By Glenn Dyer

We know that the Nine Network is struggling for profits – but is the real situation much, much worse than it seems?

to Crikey sources, up to 60% of the network’s profits could be coming
from revenue derived from its interstate and regional affiliate
stations – which would mean that only 40% of profits are sourced from
its “core” Sydney-Melbourne-Brisbane stations (which bear virtually all
the hefty programming and head office costs).

Nine not only gets
ad revenues in for its stations in Sydney, Melbourne, Brisbane and
Darwin, it also claims a share of the ad revenues of its affiliated
stations in Adelaide (owned by Southern Cross Broadcasting), Perth
(owned by Sunraysia TV) and its regional operators, mainly
Wollongong-based WIN and Newcastle-based NBN.

It’s hard to work
out just how big a share of its affiliates’ revenues Nine claims – it
is one of the closely guarded secrets of TV – but it’s believed that
companies like WIN and Southern Cross pay as much as 38% (some say 40%)
of their revenue to the Nine Network.

Southern Cross gave a hint
of the impact of these fees in its interim profit report released in
March, when it revealed that its television division’s profit was
“adversely impacted by increased program supply fees for Channel Nine
Adelaide, with remaining costs flat for the half”. These numbers were
not broken out and it is impossible to do so because Southern Cross is
also a regional affiliate for the Ten Network and those affiliate fees
would be mixed up with those going to Nine.

The situation is
easier to understand at Sunraysia TV, Nine’s Perth affiliate, which is
a one-station business. At the halfway mark, the company said that
“inventories and consumables” totalled $26.3 million. Based on last
year’s figures, that will end up around $52 million for the full year.
Extrapolating that information would put affiliate fees to Nine at $30
million, but as Sunraysia earned $96 million in revenue and the actual
fees are based on revenue and not profits, and if it is around 35%, the
fee could be in a range of $33-40 million.

Southern Cross,
all TV revenues are lumped in together, but Adelaide being a better
performing station, but a small market, might pay around $30 to $35
million. With WIN and NBN it’s impossible to work out those figures,
but the amounts could be similar in size: $30 to $40 million.

earned $270 million on an earnings before interest and tax basis (it
was lower) in the year to June 2005, so the affiliate fees from its
mates could have been around 40% of earnings (based on $30 million

But this year, some industry analysts believe Nine will be
lucky to make $200 million. And because those affiliate fees won’t
drop, Nine could be looking at $120 million plus in fees from its
friends – 60% of EBIT. Those fees have no costs and drop
straight to the profit line – suggesting that the three main Nine
stations in Sydney, Melbourne and Brisbane are actually marginal

Is that the real situation at the PBL-owned Nine stations?

Peter Fray

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Peter Fray
Editor-in-chief of Crikey