Seven sets course for an unremarkable decade
Welcome to a midweek update from Unmade. Today: how an uninspiring market update sank Seven’s share price on a bad day across the Unmade Index.
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Grimly grinding it out at Warburton’s Seven
Tim Burrowes writes:
The only surprise about Seven West Media’s end of financial year update was that there was no surprise.
With the TV advertising market closely monitored, the company’s decline in profits for the year - falling 18.2% from $342m to $280m - was predictable. If Seven West Media’s profits fall any further, CEO James Warburton will have taken them below the point where he inherited the company from Tim Worner early in the 2020 financial year.
And that’s despite the boost of the last two year’s numbers including regional revenues thanks to the takeover of Prime Media at the end of 2021.
Warburton, media’s most accomplished salesman, usually finds a new story to tell. Not this time. Fronting the update with chief financial officer Jeff Howard, he looked like somebody who is having no fun at all. I did not see either of them smile during their update, or the analyst questions that followed.
The market appeared to pick up on it, marking down the share price by another 6.25% for the day. It’s back below a $600m market capitalisation.
From here on, Seven is going to grind it out.
More “efficiencies” (read job cuts); a safe but unadventurous schedule designed to maximise share of a declining medium; and the certainty (but growing cost) of long term AFL and cricket deals until FY31.
As well as the end of year numbers, Seven West Media also published its annual report yesterday. Here some key takeouts from both:
1. The CODE 7+ rollout is taking an embarrassingly long time
The CODE 7+ Project - a trading platform designed to help SWM sell its broadcast and digital TV viewing together - is still expensively plodding along.
It’s not entirely Warburton’s fault that it is taking so long. Its inception pre-dated his return to the network. First announced in 2015 as 7 Screens, Seven was then beaten to the market by Nine’s Galaxy while not much then happened from SWM for the next three or so years.
However, by 2019 Seven was talking big about its forthcoming CODE 7, a “seamless buying and real-time reporting” platform.
It announced CODE 7+ again (now with an added plus) in 2021 along with what appeared to be a glorified CRM system outsourced to Salesforce.
And in 2022, came the promise that CODE 7+was going to be “supercharged”.
By the time the product fully launches it will have cost SWM at least $40m. In yesterday’s update the company said it would be spending another $20m during this financial year.
Warburton is promising payback will then be swift as the market hopefully moves towards national trading around a “total TV” metric covering both broadcast and digital.
2. A crime against statistics
Speaking of Total TV, Seven has been trying to bludgeon the market into switching from the language of (declining) audiences for individual shows to overall reach.
In yesterday’s investor update, Seven shared one of the most preposterous charts I’ve seen for a while, seeking to conflate viewing of one episode of Farmer Wants A Wife with the reach of the entire series, two-thirds of the way into a graph.
The first bar shows overnight viewing of an episode averaging 2.2m viewers (not that we’re likely to see that this year). The second shows total seven-day viewing taking the number up by an underwhelming 12% over the next seven days.
And the third chart switches to a completely new metric - that of reach across the series: completely irrelevant for an advertiser wanting to know the audience of the specific show their ad ran in.
When you drill into the third number, the growth story is unimpressive anyway. Just 1.306m (if I’m reading Seven’s blurry graphic correctly) of the 8.984m reach - which is less than 15% - came from BVOD (broadcast video on demand) streaming. So in other words, almost all of Seven’s reach still comes from the declining medium of broadcast TV.
3. Talking down the competitors
In what used to be a zero sum game, it made sense to try to convince the market that your rivals are doing it harder. That’s the war Seven is still fighting, turning fire on Ten and Nine.
Warburton took the chance to talk down the prospects of Nine’s Olympics coverage, particularly next year’s games, in the tricky timezone of Paris.
And Ten will achieve a commercial share below 20%, Warburton suggested, suggesting it was “falling by the wayside”.
The days of Think TV members only speaking positively of their medium, and resisting the temptation to attack their direct rivals are once again over.
4. Debt is under control
In fairness, there are points to give credit to Seven West Media.
A key one for the long term viability of the business is that since 2017 Seven’s management has done a good job at getting what was a debt mountain under control. Until recently, debt has been cut faster than profits have fallen.
Worner got the debt down from $726m at the end of the 2017 financial year to $565m in 2019. Warburton continued the work in the 2020 and 2021 financial years, partly through selling Pacific Magazines and also by cutting costs and thanks to $47m of JobKeeper money.
The company’s current net debt is $249m, which is manageable so long as profits don’t fall much further.
Nonetheless SWM’s long suffering shareholders are entitled to wonder when the company will be able to afford to start paying dividends again.