The loan from the Commonwealth Bank, guaranteed by shareholders Lachlan Murdoch, Bruce Gordon and James Packer, is a bold plan to reinvigorate the struggling network which has seen ratings, revenue, earnings and return slide.
Chairman Hamish McLennan told the meeting the network was driven to turning around its performance.
“The programming execution mistakes TEN made during 2012 were unacceptable and will not be repeated,” he said.
“TEN Network’s ratings performance this year was clearly not good enough.
“We are not hiding from the fact our ratings performance in 2013 was unacceptable and that we must improve in 2014.”
To achieve this it would draw upon Event Television, Sport, Reality and “shiny floor” shows including T20 Big Bash cricket, the 2014 Winter Olympic Games, a new deal for the V8 Supercars from 2015 plus The Bachelor Australia, So You Think You Can Dance Australia, Puberty Blues and Secrets & Lies.
Much was made of the success of the tenplay launch as part of the TV Everywhere strategy. The app now as some 440,000 downloads.
“During its run, The Bachelor Australia generated more than 8.3 million video views on tenplay – 60% above forecast – and attracted more than one million unique visitors,” he said.
The network also re-focussed on the 25-54 demographic.mid-year.
“The setting of a new target market for TEN started to be reflected on air from late July on,” he said.
“From then until the end of the 2013 ratings year on November 30, we saw a 2% increase in the number of 25-to-54-year-olds watching TEN between 6pm and 10.30pm, and a 5% increase between 7.30pm and 10.30pm.”
But the meeting was not without some fireworks.
Mumbrella reports chairman Lachlan Murdoch opened the AGM with a speech that included a call on the government to be holistic in setting its upcoming media reforms. But as he did so a shareholder shouted out: ”I don’t think you should be lecturing the government here.”
AAP notes Murdoch also faced questions from an Australian Shareholders’ Association (ASA) representative about McLennan’s workload as chairman of real estate group REA Group.
Asked if he could say that McLennan was available at all times for TEN, Murdoch said McLennan was “wholly, holistically and whole-heartedly committed to all the shareholders and stakeholders of Network TEN”.
ASA representative Stephen Mayne asked whether having four billionaire directors was a workable arrangement.
Director Brian Long said no individual shareholder had undue influence on the board and that journalists wrote otherwise as copy.
There was also some creative use of statistics. TEN’s 2% increase in 25 -54s between 6pm and 10.30pm, and a 5% increase between 7.30pm and 10.30pm since July actually overlooks that TEN’s share in 25-54 from 6pm – midnight, Year on Year, has declined.
Murdoch noted half of The Bachelor‘s audience was on broadcast TV and the other half online, but the video views touted do not equate to individual people, so much as individual segments played.
Curiously McLennan also noted the network’s former 16-39 target demo was “unsustainable” however industry observers will recall TEN ditched this as the key demo quite some years ago, in pursuit of 18-49.
Nevertheless, all the proposals put forward by the Board were passed by shareholders.
Here are the speeches made by Lachlan Murdoch and Hamish McLennan:
Non-Executive Chairman, Lachlan Murdoch:
Good morning ladies and gentleman.
I am Lachlan Murdoch and this is the appointed time for the commencement of the 2013 Annual General Meeting of Ten Network Holdings Limited.
I now declare the meeting open.
On behalf of my fellow directors, I would like to extend a warm welcome to you all, and to thank you for your attendance here today.
I would also like to acknowledge the traditional owners of the land on which we meet today – the Gadigal people of the Eora nation. I respectfully acknowledge their elders, past and present.
This is the second shareholder meeting that I have attended as your Chairman and I am happy to be here in that capacity.
You should have all received a copy of the notice of meeting and I will take that as read.
The business for today’s meeting includes consideration of the financial reports for the year ended August 31, 2013.
We are also required to consider the re-election of four Directors who retire at this meeting but offer themselves for re-appointment.
I will also table the remuneration report for your consideration.
