2%, still the largest
in the group. But trying to spin the reason for the cost rises above
what the company would have liked to report shows the continuing lack
of understanding of TV. Licence fees are an overhead cost and if they
vary, its on the upside, not the downside.

Likewise ‘extra investment in local production’ People want to watch
local product as much as the imported star shows like CSI, which on a
per program basis are pretty cheap compared to a series like McLeod’s

Local production, like licence an APRA (music) fees are a constant cost
, like overhead such as electricity. Without them you don’t stay on
air (licence fees) or you don’t rate as well and drag in good ad
revenue (local production).

And because Nine has proved to be so hard-nosed with producers in the
past they are treated with suspicion when it comes to local
production. A cost-driven rather than content driven approach to local
drama in particular has also made local producers hesitant to deal with
Nine unless the money is there.

So complaining about extra investment in local production falls on deaf
ears among producers and seems to be an excuse and not a sound reason.

The contrast with the ACP magazines businesses which Alexander also
oversaw is illuminating. Revenues rose 7.5% to $740.2 million (from $688.4
million). Costs only rose 3.1% to $529.5 million from $513.4 million.
Half the rate at Nine and a sign of the greater sureness Alexander has
in managing print assets compared to the TV assets.

Earnings at ACP rose a solid 20.4% to $210.7 million from $175 million.

But the June 30 half year audit figures for magazines and those from
Nielsen for magazine revenue raises the question of whether the great
turnaround at ACP has slowed or peaked?

ACP’s magazines experienced a one per cent rise in numbers in the six
months to June, and a 3.2% rise in retail sales revenue to $231.9
million. But the circulation of all 187 magazines covered by the audit
bureau of circulations figures rose three per cent and the value at the
retail level rose 6% to joust over $500 million.

ACP’s dominance is best shown by the 47.5% share of sales (copies) and the 45% of advertising revenues.

Despite a hint that circulations rose, they did for minor or mid level
magazines like NW and TV Week. For the profitable giants like
Australian Women’s Weekly and Woman’s Day they fell.

But ACP, under Alexander, has proved to be very adept at cost
control(witness his better performance there than at Nine) with
judicious increases in cover prices and well-structured ad deals and
rate rises.

Doing that at Nine has proven next to impossible, despite attempts to
rewrite commission or fee deals and get rid of bonus ads. That only
works in a boom industry like now. Come the next downturn and Nine will
do anything to fill its inventory.

Crown’s normalised revenues rose 1.1% to $1.12 million while costs only
edged up 0.4% to $812 million, a tribute to the ability of Rowen
Craigie, the executive in charge of the gambling business.

His workload will increase in the next year as he integrates Burswood and looks for costs savings.