Terry McCrann: Ten’s now the media pivot

THE Ten Network is not dead, so nobody ‘killed it.’ It isn’t even really insolvent — broke — or even close to being so, in the normal way most people would understand it.

The Ten Network even really insolvent — broke — or even close to being so, in the normal way most people would understand it. Picture: AAP

THE Ten Network is not dead, so nobody ‘killed it.’ It isn’t even really insolvent — broke — or even close to being so, in the normal way most people would understand it.

And most obviously — and in this case, literally visibly — your TV screen is not going to go black when you hit 1, 10, 11, 12 or 13.

STATION MASTERS JOIN FORCES FOR TEN

RESCUE EFFORT MEANS YOU CAN STAY TUNED TO TEN

From the viewer’s perspective the Ten channels today will look exactly the same as they did on Tuesday. They will again tomorrow, and pretty much into the months ahead.

Ten has not been brought down by a mountain of debt, or by cash pouring out of the company with cash costs running far above revenues — things that usually trigger these events and indeed did exactly that to Ten back at the end of the 1980s.

At its interim balance date at the end of February, Ten had net debt of just $30 million: as I wrote Tuesday, not much more than an enthusiastic individual property speculator.

The numbers also showed cash out over the past six months was running just $2 million or so over cash in: obviously not great, obviously not sustainable but not immediately terminal.

The numbers have likely deteriorated subsequently, but not to the point where Ten would have had to (or necessarily even now, will have to) follow Telstra in slashing and burning staff numbers and literally turning off programming.

The reason for Wednesday was that Ten was on an inexorable slide to a date with structural financial destiny in late December.

By then, it would have to find at least $100 million of fresh borrowing (to pay off its existing, if small, debt and provide some extra cash) and preferably, as it’s been stating, an overall $250 million facility to provide stability through 2018 and into 2019.

Ten Network shareholder Lachlan Murdoch. Picture: James Croucher

Ten Network shareholder Bruce Gordon. Picture: John Feder

That was just not going to happen through conventional financing. Yes, Ten did not have a lot of debt, but it also didn’t have much (if any) equity to stand behind the debt.

It would have been like someone wanting to borrow $2 million to finance all the $2 million to be paid on a house just purchased.

No bank would lend that money; not unless someone put in at least, say, $400,000 upfront. Or guaranteed the $2 million loan and had the wherewithal to deliver if called.

The latter is exactly what two of its biggest shareholders, Lachlan Murdoch and Bruce Gordon, had been doing. But when they said they wouldn’t keep doing it, the most sensible course was to move into — essentially, business-as-usual — administration.

So what happens now? There are really three stages.

First, as indicated, business — telecasting — as normal. The administrators take overall charge but management will continue as normal. The key change is that some individual creditor can’t tip the company over.

The second stage is to restructure the company. The most usual way is to turn the debt into shares, so Murdoch and Gordon who are now effectively owed the $50-$60 million or so would become bigger shareholders.

The detail of their agreement, released on Wednesday, should not be read as a formal commitment to do the major restructure — they were really only ensuring they didn’t strike out separately.

But in practical — and strategic media — terms Murdoch and Gordon and (the Telstra-NewsCorp owned) Foxtel and perhaps NewsCorp itself (owner of this paper) will be central.

But that’s going to require some complicated poker-playing as there are very clear, very separate interests, as between not only Murdoch directly and NewsCorp, but as between Foxtel as an entity and its two owners, Telstra and NewsCorp, separately.

As an example, look at the AFL broadcast rights which separates FTA (Seven) and pay-TV (Foxtel), but with Telstra having streaming quite separate from Foxtel.

Because there’s so little debt, somewhat bizarrely, the Ten restructure would need to raise even more equity. But it would have to show that it can become — sustainably — cashflow positive.

Two things could deliver that very quickly and quite significantly. As Ten noted in its statement it is close to halving the $150 million-a-year cost of its US programming from CBS and Murdoch’s (father and son) 21stC Fox. That would ensure cost savings needed from domestic programs wouldn’t be so severe.

It’s also looking to save $22 million this year ($12 million next) from its licence fees when and if the media reforms pass the Senate.

Put the two together and even with lower ratings and lower revenues, Ten would become cashflow positive, and with further savings on debt interest.

Those reforms are also crucial to Ten finding a long-term future in the broader dynamic and — Google and Netflix and Facebook — disrupted media landscape.

Arguably there is no survivable future for three full-service yet specialised FTA-TV networks. Industry revenue dollars today are broadly the same as 10 years ago — and starting to slide.

So even with cost cuts that deliver immediate positive cashflow, Ten — and the other two FTA networks — have to find a path to a longer-term sustainable future.

You’d hope the politicians would get out of their way by ditching regulations and laws aimed at regulating a 1980s media industry structure. Otherwise more revenue — and what could have been tax — dollars are going to flow to Google, Netflix, Facebook and who knows whom else.