Switching off: Lessons from the Ten Network takeover
Despite boasting several billionaires as interested shareholders, Australia’s Ten Network went into voluntary administration over a $200 million loan. Chris Sheedy asks, what lessons can we learn?
The fact that Ten’s market capitalisation dropped from $387 million to $59 million in 12 months, and that its major shareholders refused to guarantee a $200 million lifeline of credit from the Commonwealth Bank, speaks volumes about the business in its current form.
Ten Network had faced the situation previously, and always found a way to survive and thrive, but it had never faced such inescapable challenges from outside its own industry and from within its own shareholder network.
The Network has now recently completed their acquisition by CBS Corporation in November 2017, but an analysis of their journey from administration to potentially being owned by two billionaire shareholders is an important case study for business.
What happened to Ten’s niche?
Just a few years ago, Ten Network was the darling of the Australian television environment. It was the little network that could. Never a ratings winner or a heavyweight in the TV world, instead it profited admirably by attracting a specific valuable audience – young viewers, mainly 18 to 35s.
In the 1990s, Ten enjoyed healthy advertising revenue as series such as Seinfeld, Melrose Place and Twin Peaks attracted attention that advertisers craved. As Australia’s other two commercial networks, Seven and Nine, engaged in an expensive battle for ratings supremacy, Ten instead carved out a comfortable niche.
They extended their news coverage – a move that shareholders Lachlan Murdoch and James Packer are said to have described as ‘madness’.
On the day Princess Diana died, as Seven and Nine suspended normal programming and filled the airwaves with hours upon hours of repetitive news footage, Ten screened The Simpsons. It was a moment that defined perfectly the gaping differences between ratings behemoths and a station that knew its identity.
More recently, management changed tack. They extended their news coverage – a move that shareholders Lachlan Murdoch and James Packer are said to have described as ‘madness’.
In an environment where the network’s valuable audience was already being stolen away by streaming businesses such as Netflix and YouTube, Ten was further alienating its viewers by expanding news. But for every few failures, there was a hit that kept the network afloat. The Project was (and still is) a lively and unique news format that connected with Ten’s traditional audience. And ratings juggernaut Masterchef brought in the sorts of viewer figures usually reserved for the other commercial networks.
Ten couldn’t compete with the on-demand nature of a streaming service.
However, Ten couldn’t compete with the on-demand nature of a streaming service. Only quality programming would keep viewers tuned in, and popular shows come at a cost. Ten was renegotiating content deals with major US production houses when the voluntary administration was announced.
The network faced a catch-22: shift directions and alienate viewers or hold steady and continue to see the audience trickle away. All of this was also playing out in the strict Australian media-ownership environment, where regulation known as the ‘two-out-of-three rule’ means companies cannot hold a controlling interest in more than two businesses operating in TV, radio or print media in the same region.
When guarantors were required for the $200 million operating loan from the Commonwealth Bank, billionaires Lachlan Murdoch and Bruce Gordon refused to come to the rescue. There was no choice but for the administrators to be called in.
Having refused to back the finance package, shareholders Murdoch and Gordon suggested that they could form a joint venture to restructure the network.
Having refused to back the finance package, shareholders Murdoch and Gordon suggested that they could form a joint venture to restructure the network, leading to the pair taking ownership of the organisation and going private if media laws were relaxed.
Their bid was cleared in August 2017 by the Australian Competition and Consumer Commission, on the basis that their takeover would not cause "substantial lessening" of competition. However, by the end of September 2017 the NSW Supreme Court ruled that any requests by Murdoch and Gordon to restrain a creditor meeting (who believed a CBS takeover would be favourable) would be put aside, leaving creditors to vote for competitors CBS.
What can be learnt?
When analysing a company or conducting a risk assessment in the modern business environment, there is so much more that must be considered beyond profit, people and performance.
Ten Network faced challenges in 2017 unheard of even five years ago. And when the business’s very survival depends on a loan guaranteed by two or three high net-worth individuals who don’t necessarily agree with the direction of travel, chances of success are significantly challenged.
High-stakes games are nothing new in the world of business and they will likely become more regular as the pace of change and disruption increases. For those interested in the challenges of running a successful business, this episode of the Ten Network may eventually present a fascinating case study of a business that is under attack from all angles.
About the author
Chris Sheedy is one of Australia’s busiest and most successful freelance writers. He has been published regularly in the Sydney Morning Herald, Virgin Australia Voyeur, The Australian Magazine, GQ, In The Black, Cadillac, Management Today, Men’s Fitness and countless other big-brand publications. He is frequently commissioned to carry out copywriting and corporate writing projects for organisations, including banks, universities, television networks, restaurant chains and major charities, through his business The Hard Word.