A bullish Seven West Media chief executive James Warburton has declared none of his new long-term broadcast deals will become onerous, despite his television network facing increased competition for eyeballs against streaming platforms and widespread fears of a recession.
The Kerry Stokes-controlled media company flagged another $15 million to $20 million in cost cuts at its half-year results on Tuesday after it reported a 5 per cent earnings decline and 0.5 per cent dip in revenue. Warburton said the absence of a new Olympics broadcast deal and a focus on managing costs put the company in strong stead as the market becomes more uncertain.
Seven CEO James Warburton said the company is no longer doing deals that make no sense.Credit:James Alcock
“We will not have onerous contracts moving forward,” Warburton said. “We’re clearing out the last of the cricket and then… we’ll not have any onerous contracts on our books.”
Seven signed three major broadcast deals in the first half of fiscal year 2023: a seven-year AFL deal, a six-year cricket deal, and a seven-year deal with US studio NBCUniversal. Seven will pay more for the AFL and NBCUniversal deals than it currently does but will pay less once its new cricket deal commences. Warburton said securing content for its online video website 7Plus would allow the company to generate more cash to offset the cost of the agreements.
These deals come at a time when Seven is fighting for audiences against other television networks and streaming services such as Netflix, Kayo Sports and Stan, and as rising interest rates spark fear in the business community of a local recession.
Nine Entertainment Co, the owner of this masthead, last week announced a $315 million deal with the International Olympics Committee, ending Seven’s longstanding affiliation with the tournament.
Warburton, whose company had written down a large amount of the value of the Olympics under the previous deal, said it was “horrendously expensive” to produce: about $120 million in production over the term and between $30 million and $50 million in hospitality costs.
“Blind Freddy can see the losses Seven accrued – it was an onerous contract,” he said. “For us, it would have been a substantial increase in our loss given it was a record deal for the IOC.
“It was an extremely easy decision not to have that half-a-billion loss-making content added to Seven’s bottom line. We are prepared to walk away if it doesn’t make sense; we’re not at an age where we’re going to have sports bully us into ‘you have to pay this or you have to pay that’.”
Seven, which owns television and publishing assets including The West Australian, posted $814.6 million in revenue in the six months to December, a decline of 0.5 per cent compared with the prior year. Earnings [before interest, tax, depreciation and amortisation] fell 4.8 per cent to $205 million and net profit fell 4.6 per cent to $114.9 million.
‘We’re not at an age where we’re going to have sports bully us into “you have to pay this or you have to pay that”.’
The company did not announce a dividend for the 11th time, arguing it needed to be prudent. Seven suspended its dividend in mid-2018 under former chief executive Tim Worner, arguing it needed to pay off debt and take part in potential merger and acquisition opportunities. Warburton said the board would review whether Seven could reinstate its dividend in six months. Shares were down 2.2 per cent in afternoon trading.
Expenses remained largely flat for the six months ending December 31 despite inflation. Warburton said the newly identified efficiencies came mostly from operations and discretionary spending.
“For the absolute avoidance of doubt, it is not about head-count reduction,” he said. “There are no head-count plans, nor is it about content. We’re not looking at flushing content to save our way to success.”
Warburton has previously spoken at length about merger and acquisition opportunities as a way to turn the fortunes of Seven around. In his time as CEO, Seven sold its magazine division which housed Marie Claire and New Idea, and bought its regional broadcast partner Prime Media Group. Seven last year invested $12 million in cash and $24 million in advertising into property entrepreneur Antony Catalano’s View Media Group through its investment division, Seven West Ventures.
But Warburton said he had no plans to participate in merger and acquisition activity this year with major broadcast deals now signed with the AFL, cricket and NBCUniversal. He said the focus was on growing market share.
“I can unequivocally say there is nothing on the table,” Warburton said. “There is nothing we put in front of the board and there’s nothing we’re considering. Our focus is on continuing digital growth.”
Seven is forecasting operating costs for the year between $1.22 billion and $1.23 billion, including the money it will pay for a long-term agreement with NBCUniversal.
UBS analyst Tom Beadle said Seven’s result was largely in line with consensus estimates, but that “consensus estimates may need to be lowered” moving forward, due to uncertain market conditions.
Warburton said that even with mid to high single-digit decline in advertising spend, the market was still growing compared with pre-COVID-19 levels.
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