Oh the irony – Kerry Stokes drops a gloomy profit warning just as Seven hits a relative purple patch in the ratings, as Terry Television explains.
The Seven Network has had its best week of ratings nationally for at least two years (excluding the Olympics and Rugby World Cup), just as the group was forced to reveal a sharp drop in forecast revenues and earnings for the year, and lower earnings for the full 2005 year.
The news was dropped at last Friday’s annual meeting in Melbourne by largest shareholder and chairman, Kerry Stokes.
Stokes had the presence to hang around and talk to anyone who bowled up to him afterwards over tea and coffee, as Crikey’s Kate Jackson obviously did. The contrast with the Packer’s PBL was startling. Kerry Packer charged for the exit before his scion, James, had finished wrapping up the meeting.
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CEO, John Alexander was as quiet as the church mouse he isn’t at the meeting and afterwards, drifting out chatting to Gretel Packer, mum Ros and fellow director Rowena Danziger.
In Melbourne David Leckie, who normally detests public affairs, was out and about after the meeting, chatting and talking.
The contrast was telling: the well-performing and arrogant Packers and their courtiers, versus the not well performing but almost gregarious, and very public Seven management.
Seven knows it has had to maintain revenue share at the big risk of writing less profitable business and seeing Ten and Nine snaffle up the high margin business, which in turn would put further pressure on Seven as agencies cutback on allocation of campaign funding.
The agencies know things have turned in the ratings, which was very clear last week.
Seven ran a close second nationally to Nine, but won the small Perth market, leaving Ten in its wake and the irony of the situation is too hard to ignore. The recovery in News and Current Affairs ratings from the post Games doldrums coinciding with a sharp improvement in post 7pm ratings as more shows do well, cutting back the lead Nine and Ten have established.
Simply Dancing, Blue Heelers and All Saints were the catalysts in the mid evening rebound for Seven.
Poor ratings just before the Games and in September, plus the ‘suck’ of revenue into the games itself meant that Seven was forced to admit that earnings would lower.
The Network had given up margin for business in trying to fill its advertising inventory and this had resulted in slimmer profits, especially with the costs of the games and other factors.
Seven management decided to come clean on Friday after looking at forward business for the rest of November and into the pre-Christmas period in December. While the revenue is coming in, the cost of paying for those poor ratings before and after the games crunched profits.
And with Seven determined to defend its 30%-31% share of industry revenue by dropping rates (ie maintaining market share), earnings have suffered from the price cutting. Profitless prosperity in the midst of plenty!
Nine and Ten aren’t happy with the actions of Seven. The price cutting is forcing them to trim their rates and take lower profits. Seven is confident that revenues and earnings will recover between now and the end of the year, thanks to the better ratings, such as in the past week.
And it is confident the summer period (which will not be all that ‘slow’ this summer, thanks to all networks showing first run material, plus the usual sport), will see the Network maintaining market share, and profits.
Seven insiders say the overall industry revenue is still strong and the problems are one-off to Seven and not applying to the other Networks.
But because of the price discounting against rate card by Seven, Nine and Ten have not been able to lift rates in the so-called ‘back end’ of the year – the run up to Christmas, when demand is strongest and all networks make most of their profits.
This means the premiums are lower than they should be for Nine with its industry leading 40% share of revenue and lead rating position, and Ten, with its leadership of the 16 to 39 age group and strong lift in viewing numbers this year.
The better Seven performance this week (and the steady improvement in the past month) has come with the advent of Dancing With TheStars, probably the most unlikely success this year, the good performance of Forensic Investigators and Border Security, a recovery in the News and especially Today Tonight, and the better numbers for revitalised All Saints and Blue Heelers.
Seven’s Sunday and Thursday nights have been poor, and the Network says that will change with Desperate Housewives and Lost next year, two successes from the US (to match Nine’s CSI and Ten’s Law and Order series).
Nine next year will have problems on Sunday night trying to work out what to do with the movie, and on Monday nights, with Friends gone, Malcolm in the Middle under performing and a very expensive (per episode) CSI New York to position properly.
Ten has the X Factor to add, but as we’ve seen with Idol in the past month, there’s a slow down in momentum for these sorts of shows. Next year Ten will push to maintain this year’s viewer numbers for the Idol-Big Brother shows, but there will not be significant growth in viewer numbers like earlier in the year.
In fact X Factor will be matched for a while by Nine’s Shooting for the Stars. Both will chase each other’s audiences, leaving room for Seven and the ABC to pick up viewers.
You would have to say that anyone interested in the Idol style shows are already watching them. A new show at the start of the year will attract the Idolators to either Nine or Ten. That will make for a nasty fight, especially in the off-screen PR games.
The Law and Order series is looking a bit thin at the moment with Criminal Intent hitting a very bad patch in the US and the new series, trial by jury, yet to appear and be tested in the American market.