Market Insight

CBS to pay $162 million to acquire struggling Ten Network

September 11, 2017


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CBS is to pay A$201 million ($162 million) in cash to acquire Australian commercial free-to-air broadcaster Network Ten, which is currently trading under administration. The US major agreed to take control of the debt-ridden Ten Network in August. The agreed price was disclosed earlier today by the administrators in a report published in response to legal action by Bruce Gordon and Lachlan Murdoch, who made a competing offer to buy Ten. A court hearing on their offer is being held this week. A meeting of creditors to discuss the report was delayed to next week by the action.

Ten Network operates four free-to-air digital terrestrial television (DTT) channels: its flagship channel Ten, Ten HD, Eleven and One. The company went into administration in June 2017. CBS already owns a 33% stake in Eleven, and is one of Ten's main creditors alongside 21st Century Fox and others including Formula One and Warner Bros. The administrators believe the CBS offer would  return a slightly larger amount to creditors than the rival bid.  

Another factor is that current media ownership regulation would prevent Gordon and Murdoch from owning Ten due to their other interests, including newspapers and radio stations for Murdoch and Gordon's regional Win Television network. These would however, be lifted in a media reform bill which is about to be debated in Parliament. The media reform package plans to scrap the ‘two-out-of-three’ rule that prohibits a company controlling more than three traditional media platforms – print, radio or TV – in a single market. It will also axe the rule that prevents any TV broadcaster from reaching more than 75% of the population. 

Our analysis

Aside from its debt problems, Network Ten has been performing strongly, reporting a 2.1% increase in TV revenue in its fiscal first half year to the end of February 2017 and a share of 25.2% of the commercial audience. Digital revenues were up 17%, thanks to its Tenplay catch-up platform and social media channels like Facebook and Twitter. However, the overall context of the Australian TV market is difficult; TV advertising revenues are stagnating, with IHS Markit Advertising Intelligence forecasting a modest 1% increase this year to A$2.64 billion ($2.12 billion) following three successive years of 1% declines.

Australia is a highly competitive free-to-air market. Ten competes for ad revenue against two other private commercial TV groups, Seven and Nine, as well as global media giants such as Facebook and Google. However, significant immediate financial relief for Australia’s free-to-air broadcasters is in sight. Under the media reform bill, the government will abolish the A$140 million ($103 million) in annual licence fees paid by the country’s free-to-air TV networks. Replacing the licence fee will be a new A$40 million ($29.4 million) annual charge for spectrum use.

For CBS, the move into Australian TV would not be a venture into completely unknown territory given its stake in Eleven and its long-standing programming supply relationship with Ten. Compared to other US groups, CBS is very domestically-focused, via joint ventures wth AMC in Europe and RTL in Asia, its only moves into international programming. CBS does, however, export its programming widely, whether with US network franchises like CSI and NCIS or the output of pay TV network Showtime.

Despite much locally-produced programming supported by content quotas and funding schemes, Australia has a strong appetite for US programming. Most successful US shows export quickly down under, often through long-term studio output deals. The country could also prove fertile ground for its CBS All Access subscription video-on-demand service, which reports suggest CBS may launch there. 

Geography
Australia
Research by Market
Media & Advertising
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