Seven West Media earnings plunge but Tim Worner confident

Seven West Media has shocked the market by warning that earnings will fall by up to 20 per cent this year.

Tim Worner at Seven’s studios in Sydney yesterday. Picture: Jane Dempster

Seven West Media has shocked the market by warning that earnings will fall by up to 20 per cent this year, engulfing rival Nine in the downdraft of a massive selldown by investors.

A day after Fairfax Media wrote off nearly $1 billion of its struggling publishing business, there was more bad news for traditional media companies yesterday as Seven said underlying earnings before interest and tax would slump 15-20 per cent this year.

Widely regarded as one of the best-run commercial networks in the world, these are ominous signs in what looks like being an uncomfortable reporting season for media companies getting to grips with new forms of viewings amid tepid conditions in the advertising market.

Investors yesterday wiped almost $300 million from the stockmarket values of the Seven and Nine networks. Shares in Seven fell by 18.4 per cent, or 19c, to 84.5c, dragging down Nine Entertainment by 14.3 per cent, or 15.5c, to 93c.

Although Seven managed to reduce costs by 1.6 per cent, near-term offsets are becoming difficult to achieve in light of tepid conditions in the advertising market and the rollover to new and more expensive television rights deals for the Olympics and AFL.

In an interview with The Australian, Seven chief executive Tim Worner said he wanted to reduce the broadcaster’s dependence on advertising by building up 7Productions, 7Wonder and 7Beyond, a group of content producers.

“We’re starting to executive at pace. This part of our business has enormous velocity and we’re executing very aggressively,” Mr Worner said. “We’re looking around at what else we can do. You have to play to your strengths and that’s what we’re doing. I believe we can grow the business significantly again next year and then again the year after.”

A 92 per cent jump in third-party production and program sales revenue vindicates Mr Worner’s strategy. Revenues amounted to $88m in the 2016 financial year, and Seven is predicting growth of 25 per cent this year.

Another potential boon to Seven is growing evidence that advertisers who have made big bets on digital are coming back to television because of disappointing results.

Big spending brands are concerned about digital advertising ­issues including online traffic fraud, and viewability, the issue of whether advertisements can be seen on the screen and whether they are even reaching real ­humans rather than bots.

“The television market has been going through a rebasing of its share of total advertising spend. This is in line with international trends, which the Australian market typically lags. However, just as we have seen overseas, we expect this trend to slow in the coming 12 months and believe we will see this stabilise and return to growth,” Mr Worner said.

“That’s what’s happened in the UK and the US. The power, reach and effectiveness of television is unmatched. We are now seeing the advertising industry conceding that they have overdone the swing away from traditional media, especially television.”

Bringing forward its full-year results by several weeks so executives could fulfil commitments at the Rio Olympics, Seven posted a net profit of $184.3m for the full year to June 25, compared with a $1.89bn loss the year before.

Profit after tax excluding significant items amounted to $207.3m, slightly below the $209.1m posted last year. In outlook guidance, Seven said the television advertising market would be flat to down in the low single-digit range year-on-year, but would stage a recovery in 2018.