It’s been a golden start to the Rio Olympics for Australia and the Seven Network with high ratings for the first two days of competition. But there’s doubt whether it means gold for the balance sheet of broadcaster Seven West Media. The cost of the Games and the new AFL broadcast contract in 2017 are directly responsible for the company’s warning last week of a 15% to 20% slide in group profit for the year to June 2017.

Seven shares lost 21% in value last week as a result, closing the week on 81 cents, the lowest since February. That was a $250 million loss in market value for the network, or about what Seven says it will earn on an earnings before interest and tax basis in 2016-17.

As surprising as that was to investors, the annual report issued with last week’s 2016-17 profit report and that shock downgrade for 2016-17 illustrates the increasing financial pressure on Kerry Stokes’ media company over past five years and the damage that has done to earnings. Buried in the report is a table that raises questions about the long-term future of the company and broadcast and print media in this country.

sevenfiveyearprofits

The table, on Page 74, gives a five-year profit history for the company (for the purposes of explaining the way executives’ incentives are organised). But it also illustrates the way the company’s earnings before interest and tax (EBIT ) have slowly been eroded by rising costs and weakening ad revenues.

Peter Fray

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