Television Pays Dividends

Michael Hedges March 7, 2011 Follow on Twitter

Positive, even stunning, year-end financial results continue to roll in from television broadcasters. Yes, ad revenues are recovering. Cost control and restructuring have their benefits but does this create a dangerous blind-spot?

Year-end results from ProSiebenSat.1 Media Group were, according to the company statement (March 3), “outstanding.” Net profit in 2010 reached €312.7 million, more than double 2009. Total revenues rose 8.7% to €3 billion. Dividends will be paid.

“Higher revenues combined with efficient cost management impacted positively across all earnings,” said the statement. Revenues for the company’s German market television business rose 9.7% to €1.86 billion. Some sort of restructuring is certainly in the cards for ProSiebenSat.1 as CEO Thomas Ebeling sorts through bids for Scandinavian, Dutch and Belgian radio and television operations. Private equity giants Permira and KKR hold 88% of the company and the clock is ticking for their five-year exit plan.

Spain’s largest media house Prisa Group went through a rather dynamic restructuring in 2010, selling television channel Cuatro to Telecinco and selling a significant minority stake in pay-TV operation Digital+ to Telecinco and Spanish telecom Telefonica for €976 million. And then Prisa, itself, was acquired by Liberty Acquisitions Holdings, which injected another €650 million.

“In 2010, Prisa implemented much of its financial restructuring plan, with the consolidation and control of all its companies with the exception of Cuatro,” said the company statement.

By the end of 2010 Prisa Group managed to reduce its staggering debt to €2.9 billion. At the end of 2009 Prisa was facing €4.8 billion debt. The company reported (March 5) a consolidated net loss of €72.87 million for 2010. Much of the loss came from newspaper El Pais. Its television operation Prisa TV reported €1.372 billion revenues and its satellite TV Digital+ generated revenues of €1.133 billion. 

The World Cup helped Telecinco, owned by Mediaset, raise ad revenues 30.8% over 2009. Net profit for 2010 was €164.3 million, reported February 25th. Sports, football in particular, boosted ad revenues at LaSexta 39.5%. Revenues at the Disney Channel, just to show the degree to which ad spending is flowing to all corners of television, was up more than 300%.

Spain’s “conventional” ad market grew 3.9% in 2010 to €5.849 billion from €5.631 billion in 2009, according to Infoadex (February 28). It was the first increase in annual ad spending since 2007. Overall TV ad revenue rose 4%, with national channels up 2.3% to €2.129 billion. “Unconventional” advertising – direct mail, sponsorships, catalogs and the like – makes up 54.6% of all ad spending in Spain and actually decreased 0.6% to €7.034 billion.

The bump in television ad spending, said Infoadex vice president Javier Barón in a presentation, had a simple explanation. A government-mandated reduction in ads on public broadcaster TVE put more than €400 million in the market plus commercial broadcaster were able to raise ad rates. He predicts a 2% growth in overall ad spending in 2011.

Restructuring and cost control also boosted Central European Media Enterprises (CME) 2010 financial results. The year-end net loss was only US$26 million. CME will continued to be “very disciplined,” said CEO Adrian Sarbu to Bloomberg (February 22). That, of course, means cost cutting. Media watchers in both the Czech Republic and Bulgaria note less local origination at CME stations and more programming acquired from low cost producers in Turkey. TV Nova, however, has resurrected a locally produced police procedural Criminal Angel, which it had dropped in 2009 because of declining ad revenues.

“2010 was our first year of operating as a fully vertically integrated media company,” said Mr. Sarbu in a company statement (February 22).  “We now run six leading broadcast operations, an integrated content division, Media Pro Entertainment, and a rapidly growing new media segment. In 2011 we expect all our markets to recover. Our priority is to deliver growth in revenues, OIBDA (operating income before depreciation and amortization) and free cash flow.” CME acquired Bulgarian television and radio broadcaster bTV from News Corporation and “disposed of” Ukraine channels Studio 1+1 and Kino in 2010.

So happy at the news Time Warner raised its stake in CME (March 3) to a bit over 30%, buying out private equity Testora Limited, paying US$19.45 a share. Time Warner now holds, through Class A and B stock, 47% voting shares. By agreement, the Time Warner stake is voted by CME principal Ronald Lauder until 2013. Time Warner got a good deal as CME shares were trading at a two year low.

Dividends will also return to ITV shareholders, said chief executive Adam Crozier when announcing positive 2010 results (March 2). Profits rose to £321 million from £108 million one year on. Crozier put ITV through a “transformation” last year, seeking “independence from the advertising market.” ITV Studios are now producing hit shows. The turnaround for ITV, which posted a £2.7 billion loss in 2008, has come largely from the overall rebound of the UK ad market. And now product placement has come to the UK.

As ad spending continues to shift, television is widening its dominance. Other media sectors, online excepted, are seeing suffering. It’s an easy call for the ad people; TV is big, easy to buy and the audience is watching. Broadcasters, though, still need to deliver, something cost control and financial restructuring never guarantees.

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