As the Seven Network struggles in the ratings, the upper levels of management witness a continuing debate between conflicting ideas from CEO Tim Worner and his predecessor, TV legend David Leckie.

Worner wants more and more of Seven’s programs produced in-house — along the lines of what UK broadcaster ITV is doing, as well as its big German counterpart, ProSieben (“sieben” is German for seven). Leckie, while acknowledging the benefits of producing content in-house, believes that Seven shouldn’t cut itself off from outside producers and ideas, which have been the source of some of its biggest hits in recent years.

Seven has traditionally produced more programs in-house than its rivals: Packed to the Rafters, Winners & Losers, Home and Away, plus programs such as Million Dollar Minute have helped differentiate it from other networks. To boot, Seven makes money selling the programs or formats to other markets. While revenue from owned formats is handy, the really big revenues are made from selling programs to offshore markets. That’s why Home and Away is the most profitable program produced in this country — it makes tens of millions of dollars a year in revenues and profits for Seven.

But Leckie, who remains a TV consultant to Seven Group Holdings (which owns 41% of Seven West Media), is concerned that by cutting off external producers, Seven is also cutting itself off from new programming and format ideas it desperately needs to boost its ratings. Leckie has about 10 months to go on his consultancy for Seven Group. Leckie combined both in-house and externally produced programs in the years he ran Seven. He bought mega-hits Lost and Desperate Housewives from the US, but also pushed the internal production of the local mega-hit Packed To the Rafters and other programs.

Part of the problem for the Worner strategy has been the poor performance of Seven-owned formats this year. My Kitchen Rules had another solid year, but audience numbers were down on a year ago (especially during the final). House Rules’ audience plunged this year thanks to Nine’s direct competitor, called Reno Rumble. On top of that, Seven’s new format Restaurant Revolution has been a costly disaster — and from this week it is running only on Mondays (on Tuesday nights it’s been replaced by a show about cats). Million Dollar Minute, the 5.30pm game show, is a good-looking production and has been sold offshore (NZ is one market), but it has not managed to consistently match or beat Nine’s Hot Seat in the same slot. That’s why Seven tried to hire Eddie McGuire for a new game show (which ironically might have been a buy-in from an outside producer).

The weak performance of these in-house formats (and the emphasis on them and finding new ones) is adding to Seven’s intense cost pressures at the moment. To make in-house productions, Seven needs a solid production infrastructure, which is expensive and, at the moment, is regarded as a cost of running the network and not charged to each production. By some accounting, Seven has high production costs, which is adding to the pressures from the static/declining revenue market in the past three years, and especially in 2014-15. Falling print revenues for the West Australian and Pacific Magazines are adding to the pressures at Seven Network.

Seven lost the metros to Nine again last week. But it has to be emphasised that while the network has lost ground in the metro markets (which admittedly account for the majority of the US$3.9 billion annual ad spend on free-to-air TV in this country), Seven is maintaining a crushing lead in regional areas. That lead is keeping some Seven programs alive and giving it valuable revenue and earnings at a time its metro performance is under growing pressure from Nine and Ten (and the emerging threat from Netflix).

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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