Mixed results for Seven, Nine nets

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The ratings battle between Kerry Stokes' Seven Network and James Packer's Nine Network is starting to affect their bottom lines.

An ever-improving Seven Network showed a lift in earnings and profitability in its half-year financial results reported Thursday, while the Nine Network's on-air struggles translated to a drop in revenue and earnings, its parent, Publishing and Broadcasting Ltd., said Friday.

At the same time, both networks' parent companies have tipped their media assets into new joint venture companies, partnering with private-equity groups to recapitalize their businesses.

PBL executive chairman Packer on Friday called the recapitalization of PBL's TV, magazine and some online assets a "defining transaction." The deal, announced in October, saw PBL partner with CVC Asia Pacific in PBL Media, giving PBL a war chest of AUS$3 billion ($2.3 billion) with which to further its gaming ambitions.

In an almost identical deal, Seven in November partnered with Kohlberg Kravis Roberts to create the Seven Media group, netting Seven Network Ltd. AUS$2.5 billion ($1.9 billion). That will finance further acquisitions in the media sector, both in Australia and offshore, Seven director Peter Gammell said Thursday.

Meanwhile, Seven reported that its TV division earnings rose 29% to AUS$197 million ($152 million) with revenue increasing AUS$55 million ($42.4 million) in the period to AUS$569 million ($438 million). TV ad revenue was up 10% after Seven lifted its share of TV ad revenue to 35.9% in the second half, which Seven CEO David Leckie called a "strong result considering the overall TV ad market was down 0.97%."

Including its magazine business and online joint venture with Yahoo! Inc., Seven Network Ltd. posted a massive 72.2% lift in second half after-tax profit to AUS$112 million ($86.2 million).

While Seven finished last year's ratings year second to the Nine Network, early results this year are showing Seven 0.1 share points away from the lead in primetime, the company said. Adding to its strong slate of U.S. dramas and local entertainment and factual shows, such new dramas as "Heroes" and "Ugly Betty" debuted to audiences of more than 2 million and are proving to be time slot winners. Seven said it is leading rivals Nine and Ten in breakfast television and news and public affairs.

Meanwhile, the Nine Network reported a 2.9% drop in revenue for the second half to AUS$453 million ($349 million), while earnings fell 2.1% to AUS$145.8 million ($112 million).

PBL's Packer said its traditional media is "facing a more challenging competitive and revenue environment and management continues to reposition for growth and expansion while protecting margins."

PBL, however, executives told analysts that the company believes it has arrested the earnings decline at its TV and magazine businesses via good cost control.

Better performers for PBL were its investments in new media and Internet businesses, including pay TV group Foxtel, in which it has a 25% stake, and the Premier Media Group, and film exhibition and distribution company Hoyts.

Foxtel recorded a 14% revenue increase to AUS$687 million ($529 million) in the half and a AUS$22 million ($17 million) profit, following a 10% lift in subscribers to 1.3 million. PBL said Premier Media Group, jointly owned with News Corp. and which runs the Fox Sports channels, had turned a half-year profit of AUS$38.2 million ($29.4 million). PBL's 50% stake in Hoyts, meanwhile, contributed a AUS$2.7 million profit rise to AUS$7.7 million ($5.9 million) thanks to a rise in cinema admissions.

Overall, PBL lifted its net profit just 1.3% to AUS$356 million ($274 million), with its gaming interest contributing more than 52% of the group's earnings.
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