Three-card monte. That’s a con game of street hustlers, and it’s also not unknown in the business world in the way companies spin good news to distract attention from the bad. Take the media reporting of Seven West Media’s big impairment losses and profit downgrade for 2015-16. All media reports in this morning ignored the fact that the write downs confirm the disastrous $4.1 billion merger that created Seven West in 201, which benefited Kerry Stokes. The reports also overlooked the message from the write-downs in the wake of Seven’s involvement in the supposedly $2.5 billion AFL broadcast contract, which attracted soft coverage and favourable headlines. Nice deflection there, but media writers should have paid a closer look at the write-downs and the rationale behind them in the Seven accounts, also issued yesterday. They raise serious questions about the health of the broadcast and print media in coming years. One of the ways intangible assets are valued is their ability to produce cash (they are called cash generating units). To do this a number of tests are applied, one of which is the terminal or long-term growth rate.
And that tells the gloomy view Seven has about the outlook for the year. The long-term revenue growth rate for TV has been sliced in half to 1.5% from 3.0%; for the company’s metro and regional newspapers, the growth rate was also cut in half to just 0.5%; and for magazines, the growth rate was left unchanged at 1.0%. Seven sliced more than $2 billion from the value of its goodwill and the value of mastheads and TV licences. — Glenn Dyer
Seven’s core is sliding. TV and newspaper revenues fell faster in the June year, and the accounts contain a warning of more cuts to come if that situation continues (as the Seven profit downgrade implies). There is no margin left in the carrying value in the Seven accounts for the TV, regional papers and magazine assets, and only a small positive margin for The West Australian newspaper.
But News Corp papers were more interested in starting their now predictable campaign of terror against the NRL for daring to do a deal with Nine before talking to the Murdochs and Foxtel. Darren “Lurch” Davidson had a story on page 1 of this morning’s Australian claiming “NRL to fall short in bid for $1.7 billion TV rights deal”. The story quoted “News Corp sources” as saying NRL boss David Smith “had devalued the remaining rights”. News and Dazza are once again ignoring the fact that Foxtel needs the NRL because the rugby league states of NSW and Queensland contain more Foxtel and Fox Sports subscribers than do the AFL states of Victoria, South Australia and WA. With Seven West Media and News/Foxtel now besties in the AFL deal, scrutiny of the Seven result in the Oz was cursory and focused on the AFL deal. — Glenn Dyer
APN confirms Seven’s gloom. And APN News and Media, now a 14.9%-owned associate of the Murdoch empire’s News Corp, confirmed Seven’s gloom by reporting weak interim figures this morning. Revenue rose 5% to $427 million, but underlying profit was up 3% to $25.1 million, well short of market forecasts of $36 million. But including significant items, APN earned just $7.5 million after an outdoor advertising contract in Hong Kong blew up and cost the company more than $17 million in restructuring and redundancy costs. APN’s Australian regional papers recorded a 5% fall in revenue and a 22% plunge in earnings before interest, tax, depreciation and amortisation (EBITDA) to just $8.2 million. In contrast, the Australian radio network recorded as 29% jump in revenue and a 36% rise in EBITDA to $26.6 billion. The company’s New Zealand media assets fell 1% in revenue, and EBITDA was down 13% for the half-year. Like other media, the company reported weak ad revenues in the June quarter (as did Seven, News Corp and Fairfax). APN says it has started yet another round of cost cutting to save $25 million over the next year to 18 months. When will it learn you can’t cost-cut your way to growth? — Glenn Dyer