Seven’s ratings preview profit cut

By Jane Schulze

June 22, 2004

THE Seven Network’s poor 2004 television ratings are starting to bite into next year’s profit forecasts as analysts anticipate higher programming costs and lower TV revenue.

Broker JP Morgan had cut estimates for 2005 earnings by 7.4 per cent to $186 million, and Macquarie Equities yesterday reduced forecasts for Seven’s 2005 earnings before interest and tax by 5.4 per cent to $197.2 million.

"The weaker ratings performance of a number of new Seven programs this year will require Seven to increase its progamming spend next year as it looks to replace these shows," Macquarie said.

It also reduced expectations for Seven’s revenue next year by $6.1 million to reflect its lower ratings and the likely loss of revenue share.

Seven last week finished third nationally in the all-people prime time ratings for the fourth consecutive week.

Nine won the week with 31.2 per cent of the audience, followed by Ten on 25.1 per cent and Seven on 23.2 per cent.

Macquarie said Seven’s news and current affairs programs were performing well "but it is being let down by the lack of strength in the 8.30pm slot". It said some new prime-time programs, such as Miss Match and Tru Calling, were performing below expectations.

"Seven will have to replace these programs going forward if it is to reverse the current ratings trend," Macquarie said.

JP Morgan said there was latent value in Seven "but we believe it needs to either deliver meaningful cost discipline or ratings resurrection to see the value recognised".

Deutsche Bank had also noted Seven was struggling to hold second place in all-people ratings: "In response, cost savings are being implemented across all areas but the highly competitive market conditions are preventing any meaningful reduction in program costs to be achieved.

"A strong ad market is helping results but a ratings recovery is essential for long-term health."

Deutsche cut its forecasts for Seven’s 2005 earnings per share 5.6 per cent to 35.3c.

Citigroup warned yesterday of "significant uncertainties" that the current strength of the advertising market would continue into 2005. It preferred media stocks not as dependent on advertising, such as The News Corporation Ltd (owner of The Australian) - with pay-TV operations - and Publishing & Broadcasting Ltd - due to its large gaming exposure through Crown Casino.

But Deutsche Bank last week said it did not expect advertising demand to peak until 2006.

Seven’s shares yesterday closed 3c higher at $5.22.