Australia | Feb 18 2009
By Greg Peel
If one needs any further evidence of why free-to-air television is in its (albeit long and painful) death throes one need look no further than the current “hot” show on FTA – the Nine Network’s second Underbelly offering.
The show begins invariably a good 10-15 minutes after its schedule starting time, thus finishing later as well. This is now an entrenched FTA TV tactic designed to frustrate the public’s efforts to record the show and watch it later with the advertisements erased. The strategy simply reinforces what Nine clearly appreciates – that the vast number of product ads and network promotions which punctuate the drama are at best excruciating, and at worst good reason not to watch the live screening at all. Yet Nine needs to exploit the show’s success by cramming as many ads in as possible. It might be the last “hit” the network has all year.
Nine knows, however, that such efforts will meet with only marginal success. Thus the network provides a free download of each episode on its website immediately after TV screening. This discourages pirating, and at the very least draws the public to said website where more advertising awaits.
While Underbelly may be a hit, ratings have not topped the Seven Network’s ((SEV)) coverage of Jelena Dokic’s comeback at the Australian Open last month. Here, TV viewers were required to have buckets nearby as the commentary team waxed lyrical and constantly about upcoming network offerings in 2009. “Can’t wait for the first episode of Can Fat People Sing and Dance with the Stars?”, beamed Jim Courier, who was due to fly home immediately after the tournament. Australia heaved.
Nine’s tedious cricket commentary follows a similar strategy, not to mention the five thousandth offering of “limited edition” memorabilia at every break. “Adorn your wall forever with our wonderful capture of that magical moment when Ricky Ponting adjusted his box. Yours for $500 but hurry – we’ve only knocked up one hundred thousand.”
These are desperate times for FTA TV. And the more desperate the tactics become, and the more the public is treated with contempt, the more the public switches off. Or turns to other media.
This is not a GFC phenomenon. It is simply a protracted demise. Television networks were long propped up by a Howard government that no doubt pushed to bring back Pick-a-Box. Australian governments have long been protecting FTA TV for fear of the media moguls who owned them. Cable television’s beginnings were a commercial disaster as a result. Digital media platform choices in Australia are about ten years behind those of Burkina Faso. The government still insists major sporting events must be withheld from cable, which just means no one gets to watch them before midnight. Innovations such as TiVo (giving you the ability to cut out ads) have long been restrained.
Jamie Packer has now turned his back on Nine. Kerry Stokes has no interest in owning more of Seven. The moguls are gone, or they no longer care. FTA TV still screens shows two years after they’ve been a hit on the ABC but now it also screens shows that were previously a hit on cable. FTA TV has now conceded to cable, let alone the internet.
There are far fewer ads on cable, given there are also subscription fees. Subs remain comparatively very high in Australia because of the restraints placed on the medium by governments. But it’s economies of scale. Subs will fall as more of the public abandon FTA TV in disgust. The lower the subs, the more subscribers, the lower the subs.
Teenagers no longer even watch television.
Which brings us to the Ten Network ((TEN)) – the supposed “youth network”. Of the three national networks, Ten was the only one to make no pre-emptive move into digital media. Nine hooked up with Microsoft, Seven with Yahoo. The joint ventures have hardly proven spectacularly successful (one gets the feeling no one in FTA quite knew what to do next) but either way Ten was left behind with its ailing franchises of Big Brother and Australian Idol.
Mercifully, 2009 is the first year in a seeming eternity the Australian public will be relieved of BB nausea. AI, nevertheless, will battle wearyingly on. Having finally realised it might be flogging a bit of dead horse, Ten eventually lined up a deal with Fox to show old programs (which were already on cable and already old). That was its exciting excursion into new media.
I have already noted FTA TV’s demise is not linked to the state of the economy. But now that we have a GFC, the demise has simply accelerated. Advertising demand has collapsed and will continue to collapse as Australia heads into recession. The collapse has hit every form of media, but there is no other form as vulnerable as FTA TV. Newspapers have turned to the internet. Radio will live on in cars and around breakfast tables. Cable television is supplemented by subscriptions. FTA TV has ads and nothing else.
It was in this environment that Ten yesterday provided a trading update, indicating first half earnings will be down 28% which includes a 12% drop in television revenues. Ten’s other jewel in the crown is outdoor advertising. Enough said.
But the big news is that Ten intends to raise $90m of fresh capital in order to ease the pressure on its debt-laden balance sheet. This is hardly a surprise – if a listed company announces a profit result without an accompanying raising in this market it is now a shock.
The difference between your now ubiquitous, common or garden GFC capital raising and the Ten raising is that Ten’s is simply a shot in the dark. Most recent raising have come as institutional placements, with or without retail tranches, or as fully underwritten rights issues, at anything up to a 35% discount to the last traded price. Ten, on the other hand, is offering a non-underwritten “book build” of 120 million shares at 75c – a 19% discount.
A non-underwritten capital raising is almost unheard of. Companies use underwriters (stockbroking units) to guarantee a raising. The underwriter will make an assessment of what it believes is the price that will sell the deal. It will then promote the deal to its clients. It will then be stuck with any stock it can’t shift, but it will acquire that stock at a discount to the price agreed, in the order of 2% or so. (In other words, a discount on the discount). While the company in question may have hoped for a higher price, at least it knows the deal is done, one way or the other.
A “book build” is a bull market capital raising strategy. Rather than “place” stock at a discount price to buyers expecting a bargain, or offer rights to existing shareholders to buy more shares at a discount, a company will inform the market that it intends to raise an amount of capital. It will set an initial price, but if demand proves stronger than first thought then the final price will actually be higher. It’s a bit like an auction. But as anyone trying to sell a house at the moment knows, auctions are intended to make willing buyers outbid each other. When buyers are thin, you simply take the best offer available.
What chance does Ten have of getting its $90m “book” built?
“We believe demand may be limited,” says ABN Amro. “We acknowledge there are risks the raising is not successful,” says BA- Merrill Lynch. “The likely outcome is that the $90m book build will not find significant support,” says Macquarie.
Clearly the book build found no underwriting support. No one has stuck their hand up to take the risk. (The underwriting division of a broker is separate to the stock analysis division and behind a “Chinese Wall”, so the two parties cannot confer). If Ten cannot raise the money it wants, it will abandon the offer, simply leaving a share price which is 19% lower one assumes (the stock is in a trading halt at present).
To make matters worse, were the book build to be successful it would dilute CanWest’s holding in the company down to a minimal 50.1%. While some might see a dilution of CanWest’s interest as positive, the truth is CanWest is allowing itself to be diluted. It doesn’t want the extra shares either. Indeed, CanWest has its own encroaching debt problems. Such problems will continue to weigh on the minds of any potential investors in discounted Ten shares. What if CanWest is forced to ditch?
But really, what is an investor in Ten at 75c getting? The money, which represents 13% of existing capital, is simply to be used to keep the debt wolf from the door. It is not earmarked to restructure the company into a twenty-first century new media innovator. It’s not even going to do more than temporarily prop up Ten’s balance sheet ahead of further deterioration in advertising revenues, and further in the inevitable ongoing demise of FTA TV as a medium.
I wonder if the dinosaurs listened when the cockroaches pointed out the big fiery ball heading this way?
Every single stock broker in the FNArena database rates Ten Network a Sell.