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MediaWorks bets on local talent in prime time to rescue Three - and profitability

Wednesday 30th May 2018

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MediaWorks Investments says rebranding its TV product, and an obsessive focus on prime time local content and the 25-54 demographic will see the company move back to profitability - potentially this year.

Though it’s fair to say any upswing is creeping only slowly into its annual result.

Total revenue for the free-to-air TV and radio broadcaster increased a little over 1 percent to $300.2 million for the year to December 2017 and net losses were cut from $14.8 million to $5.7 million.

As of the end of 2017, MediaWorks had net assets of $218.3 million ($215m in 2016), negative working capital of $54.6 million ($57.3m) and cash balances of $27.9 million ($22.6m).

TV revenue dropped fractionally, from $130 million to $129 million, while radio, the jewel in the MediaWorks crown, increased revenue 2.6 percent to $159 million. Digital made $11.6 million, almost unchanged for the last two years.

You might be forgiven for thinking MediaWorks CEO Michael Anderson, who replaced former NZX boss Mark Weldon in August 2016, has a tough job. Okay, he gets to hobnob with Dancing with the Stars winners and celebrity hosts like Jono and Ben whenever he wants.

But from a corporate point of view, he’s caught between a rock and a hard place.

The rock is MediaWorks’ 100 percent owner Oaktree Capital (or its investment arm Tokyo Opportunities BV). By its very nature Oaktree, a private equity firm, is not a committed long-term investor; it could go looking for an out-clause at any stage. And probably is, if only it could find one.

The hard place is a being a media company at a time when viewers have a plethora of choices that don’t involve free-to-air TV and radio, advertisers are deserting mainstream media and competition is increasing almost weekly.

Oh, and MediaWorks is also having to renegotiate $93 million-worth of borrowings that expire in November, including a $20 million working capital facility. While group financial controller Barry Sadlier says he’s confident there won’t be any problem finalising the financing, the company still had to recognise a “material uncertainty” in the notes to the financial statements around breaching its covenants and reworking its term and working capital facilities.

Still, Anderson remains upbeat. He says the close-to-flat revenue performance, red-ink bottom line, and lower TV revenue belie a stronger second half 2017, and he anticipates that continuing this year.

In February 2017, the company made some significant changes in what was then TV3, Anderson says. Most visible was the rebranding to Three, but there was also a strategic change in focus.

“It became clear free-to-air depends on local content, [as audiences can get their international shows on any number of other channels]. So we focussed on local, but also on 25-54-year-olds - the most lucrative demographic. Finally, we focussed all our investment into prime time - 6pm-8.30pm.”

Anderson says research suggests audiences drop off significantly after 8.30pm when people switch from free-to-air TV to other activities or devices. MediaWorks decided not to waste its money when hardly anyone was watching.

The strategy has driven audience ratings up, which is good for advertising sales, Anderson says. The company grew its peak 25-54 share from 19.1 percent to 20 percent in 2017, and it’s tracking well for 2018, although Anderson notes in such a volatile market, anything could happen over the next nine months.

Another consequence of the focus on prime time has been cutting costs elsewhere, he says.

“It meant we could achieve efficiencies in non-prime time. There’s lots of good-quality, low-price, international content to fill time slots outside peak. And the cost savings went straight to the bottom line.”

Programming and production costs dropped from $104.1 million in 2016 to $98.7 million last year, which helped trim total costs a tad to $282.3 million.

Anderson says there aren’t specific cuts planned for 2018, but some may come out of the change in strategy.

He says focussing on local programming has allowed for increasing synergies between radio, TV and digital. For example, the AM television show is also the Radio Live breakfast show. Comedians Jono and Ben do both radio and TV presenting, and NewsHub feeds news onto Three, the music stations, Radio Live and the website.

“We’re starting to able to leverage the local feel and we are refining that each year, and that is an advantage from an advertising perspective. The market is fragmented and when we can consolidate it for them and weave creative across platforms, it makes it easier for advertisers."

Anderson says this gives MediaWorks a competitive advantage and the strategy is starting to make money for the company. “

“Our job now is to maximise the revenue.”


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