The shares in Seven West Media and the Ten Network hit new all-time lows late last week as investors concluded both were in need of more financial surgery — and Seven’s boardroom needed an overhaul as the Amber Harrison debacle continues. Seven West shares closed at 69 cents on Friday, after touching an all-time intra-day low of 66.5 cents on Thursday. Ten shares also closed at an all-time low of 68.5 cents on Friday (or 6.85 cents before last year’s 10-for-one share consolidation). Nine Entertainment shares rose, but that will be challenged this week when ASIC is expected to release a statement confirming that it forced the network to impair the value of its TV businesses, as it did to Seven for its Yahoo7 joint venture.

A year ago the underlying message from the toing and froing over the media law changes was to allow News Corp/Foxtel to slowly grab control of Ten, thereby eliminating (surreptitiously) the third commercial network and combining it with the fourth (which is effectively Foxtel/Fox Sports). It might have been a big stretch for the ACCC to greenlight it, but the argument was (as it is now) that the outlook for commercial broadcast media was so bad that a contraction in competition was necessary. Telstra would have had to sell 30% or so its (50%) stake in Foxtel, handing control to News. But the collapse at Ten, the impairment at Foxtel and the sharp slide in its outlook and revenues, plus an impending impairment of Fox Sports of up to US$500 million, has made that history. Investors do not like this sinking sector.

Ten shares fell 21.7% in five days and also a new all time low price for the company controlled by the Murdochs via Foxtel’s 13.8%, Lachlan Murdoch’s stake of nearly 9% and holdings by Bruce Gordon (the largest with 14.9%0, Gina Rinehart and James Packer. Analysts now say they now expect Ten to make a significant cut in the value of its TV licenses, which were valued at $346 million at August 31 last year. Ten had a market value of just over $219 million at the close last week, indicating a possible impairment charge of more than 33% or well over $120 million.

While Nine shares rose 5.4% after it wrote down the value of its TV business by $260 million, the fact that ASIC played a role will again raise eyebrows in corporate boardrooms. There is a belief that Nine is now better placed than Seven (and certainly Ten), but that is not what the TV ratings are saying. Seven will win the first round of 2017 ratings by the end of this week (the first four weeks), despite a weakening in the audiences for My Kitchen Rules.

Nine’s impairment was driven by the 33% drop in the share price in the December half year — directors said in the interim report that “impairment testing on Nine Network determined that an impairment loss in Nine Network’s goodwill of $260 million was required and this has been recognised in the period”. Goodwill attached to Nine’s TV business was cut to $162 million at December 31, while the value of the TV licences was unchanged at just over $466 million, for a total value of licences and goodwill of $628 million, well under Nine’s market value of $899 million on Friday at the close on the ASX.

The big message to the federal government and the commercial TV industry generally that no matter what happens in the May budget to licence fees and the now stalled media law changes, it will not be enough to help this stricken industry. — Glenn Der

 

Peter Fray

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