What Happened to Channel Ten?

If it wasn’t for MasterChef, I wouldn’t know where to find Channel Ten on the TV remote. And I’ve tried watching the rugby but listening to their commentary is like playing naughts and crosses with myself. It’s mind numbing. Not even Sandra Sully is enough to make me look sideways at the struggling network anymore.

On Wednesday, the Ten Network’s parent company went into voluntary administration because Lachlan Murdoch and Bruce Gordon decided not to go ahead with an underwriting agreement of $270m. The risk was too high, and justifiably so.

So, is this the end for Ten? Prima facie you’d have to say yes, although I wouldn’t be changing channels just yet.

The question that beckons most is, how does a network go from feted to finished the way they have?

Twenty years ago, which only seems like last month, the besieged broadcaster was pleasant watching. They positioned themselves on the fringes of the bell curve instead of being direct competitors to Seven and Nine, and they did it well.

Testament to the high regard in which they were held, when they floated on the stock exchange in the late 90’s, investors couldn’t snap up their shares fast enough. It was frantic.

So what happened?

Firstly, the emergence of the information super highway (internet) in the early nineties has made media ultra-competitive and social media has only accentuated this.

Secondly, Channel Ten’s program selection has been rubbish for a long time (except for M.A.S.H and MasterChef!), and their ratings and profit results are reflective of this. Additionally, they have US agreements to purchase content to the tune of $150m per year.

Not surprisingly, they’re now up to their eyeballs in debt and the overheads are crippling them, hence the $270m lifeline they were hoping for.

Who will survive, Pay TV or Free to Air?
Pay TV is to media what bottled water is to our health. People are happy to pay a premium for it even though they can get it on tap for free. They believe the content is much better.

The reason Pay TV stands a stronger chance of succeeding over Free to Air is because of their business models.

Free to Air relies on business advertising to generate revenue. The problem is, when economy’s contract or slow down so too does business spending and so media outlets suffer, albeit, on already very thin margins.

Pay TV on the other hand is consumer based and if the content is good, the punters will fork out their hard earned and gobble it up, like bottled water.

And that distinction goes right to the heart of last week’s Moowsletter’s. The cut and thrust of which, the best businesses are generally consumer based. I.e they sell products and services that you and I consume on a daily basis, they are true staples. As good as recession proof.

Pay TV is much the same. Its business model is subscription based and consumer driven. It’s not as vulnerable as Free to Air which is advertisement driven and therefore cyclical sensitive.

A Kick in the Cables
However, don’t be fooled into thinking Foxtel is sitting in the box seat for the ensuing Pay TV war either, because they’re not. For too long Foxtel has been the recipe book equivalent of TV. For every 1 decent channel, there are at least five duds which you must buy. It’s just filler. And subscribers have resented this experience for a long time.

Not surprisingly, the big disruptors in Australia, Stan and Netflix, have already started to hit Foxtel where it hurts most, right between the cables. Their content is superior, and everything is streamed into your house or man shed. You don’t need a dirty big cable and a set-top box to make it work. The disruptors bypass all of that and their rates are very competitive. Subscribers love it.

However, this isn’t the end for Foxtel either. Stan and Netflix will just force them to bring their best game to the box. Another win for viewers.

Tracks and Trains
So if I was to recommend which of these businesses to buy, which one would it be?

To be honest, unless I could buy a piece of each, I wouldn’t buy any. The media sector for the next while is going to be like whitewater – it will move and change at breakneck speed, more than nearly any other sector. Just watch how much Foxtel morphs into a different beast.

In my opinion, the key to it all is understanding the difference between the ‘tracks and trains’.

If I was a buyer, my preference would be to buy the carriers like Telstra and Optus (the tracks). The content providers (trains) will continue to eat each other alive and operate on very thin margins. For this reason I have never been a fan of media stocks – TV, radio, or print.

As for Channel 10, I don’t think the end is nigh, at least not yet. My guess is an overseas buyer will purchase their license (and a very loyal audience) for nicks, strip their overheads to the bone, torpedo the board and executive team and then drag them into the digital age.

As long as they leave MasterChef alone, I don’t mind what happens.

Watch this space!

Have a great weekend!

Adam

Back paddock – speaking of content, here are six fun facts for the weekend.

Did you know…
1. It’s impossible to lick your elbow
2. A crocodile can’t stick it’s tongue out
3. A duck’s quack doesn’t echo, and no one knows why
4. Deer can’t eat hay (seriously, it will kill them)
5. You can’t wash your eyes with soap
6. You tried licking your elbow didn’t you?

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