Cost Reductions, Not Revenue Growth, Likely to Drive Future Television M&A Activity
The recent financial and ownership turmoil at the Ten Network has served to refocus attention on the challenging trading conditions which commercial television has been facing since the Global Financial Crisis (GFC).
The most current half-yearly results for Australia’s three commercial metropolitan television networks indicate that there has yet to be any sign of a reversal in the adverse financial trends which have been slowly eroding industry profitability for much of the past decade.
Despite still reasonably resilient aggregate viewer numbers, the industry’s profitability continues to contract, as the on-going growth in operating costs, particularly programming expenses, steadily outpace only minimal at best increases in advertising revenues.
While the rollout of free-to-air (FTA) television’s digital multi-channels has been very popular with most Australian viewers, and therefore also successful at largely maintaining FTA usage levels amongst older viewers despite increasing competition from subscription television (STV) and subscription video on demand (SVOD) services, that strategic success has come at the heavy cost of exacerbating the pressure on programming expenses, at a time when television advertising revenues have experienced little or no growth.
Moreover, with the short to medium term expectations for growth in both overall domestic economic activity and total advertising expenditure in Australia presently being only modest, it is difficult to identify many factors which have the potential for improving the profitability of the commercial metropolitan and regional television networks any time in the foreseeable future.
Faced with such sobering financial prospects, it is understandable that the commercial television operators have long-lobbied the Federal Government for both further reductions in, or the complete removal of, commercial television licence fees, as well as a liberalisation in the existing media ownership limits.
While the Federal Government’s recently announced intention to abolish and replace the television licence fee should deliver some much-needed short term relief to the sector, going forward, the major financial driver of any future merger and acquisition activity involving a television network is more likely to be based on cost reduction, rather than revenue growth.
You can download the full repost here: Download