Welcome to Unmade, written as dawn was breaking over a cloudy Melbourne CBD.

After a couple of years of transiting through an apocalyptically deserted Melbourne Airport on trips to and from Tasmania, it’s great to see the city coming back to life. Still, it’s not totally back to normal just yet. The barber was able to fit me in almost straight away.

Happy Tim Tam Day.

We’re at the point in the financial cycle where in the US the last of the listed companies are releasing their full year numbers. Shortly before sending this email, ViacomCBS, Ten’s parent company, published its financials. I may come back to that on Saturday, but the headline is $28.6bn in revenue and $6.2bn in profit, and a name change - to Paramount Global.

And we’re just kicking off the earnings season here in Australia, where Seven yesterday went slightly earlier than usual, the first of the ASX-listed media and marketing companies to update the market.

I was intrigued by the timing. I had been wondering whether Seven had either particularly good or bad news to get out of the way. There were no shocks. Based on the results, I was surprised that the share price fell nearly 7% yesterday. Perhaps it’s because some investors concluded Seven is not planning on being a player in any industry-shaping deals of the size of the Nine-Fairfax merger any time soon. It’s a long haul stock now.

Hunting season seems to be over. It’s two-and-a-half years since the newly arrived James Warburton told the market to expect a flurry of mergers and acquisitions. His promise in August 2019 was: “We will be a hunter and explore M&A opportunities in both traditional media and non-traditional adjacencies that are positive for our shareholders.”

In the end there wasn’t any M and only a little A.

The attempted merger with Prime was blocked by shareholders including Antony Catalano and Bruce Gordon, and in the end Seven had to get it done via acquisition.

Think F for fire sale instead. The company was a seller rather than acquirer. Early in Warburton’s term he offloaded the Redwave radio stations in WA to Southern Cross Austereo. And he managed to sell Pacific Magazines to Bauer Media just as the pandemic was rolling in.

The reason for the sales was because of the financial trouble the network was already facing as the pandemic arrived.

It seems like longer, but it’s only two years ago on Saturday since Covid-19 was even given that name. Back then, the idea that the Olympics might be postponed still seemed outlandish. As I pointed out in a piece for Mumbrella a few days later, Seven was in real trouble. Its share price was 20c (even after yesterday’s drop it’s now recovered to more than three times that).

And most pressingly, SWM was $683m in debt.

Covid helped save Seven from the banks.

The Australian Competition and Consumer Commission had signalled in late 2019 that it was minded to block the sale of PacMags, but changed its mind because of the pandemic, which forced Bauer Media to hand over $40m to SWM.

The postponement of the Olympics from 2020 saw that $53m loss deferred by a year, so it only showed up on the books this week.

The government also chipped in. SWM was able to claim $47m in JobKeeper over the two years, plus a slice of the government’s $50m Public Interest News Gathering fund AND was one of the beneficiaries on the $40m in tax concessions for broadcasters.

So we learned yesterday that Seven estimates that although its debt level will bounce around in the second half of this financial year, its current net debt sits at $295m.

That’s up on where it was in the last update, but it should have been predictable given that a $50m loss on the Olympics had already been flagged.

While EBITDA profits improved to $215m for the half, the company will face a bigger tax bill on its profits as the government help ends. And its shareholders will expect it to restart paying them a dividend at some point soon too.

But back to hunting season. I did a short on-the-record interview with Warburton yesterday afternoon.

I started by asking, with the Prime acquisition complete, does this mean that two years on, hunting season is now over?

“For now,” Warburton replied. “We talked about a range of things. We talked about getting the content right. We talked about transformation at a time when people were very concerned about debt. We obviously talked about M&A and maybe at the time there was some thoughts that could be a way to improve the business.

“But the fact is we’ve made such a fundamental change to the business over 30 months. We’ve now got to a point where we’ve got a business that’s not far away from generating significant cashflow.”

The focus is on the business of TV, in squeezing more money out of the regional market now the Prime deal is done.

“We’ve got two big things. One is Prime. The ability to operate in a $3.8bn market. There are no digital earnings at Prime. All those local news services are now on Seven Plus, with the advertising and pre-rolls that go with it.

“We’ve got a huge opportunity with Seven Plus which is so far behind Nine Now in the regional markets, yet it wins in the metro markets. We can get digital upside.”

And there’s a second focus within the TV market - subscription video on demand (SVOD). That’s a missing TV revenue stream for Seven. Nine has Stan, Ten has Paramount Plus and News Corp has Foxtel group.

NBC Universal is yet to launch Peacock in Australia, and WarnerMedia is at the final stages of merging with Discovery, with big plans for CNN news streaming as part of the global strategy.

