Southern Cross Broadcasting is on the verge of striking a new deal with the Nine Network on affiliation fees that will put pressure on Nine’s profit line.
Southern Cross, which owns the Nine Network station in Adelaide, NWS9, has also abandoned any cooperation with the owners of STW Perth, Sunraysia TV, who will now have to try and strike an agreement on their own.
Southern Cross CEO, Tony Bell is believed to have taken Nine to the brink to try and get a better deal. The deadline for the deal is today, 31 August.
The affiliation fees are on a cost plus basis, not on a share of sales revenue for NWS9. That has meant that has Nine’s costs have risen, so have Southern Cross’s fees paid from Adelaide, even though the ratings and the ad income have fallen.
Southern Cross and Sunraysia have been caught in a double bind which is part of the reason why STW9 lost money in the June half and for 2006 as a whole.
The loss of the AFL increased the pressure to strike a new deal to try and capture some of the cost savings that the Nine Network will experience after this weekend.
Sunraysia’s agreement with Nine ended on 30 June and the station has been operating on an interim arrangement since as negotiations have dragged on.
It will be a real test of wills: Nine can’t afford to lose Nine outlets in Adelaide and Perth; both Southern Cross and Sunraysia can’t afford to lose the Nine product in each market.
What is galling to both Southern Cross and Sunraysia is that their stations pay more for the AFL than Nine charges its own stations in Melbourne and Brisbane.
Southern Cross and Sunraysia say the estimates of the amounts involved are too high but wouldn’t give lower figures: but the Nine figure quoted included all affiliate fees, from WIN and NBN as well as Southern Cross and Sunraysia.
Even if the total is halved to around $30 million to $50 million, it will be a large part of the Nine profit.
Should Tony Bell cut NWS’s affiliation fees then Nine will have to replace that revenue/profit from elsewhere in its own stations.
The loss of just $5 million or $10 million would eliminate forecast rises in the network’s EBITDA this financial year. Any more would increase the need for another cost cutting exercise.