The Ten network has surprised many by writing down the value of its TV licences for the second time in as many years — sending a warning to investors, viewers and the rest of the industry that the network and its board (and advisers) reckon the outlook for broadcast TV is weakening with poor growth prospects for revenues and falling profitability. Ten’s directors therefore slashed the value of its licences by more than $135 million to take the amount cut from the book values in the last two years to just on $400 million.
Ten’s decision, revealed in the 2015-16 results for the year to June 30 will lead investors and others to question Seven, Nine, Southern Cross and Prime Media about the balance sheet values for TV licences. All have written down the balance sheet values in the past two years (Prime caught up in the year to June 30), as they adjust to falling ad spending, fragmenting TV audiences (but still the largest group for advertisers to sell to in a single location) and rising costs, especially for live sport. Seven has already warned that the costs associated with the Rio Olympics and the higher cost of the new AFL broadcasting contract from 2017 will result in an earnings fall — estimated at 15% to 20% for the year to June 30, 2017.
Nine faces higher costs associated with its new NRL contract next year and analysts wonder if this is why it is raising cash from selling its stake in Southern Cross and Sky News (it also wants to spend more to revitalise its prime-time schedule).
Ten did not explain the reasons for the impairment. The omission of any explanation should tell us a lot about the news: it’s bad for Ten, its shareholders, especially Foxtel and Perpetual (the two big holders, as well as Lachlan Murdoch) and employees, and the rest of the industry. That’s because the questions raised in an impairment decision are forward looking — all about the board’s view of the ability of those assets to earning enough revenues, profits, and to generate sufficient cash, to justify the values in the balance sheet. — Glenn Dyer