“That’s a focus,” said Warburton. “Looking at what opportunities are represented in SVOD. There’s still a couple of parties we’re talking to from an SVOD point of view that we think would be interesting, the global studios.

“It’s about the right opportunity, not any opportunity. It doesn’t need to happen. It doesn’t mean we’ll find a deal that makes sense. It’s a very crowded market that will consolidate." We believe that our platform, with 11-and-a-half hours of live news a day will give one of the globals a huge platform to launch. There’s a couple of conversations that are still going.”

Which doesn’t rule out the logical tie up of Seven with Foxtel, but my sense of the way Warburton took the conversation was that it’s not currently on the table.

Instead, it looks to me more like the strategy taken by Cath O’Connor when she took charge at outdoor media company Ooh Media at the start of last year - get back to the day job and drive more profit out of the existing assets. That’s why they sold Junkee.

Was I reading that correctly, I asked. Has the possibility of a single, transformative deal like coming together with HT&E or Ooh Media or one of the other listed players, moved down the agenda?

“Yeah, I think that’s right.”

Warburton’s focus won’t so much be on survival as on the day-to-day of the business of television.

This year will be about being able to deploy the full schedule, as Covid restrictions allow normal production. And, argues Warburton, starting the year more strongly for the first time since Seven lost the tennis to Nine in 2018.

He points out that in 2020 Seven lost the first 15 weeks of the year to Nine, and took nine weeks to get a win in 2021. This year, Seven has won four of the first seven weeks.

“We’ve got MKR coming back not as a 60-episode behemoth, more as a very focused energised original recipe. We’ve got Australia’s Got Talent which we didn’t have before. We’ve got the Commonwealth Games, the AFL, motor sports.”

He also dropped a hint: “We’ve got a couple of global formats, one which we believe will be the biggest new global format, which we’ll talk about around March.”

Is that a shiny floor show format, I asked. “Nah. I can’t really go into it but it’s going to be big.”

Looking two years out, we also learned that the delay on a decision on the 2024 Paris Olympics, is at the International Olympic Committee end, not because of SWM - which has first right of refusal - dithering. “We’ll see when the IOC wants to start discussing it. We’ve had very, very friendly time zones. When it’s an overnight games it becomes a lot harder.”

So is Seven through the worst? “We knew we had a plan. We had to change a fair bit. We’re still a content company. The company is getting stronger and stronger. The best is yet to come.”

Also yet to come are the other ASX results. Domain and Enero are tomorrow. Nine, Southern Cross Austereo and WPP are all due to report next week.

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Dr Spin

Dr Spin writes:

Media creates some intriguing turnarounds.

One of them is that Antony Catalano and business partner Alex Waislitz now require the goodwill of Seven West Media.

The duo are contemplating a takeover of the shell company that remains after Seven bought Prime.

Seven still owns a stake in what is now known as PRT Company, so will have a vote on its future. It’s not that long ago since Catalano and Waislitz teamed up with Bruce Gordon to block a Prime merger with Seven, forcing the company to mount a takeover instead.

It will be intriguing to see whether Warburton is willing to forgive and forget.

“We own 15% of the shell. It’s up to Antony to put proposals forward and hilariously he’ll need our vote,” says Warburton.

“I’ll very much enjoy Antony’s presentation.”

To be a fly on the wall…

Media stocks on the down

As we’ve discussed above, Seven’s half yearly results were a selling signal for some investors, with the stock falling by nearly 7%.

The Unmade Index dropped by 1.15% - a bigger fall than the ASX All Ords which was down 0.5%

Meanwhile, Enero, parent company of ad agency BMF, rose by nearly 6%. If tomorrow’s results from Enero are strong, eyebrows may be raised about this sudden movement just prior to the release of market moving info.

Remember, if you’d like to support independent journalism with a nerdy focus on the vagaries of the media and marketing industry, you can subscribe to Unmade’s paying tier, which gets you subscriber-only content too. You can probably stick it on expenses anyway.

And if that’s a bit much but you’d like to show some support, why not forward this to a colleague and suggest they sign up for the free email?

Time to let you go about your Wednesday. Unmade will be back tomorrow with the latest chapter of the audio edition of Media Unmade. We’re up to Chapter 17 - the story of how Lachlan Murdoch was thwarted in his takeover ambitions for Ten.

Having written this email fuelled by nothing more than a cup of hotel tea with a burst teabag and long life milk, it’s time to find some of that Melbourne coffee y’all keep going on about.

Have a great day.

Toodlepip…

Tim Burrowes

Unmade