Reports from two Australian media giants provided a study in contrasts this morning.

The once dominant Packer media empire is being further reduced, while the empire of Kerry Stokes continues to grow apace. Stokes is now sitting on $2 billion of cash and sharemarket investments, and James Packer is making that pile richer.

James Packer’s Consolidated Media Holdings is selling its Sydney HQ, the legendary 54 Park Street where Kerry Packer ruled for decades. The price, a reported $50 million. And then this morning Cons Media sold off its 25% of online jobs group, Seek, for $440 million, a deal that was well anticipated by the market which chased up Seek shares by 15% yesterday, a movement that needs checking out as the Seek 2009 result was nothing flash, nor was the outlook.

Meanwhile, Kerry Stokes was revealing that he’s sitting on $1.37 billion in cash, and a further $800 million or so in stockmarket investments, including $240 million or so worth of shares in Cons Media, which are now worth 11% more after the sale of Seek and the old Packer HQ.

Seek was the investment James Packer was proudest of: he found it, brought it to PBL, then chaired it for several years. Selling Seek is a sign he’s in a mood to do something dramatic, perhaps a selective buyback in which his interests don’t participate.

Meanwhile, the annual profit report of the Seven Network this morning was meaningless; it was all about accounting. We had no idea of how the Seven TV network and Pacific Publications went financially, all we got was a bunch of generalities and spin. But interestingly, in the post results tele conference Mr Stokes did remark that the Seven Media Group was “trading at a level that hasn’t caused any concern to the shareholders and the banks”.

The listed Seven Network (controlled by Mr Stokes with around 46%) is now merely an investment company with a huge cash pile of $1.37 billion (now reduced to $1.1 billion after the raid on Cons Media), the shares in WAN, a group of other listed companies (including Telstra) for the tax-lowering imputed dividend stream, and that 19.9% of Cons Media Holdings, 40% controlled by James Packer (now $490 million richer after selling Seek and what was once the most feared address in the Australian media).

Kerry Stokes has long used Seven Network’s cash (which also belongs to other shareholders) to gradually tighten his control. The current buyback at Seven ends on September 7 and this morning the company and the directors and management wouldn’t say if this was going to be extended for another year.

While James Packer could effectively try to use the cash raised today to take control of Cons Media by offering other shareholders an attractive price, Kerry Stokes will sit this one out. He’s got his eye on Cons Media’s 25% of Foxtel and 50% of Premier Media Group, which controls Fox Sports, which remains the most important and profitable part of the entire Pay TV business in this country.

The Seven Network annual profit report, for the 12 months to June 27, tells us nothing at all about the health or otherwise of the Stokes media empire. It’s the healthiest in Australia, despite the company having written down the value of the TV and magazine business to nil at the interim report as at the end of December 2008. That’s what’s called an accounting fiction. They might be “impaired” because the TV and magazine ad markets have sunk, but the underlying businesses retain considerable value.

But we have no way of knowing just how valuable they are.

The result therefore Seven Network reported this morning, a 91% fall in annual profit after various write-downs, was correct but essentially meaningless as to the underlying value in the company and its huge media businesses.

The group said net profit in the year to June 27 after the one-off items fell to $12.5 million from $142 million a year earlier.

The company wrote down its investment in Seven Media Group to zero and took an impairment charge on its stake in West Australian Newspapers of $312.8 million.

Kerry Stokes has been an indirect buyer in Seven during the year when the buyback has been operating. That’s enough to tell us that he knows the underlying assets are very, very valuable.

So what about the analogue spectrum which will not be used after 2013? Watch for some sort of deal there in the next year with Canberra, plus something to Seven’s advantage on the anti-siphoning rules for sports broadcasting.

Peter Fray

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