Australian Media Companies Leak Money
A significant chunk of the Australian media business, from television to tabloids, is leaking money. Already two of the three national commercial television networks are in receivership. The third station, Channel 9, owned by multimillionaire Kerry Packer, lost nearly $500 million last year. And several large radio stations have tumbled into the red. Newspapers suffer losses
Newspapers are having a hard time, too. Last month, the John Fairfax Group Ltd., which owns the Sydney Morning Herald and the Age, in Melbourne, reported a $60 million loss for its latest financial year. At the same time, Rupert Murdoch's News Corporation, which controls 60 percent of the newspaper market in Australia, merged four of his newspapers in Sydney and Melbourne. To cut his losses, Mr. Murdoch combined the Herald and the Sun in Melbourne and the Daily Telegraph and Daily Mirror in Sydney.
Despite the moves, Moody's Investors Service announced it was reviewing its credit ratings of Murdoch's company for a possible downgrading. Moody's noted the weakening operating margins and declining asset values of media properties. Even before the Moody's announcement, News Corporation stock was under pressure. Reason for red ink
Media analysts trace the red ink back to 1986 when the industry was deregulated. ``There were a lot of new entrants who were lulled into a false sense of security, but the good years did not last,'' explains Bryan Madden, director of research for Prudential Bache Securities (Australia) Ltd.
For example, networks had gotten comfortable with advertising rates that increased at a steady 10 to 12 percent a year. They could get away with the increases, says Steve Allen, managing director of AIS Media, ``because demand was ridiculously high.''
To better resist the price squeeze, the advertising community created five ``mega'' buying groups which negotiated prices for many clients. At the same time, the government put restrictions on the ads for tobacco products. Mr. Madden expects it will soon do the same for alcohol and medicines.
This year's downturn in the business climate further dried up the demand for advertising. Newspaper classified-advertising sections shriveled as recruiters stopped advertising and new housing sales dropped. ``I would think volume is off by 7 percent for all media,'' estimates Mr. Allen.
As income declined, the media moguls were squeezed by rising interest rates. Many networks had been purchased on borrowed money. This overleveraging forced Alan Bond to sell his media interests, among them Channel 9 bought by Mr. Packer.
The squeeze also forced businessman Christopher Skase last October to place Channel 7 into receivership when he could not find a new buyer. And Channel 10 went into receivership last month when its owner, Steve Cosser, the chairman of Northern Star Holdings, could not find a new investor. Fewer news sources
Media industry problems may have the broader impact of limiting the news sources available to the public. Madden says the Australian government may put off pay television, cable, or satellite television plans. ``They will want to be sure the existing networks are on sound footing,'' he explains.
According to a recent report, however, the Cabinet may decide within the next few weeks to lift the moratorium on pay television and open up four to six channels.