Ten is unlucky number for Lachlan Murdoch

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When Lachlan Murdoch joined the board of Ten Network Holdings in November 2010 expectations were high that he would follow the expansionist pattern of his father, Rupert Murdoch.

Yet the Australian free-to-air broadcaster’s share price has since fallen 70 per cent to a record low, leaving its market value at just over A$500m (US$518m). Viewing figures and its audience share are down after programming blunders.

The pressure is on Lachlan, as a further loss of audience share could see Ten test its banking covenants, analysts say.

In a tough advertising market, he may have to look at a corporate solution for Ten’s problems – a takeover either by his father’s company, News Corp, or by one of Ten’s billionaire shareholders. These include James Packer, iron ore magnate Gina Rinehart and Bruce Gordon, owner of regional TV company WIN Corporation.

“The difficulty for Channel Ten is they’re suffering from the reverse halo effect. The lower audiences imply they are almost getting to the point where an agency doesn’t need to trade with them,” says Justin Diddams, Citigroup media analyst.

Programming failures and rivals’ launches of digital channels targeting Ten’s core youth market have hit ratings. RBS estimates that Ten’s main channel’s commercial audience – used by media buyers in rate negotiations – has fallen 4.7 percentage points to 23.4 per cent (excluding the Olympics) so far this year.

In contrast, rival network Nine has seen its share rise 4 percentage points to 39.9 per cent despite its debts.

In the six months to February, Ten’s revenues fell 10.75 per cent to A$431.38m, and net profits declined 70 per cent to A$14.81m.

Under Lachlan, its chairman and before that interim chief executive, Ten has shifted strategy to focus on the lower end of its target 18 to 49-year-old audience. It no longer has a dedicated sports channel and has moved away from relying on franchises such as MasterChef, toward edgier locally produced shows.

Several new programmes have flopped – a talent show hosted by Lachlan’s wife, Sarah, was axed after a few weeks because of poor ratings – and Ten’s target market of “youthful audiences” is under siege from new digital channels, social media, internet TV and downloads.

Ten recovered from similar ratings in 2001-2002 by obtaining rights to the Australian Football League and reality TV programming including Australian Idol, but this was in an easier competitive environment, says Fraser McLeish, RBS analyst.

Ten’s performance has prompted talk that it could be a takeover target for the publishing company being spun out of News Corp next year. This will contain all News Corp’s Australian assets, including its newspapers and its stake in Foxtel, the pay TV company. Analysts say the spun-off company might consider buying Ten to diversify further from print.

Peter Cox, the media consultant, said: “It seems a logical step. Rupert Murdoch has already bought his daughter’s production company, Shine. If he comes in and rescues Ten at least he doesn’t have to do it at such a ridiculous price.”

The proposed spin-off has stirred speculation of a renewed role for Lachlan at News Corp, where he was a senior executive until 2005. Rupert Murdoch will chair the new company but he has not named its chief executive.

Some people close to News Corp doubt whether Lachlan wants to return, but note that he has been seen by his father’s side at events with little connection to his Australian job, such as the launch of the Sun on Sunday newspaper in London.

But regulators might oppose a News Corp bid for Ten. Australia’s Competition and Consumer Commission is set to hand down a ruling that will effectively determine whether a pay-TV company can combine with a free-to-air broadcaster.

Lachlan could instead combine Ten with the radio company he owns – DMG Radio Australia – to create a national network of FM radio and television stations targeting young audiences. Or he could look to one of Ten’s billionaire investors.

Mr McLeish says: “The further Ten’s share price falls, the greater the chance of corporate activity, most likely in the form of a privatisation bid involving the existing shareholders, possibly supported by an industry player.”

Ten is not without attractions or turnround potential, analysts add. Citigroup estimates that every 1 percentage point change in TV advertising revenue share boosts underlying earnings A$28m. “So, pick a few higher rating programmes, and Ten is back on,” says Mr Diddams.

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