Nine Entertainment dives on revenue warning

Shares of Nine Network’s parent plunged yesterday, wiping $315 million off its market value, after a revenue warning.

Singer Delta Goodrem, a judge on Nine’s The Voice.

Shares in Nine Network’s parent company suffered a sharp sell-off yesterday, wiping $315 million off its market value, after the TV broadcaster of talent show The Voice and Test cricket warned it would fall short of its revenue estimates.

The owner of the second-placed free-to-air network said third-quarter revenue would fall by 11 per cent from the previous corresponding period.

TV ratings in the period were “softer than anticipated”, affecting the broadcaster’s advertising take and share of the metropolitan FTA TV market.

Shares in Nine Entertainment plunged as investors digested the bad news, hitting $1.08 — a record intraday low. The shares eventually closed down 23.7 per cent, or 36c, at $1.16 as the selldown engulfed peer Seven West Media, operator of Australia’s No 1 commercial network. Seven ended the day down 10.5 per cent at 89.5c.

Deteriorating TV ratings has put downward pressure on Nine’s share of the FTA ad market, taking it down to 32.3 per cent in January, from 34.2 per cent in the year ago period. Media agencies tend to offer better deals based on share size.

Nine has blamed the poor ratings on inclement weather affecting its coverage of Australia’s summer Test cricket series and sub-par performances from the touring West Indies team, but rival TV executives said Nine’s problems were more operational rather than ad market weakness.

“TV is not dying, but it’s tough to grow earnings, with soft economic conditions,” one TV executive said.

Media buyers said Nine had been forced to deliver “make-goods” to advertisers — that is, free commercial time given back to advertisers due to rating woes.

A statement by Nine to the ASX did not mention its swag of poor program launches this year, including the disastrous return of Reno Rumble and poor audiences for Australia’s Got Talent.

Amid investor unease about structural headwinds hitting the FTA sector earlier than expected, TV executives pointed to the success of Britain’s No 1 commercial broadcaster ITV. The FTSE 100 company is valued at £9.6 billion ($18bn) after enjoying a remarkable recovery under CEO Adam Crozier.

ITV has reduced its dependence on volatile advertising revenue by building up its ITV Studios production.

Speculation about Britain’s media sector has hit fever pitch, with rumours rife about Sky, ITV and Channel 4. Companies ranging from John Malone’s US cable firm Discovery, which tried to buy Channel 5, French conglomerate Vivendi to telco giant BT have been mooted as potential buyers of Britain’s TV networks.

Television executives also seized on the trading update as evidence that the federal government should cut commercial TV licence fees.

Seven, Nine and Ten are expected to miss out on a potential $153m windfall from cuts as the Turnbull government moves to ­repair the nation’s budget deficit, The Australian reported on Monday.

In 2013, the then Labor government slashed licence fees in half from 9 per cent to 4.5 per cent of gross revenues.

The local TV production sector has backed calls for another reduction, pointing out that TV networks have a long history of reinvesting tax cuts in Australian content and jobs.

Nine said it continued to focus on “all cost lines” with TV costs expected to be at least
4 per cent lower this year, notwithstanding higher than expected legal costs in the half.

Legal costs are primarily due to an ongoing stoush with Bruce Gordon’s WIN Corporation about live-streaming into regional markets.

At February’s half-year result, Nine reported a 63 per cent drop in net profit to $28.2m. Revenue slipped 5 per cent to $692.2m. Nine’s full year results will be released on August 25.