James Warburton’s Seven revamp plan faces big questions
After setting out his desire to be an active player in the M&A market, Warburton was asked, succinctly: “With what?”.
Seven’s net assets are $104 million after the latest savage write down of TV licences and print mastheads. There’s $90.5 million in cash on the balance sheet, but also $653.8 million in long term borrowings that has to be paid down. At 39c, Seven’s share price is this morning moored near the last week’s all-time low of 37.5c and TV advertising revenue is forecast to continue its inexorable decline.
At these levels Seven West Media’s market capitalisation is a little under $590 million and after the media company’s shares were dropped from the benchmark S&P/ASX 200 Index last week, the prospect of raising new capital got a little harder, given it doesn’t have the natural support of index-aware funds.
But the financial pressures are just one part of the challenge.
Seven’s run of 13 years at the top of the ratings is under challenge from a resurgent Nine Entertainment Co, which is ahead - albeit by just 0.3 of a percentage point - past the halfway mark of the ratings season.
Warburton says some of Seven’s programming is “tired and skews too old” and will need a major revamp.
Long-running prime time shows My Kitchen Rules and House Rules were smashed in the ratings this year by Nine’s Married at First Sight and Lego Masters and will be at the top of the list for a revamp of programming.
Add to that the announcement this morning that the Disney+ streaming service will launch in November. It will be one of nine streamers competing with each other and with the commercial free to air networks for attention, and it seems Warburton’s challenge is almost insurmountable.
Still, Warburton did not earn the nickname “Mr Ambitious” from his former boss at Seven David Leckie for nothing.
And he has something to build on. Seven retains its lead over Nine in the vital breakfast current affairs and evening news ratings and it has the top rating summer (cricket) and winter (AFL) sport broadcasting rights. Ratings for the AFL are up 10 per cent this year.
But the circumstances point to a need for some fast footwork and creative deal making from Seven and major shareholder Kerry Stokes, as they try to inject some growth back into the revenue line - which was down another 4 per cent in 2018-19.
Rumours abound of Seven exploring a deal with News Corp (publisher of The Australian). Warburton has repeatedly refused to answer directly, beyond saying Seven was “open for business”.
“Nothing is on the table, nothing is off the table,” says the new CEO.
Another option for Warburton may be in outdoor advertising. He spent just 10 months at APN getting the company ready for sale to JC Decaux last October. Unlike other avenues of traditional media, it has been growing through a mix of new locations and digital innovation. Warburton has also put out the shingle for Seven to partner potential streaming services wanting to enter Australia, much as Mike Sneesby has done at Stan as he faces up to the likely loss of Disney content that was a major subscription driver.
Seven is not alone in feeling the pain of digital disruption that’s now sweeping through broadcast TV in the same way buffeted print media for the past decade. Nine, Ten and pay TV operator Foxtel have all been facing up to the challenge of high costs and more competition for their audiences.
Seven is later to the challenge, but moving quickly and decisively with the appointment of Warburton to replace Tim Worner. The digital side of the business is now also free from the joint venture with Yahoo.
Warburton’s answer to question about hunting would seem to be “whatever we’ve got”.
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A questioner on the Seven West Media results call this morning nailed the big issue for new chief executive James Warburton’s claim that the network will be “a hunter” in a far-reaching rebuild.