More than $6 billion in writedowns were charged to the balance sheets of media companies during profit reporting season as the realities of the modern world caught up with the sector.
The long-term structural shifts of audiences and a pronounced downturn in advertising spending, which hit some companies harder than others, led to billion-dollar impairment charges.
Fairfax Media wrote down the value of its assets to the tune of $2.98bn, News Corporation (publisher of The Australian) issued a $US2.8bn charge and APN News & Media slashed the value of its New Zealand assets by $NZ485 million ($320m).
Seven Group Holdings also weighed in and cut the value of its 32.5 per cent stake in Seven West Media by $483.5m.
Earnings before interest, taxes, depreciation, and amortisation - the best measure of underlying performance - was a mixed bag depending on which pocket of the media sector was being examined.
Fairfax Media chief executive Greg Hywood said the downturn in the advertising market was the worst he had experienced since becoming a journalist in the 1970s.
But the pure play digital media companies had reason to cheer. Realestate.com publisher REA Group, which is majority-owned by News Limited, Carsales.com, and jobs website SEEK all posted substantial double digit gains.
"They report their numbers, disappear, beaver away and amass targeted national audiences that advertisers are enjoying and getting a lot of cut through with so it's not all dire," Citi equities analyst Justin Diddams said.
"It's only dire for a couple of players who are losing share."
Southern Cross Austereo posted a solid result, with EBITDA up more than 40 per cent. Chief executive Rhys Holleran told Media the result was testament to the "thesis of diversity", with a downturn in ad revenue from the company's TV assets parried by gains in other parts of the business.
"A lot of clients like to see the portfolio effect when times are difficult," Mr Holleran said after SCA reported its first full result since Southern Cross Media acquired Austereo Group.
Although some media companies have already taken steps to reduce heavy debt, with Seven undertaking a $440m capital raising ahead of profit season, profit season revealed that some were still carrying alarming levels of debt, which will continue to weigh down on earnings.
"Very small changes in revenues can have a large ripple effect on earnings and subsequently cash generation and balance sheet metrics. Sometimes it can be a very small thread that can unravel the whole thing," Mr Diddams said.
This also means media company chief executives will focus on reducing costs in the year ahead. The trick will be balancing cuts against a reduction in the quality of content and output.
"It's just a reality," Seven Group chief executive Peter Gammell told Media.
"If the advertising market is not growing strongly, you can't afford costs to blow out, and the reality is we all need to accept a low-growth environment. And in this environment we have to challenge our previous ways of doing business to be more efficient, otherwise we just go backwards."
PwC expects Australia's total entertainment and media market to grow at a 4.1 per cent compound annual growth rate to $38.2bn in 2016.
Growth will be subdued in the near term, Mr Diddams says.
"At this stage, if you have an optimistic outlook, the total ad market should post 1 to 2 per cent growth in financial year 2013; and if it's flat, that's still a good result," he said.
No comments:
Post a Comment