Cosser Cracks A Mean Whip At Ten Network
Sydney Morning Herald
Wednesday September 6, 1989
In ancient times, the feared quinqueremes with their five banks of oars manned by hapless slaves were not pleasant places. The ubiquitous leopard-skin clad slave driver with his whip would have walked the aisles and the oars have touched the Mediterranean in time to a relentless drum beat. Casualties were high.
Steve Cosser's Ten network under the restructured Northern Star will be something like that, if the projections and assumptions supplied last week by stockbroker Potts West Trumbull to institutions which invested in the network's owner, Northern Star, are any guide. Cosser's Broadcom Australia controls the company with its 19.7 per cent holding.
The long lunches, expensive sets, fat salaries and exorbitant program costs associated with television will soon be only memories at Ten as the new board attempts quite ruthlessly to wring positive earnings from the slumping network. Those earnings are said to start in 1990-91 with a pre-tax profit of$21 million, after a $48 million turnaround from a $27 million loss this financial year. From then on, the profits are due to double roughly each year, reaching $83 million by 1992-93. Northern Star does not expect to pay any tax given the huge losses and write-downs it will be sustaining this year.
Potts West's projections are entirely cost-driven. There are no assumptions for new market share or increases in advertising revenues above a strict 11.8 per cent. Rivals Nine and Seven have been looking for increased advertising charges of 15 per cent to 20 per cent, so this trend at Ten will not please them.
Any additional increases will be icing on the cake, but the focus on costs clearly signals the approach that Cosser and his team will be taking. It will be completely at odds with the normal indulgence and extravagance that characterises this medium.
Two features stand out most from the projections which look out to 1992-93
First is the attack on the network's debt, which starts at $367 million in 1989-90, then drops away to $332 million, and by 1992-93 is expected to be down to $230 million, when interest will be a modest $44 million. This sort of reduction from a business which is due to lose money in its first year under the new management can only be achieved by pumping all surplus cash into debt repayment. Capital expenditure will be pared back to the bare minimum and programming costs will actually drop from $196 million in 1990 to $195 million in 1990-91 before increasing in line with inflation thereafter.
The projections assume advertising revenue increases of just under 12 per cent a year over the period. Revenue starts at $296 million for the Sydney, Brisbane and Melbourne stations in 1990 and rising to $415 million in the fourth year. It is impossible to ascertain equivalent figures for the Seven network, but Nine is expected to have revenue of $405 million in 1990 and more than $430 million for 1991, substantially higher than Ten. In line with Northern Star's conservative turnover increases, those normally well-lunched middle men, the media buyers, will have lean pickings from Cosser's pocket.
Where Ten will win is in its rapidly improving margins as a result of the cost savings. After an earnings margin of 17.2 per cent before interest, depreciation and tax on total turnover this year, the margin is expected to jump to 27 per cent next year, 29.4 per cent the following year and 32 per cent in 1992-93, based on the Potts West projections.
Bond Media's Nine has an estimated 17 per cent margin, based on the same criteria for 1991, and Chris Skase's Sevens earn about 21 per cent on revenue. These two are limited in their attempts to improve margins by their very high cost structures. Viktor Shvets, of Capel Court Powell, estimates that Bond Media needs a 15.5 per cent margin just to break even on its cost of funds, and Seven owner Qintex Australia 14.5 per cent. Even before the latest restructuring, which has taken $300 million off Northern Star's debt, the Tens needed a break-even margin of just 10.5 per cent.
It will be in the years to come that Ten's leaner structure will enable the network to start making significant inroads into its rivals.
During that time analysts expect Seven to overhaul Nine at the top of the ratings tree, but if Potts West is even close in its projections, Ten could well be back in the race again by the early to mid-1990s.
Another intriguing feature of the projected balance sheets was the $138 million value given by Potts West to program rights. Northern Star has already written this value down by $100 million, so program costs must have blown out from the $114 million in the books last year to a whopping $238 million by June 30. This figure could only have been reached by a dramatic blow-out in program costs, particularly from the US.
© 1989 Sydney Morning Herald