TV’s new game show: Name Your Impairment! Or we could call it The Loss, or Our Balance Sheet Hole. We can’t call it The Biggest Loser because that is about to reappear on Ten. As the June 30 reporting season winds down, the unlikely winner of the Gold Logie for financial destruction isn’t the mining or oil and gas sectors: it’s broadcast TV. Instead of the usual suspects in the media — Fairfax Media and News Corp regaling us with multibillion-dollar tales of losses, impairments and quiet job cuts — it’s the fading beauties of the small screen, Nine, Seven, Ten and Southern Cross, that are the headline performers, with impairment losses totalling $3.4 billion in their 2014-15 financial years.
All up, the impairment losses and write-downs (excluding Seven Group Holdings) add up to just on $3.4 billion. Including Seven Group, it’s around $4.2 billion (some of that made compulsory by the 41% stake in Seven West) — a heroic effort. Many in TV haven’t liked Crikey pointing out the write-downs and the reasons for the cuts in balance sheet values. But it’s the companies themselves, the boards of directors responding to what their bean-counters and consultants are telling them — that based on the lower growth in ad revenues and the rise in other forms of viewing TV (Netflix and streaming video), the industry is no longer the earner it was a year ago. Both Seven and Nine have forecast profits to fall in 2015-16. — Glenn Dyer
And the winners are … Kerry Stokes wins media mogul (reduced circumstances) of the year for 2014-15 (in the past, it has been the Fairfax family as a perennial winner, helped by James Packer and the Murdoch clan). But Stokes has this year’s award locked down — Seven West Media revealing impairments and losses of $2.08 billion — a headline act if ever there was one, helping to trigger more than $800 million at Stokes’ master company, Seven Group Holdings. That’s a Gold Logie-winning performance, and the $2.9 billion for the Stokes empire is the single largest set of impairment losses for any business group outside the mining sector (where BHP was a chart topper with US$3 billion or more).
The silver Logie goes to best newcomer (this time around) Nine Entertainment Co, which quietly chipped in with nearly $800 million of cuts to the value of goodwill for Nine, NBN and Sky News owner Australian News Channel, as well as nearly $100 million on the value of the licence for NBN. Southern Cross Austereo, the owners of two radio stations and the Ten Network’s regional affiliate, took impairment losses of $361 million for the year to June. And then there’s the Ten Network, a perennial finalist in recent years. Its net write-down for the year to April was $251 million, small beer besides Seven’s mega effort, but yet another multimillion-dollar loss. — Glenn Dyer
And the future, those football deals? For all the hype about the big AFL and NRL broadcast contracts from 2018 onwards, you have to ask if the impairments are telling another story. That the harsh reality is there is no certainty Nine, Seven or Foxtel will make it through the next football contracts in their current form without further severe cuts to pay for the broadcast deals. Here’s a reminder of what Seven said:
“This accounting adjustment reflects revisions to our future growth forecasts accounting for free to air advertising market sentiment, prominence of new market entrants and changes in future cost assumptions based on recent market operating market conditions. The Directors have agreed that significant changes in operating market conditions have occurred since the end of the financial period, therefore it is considered prudent to recognise this non-cash adjustment to the carrying values of the assets in our business.”
The sharemarket reckons Seven is the most exposed — its shares have sunk 48% in the past year, compared to a 25% drop for Nine, a 23% fall for Ten and a 7% fall for Southern Cross. Seven is weak because it is loaded up with old media assets — newspapers, magazines and free-to-air TV. Ten is just a basket case and would have been near to collapse without the Foxtel share deal proposal. Southern Cross has radio assets to help offset the dying regional TV business as a Ten affiliate, and it is also top of the pile in takeover targets for Nine, so that’s why its shares have been solid. And Nine is busy getting rid of non-TV assets, raising cash for a deal down the track, but in doing so is now a pure broadcast TV play, which could cause it to top Seven as next year’s gold medal under-performer. — Glenn Dyer