There are also items related to the proposed new financing facility and to the new Ten Executive Incentive Share Plan.
I would also like to welcome our Chief Executive Officer and Managing Director, Hamish McLennan.
Hamish joined Ten in March this year after a long and highly successful career in the marketing services and media industries, here and overseas.
His career includes six years as Global Chairman and Chief Executive Officer of the marketing services company Young & Rubicam, which employed more than 7000 people in 186 offices in 122 markets.
Hamish was the first non-American and the youngest person to run Young & Rubicam since it was founded in 1925.
Since he joined Ten, Hamish has continued as Non-Executive Chairman of REA Group, Australia’s most successful consumer digital company.
The Board of Ten felt that the experience in digital media Hamish has gained – and will continue to gain – through his involvement with REA would be extremely valuable for our Company.
Since Hamish joined the board of REA in early 2012, its market capitalisation has increased by about $3 billion and its net profit has increased more than 60%.
As I said, the knowledge and skills Hamish brings to Ten through his REA role are extremely valuable.
It is important to note that Hamish’s role at REA is that of Non-Executive Chairman. That role in no way distracts him from, or encumbers, his role at Ten.
Hamish will talk to you soon about the key changes he has made at Ten and the progress of those changes.
Financial management has been an area of particular focus for your Board and the Company this year.
At last year’s Annual General Meeting we announced a $230 million capital raising, which was successfully completed in January this year.
That capital raising – plus other initiatives over the past two years, including the sale of Eye Corp – enabled Ten to reduce its net debt from $416 million in FY 2010 to $28 million in FY 2013. Ten now has its least amount of debt in its history, and the lowest debt level in the media industry.
Later in this meeting you will be asked to vote on a resolution related to the proposed new financing facility that we announced on October 17.
As I am one of the Guarantors for the proposed new facility, it would be inappropriate for me to comment on it at this stage of the meeting. But David Gordon, the chair of the Independent Committee of the Board that undertook the refinancing work, will discuss it with you shortly.
As you know, our Company’s television revenue declined 13% during the 2013 financial year and group earnings before interest, tax, depreciation and amortisation declined 49%.
Television expenses were reduced by 9%. But our extreme discipline in costs could not offset the decline in revenue.
There has been a step change in Ten’s costs since 2011 and the Company now operates with a significantly reduced cost base.
At this reduced cost base Ten is now a primarily fixed cost business and operates in an advertising revenue market where each market share point is worth about $28 million. Any future cost growth should come solely from revenue-generating programming and some cost of sales.
As advertising markets improve and our Company’s market share improves, we are well positioned to take advantage of those improvements.
One important development that I wish to mention this morning is the development and launch of tenplay, the Company’s new digital platform.
Tenplay was largely developed internally and launched on September 30 this year. It represents a step change from Ten’s previous digital offering and has been applauded by consumers and critics as one of the most innovative television-based digital platforms in Australia.
As Hamish will discuss later, tenplay has been highly successful in terms of drawing new people to Ten’s online assets and increasing our number of video views and page views.
Since tenplay was launched, we have seen growth rates of between 15% and 120% across different parts of our digital business.
Programs across all genres are generating big audiences online, including The Bachelor Australia, MasterChef Australia, Elementary, Homeland, Neighbours, Offspring, Under The Dome and many more.
Tenplay is generating significant growth in Ten’s online advertising revenue and giving the Company a stronger presence in the online ad market. According to PricewaterhouseCoopers, that market will turn over $3.5 billion this year – up from $2.2 billion in 2010 – and grow to $4.5 billion in 2016.
The initial success of tenplay has created a solid foundation from which we can further build Ten’s digital business.
One of the interesting things about the growth of tenplay – and the growth in online video viewing in general – is that it underlines how many people are watching television content off the main screen, that is, via smartphones, tablets, desktop computers, and so on.
With The Bachelor Australia this year, about half its total audience was on television and the other half was online.
Put another way, half of its audience was in the heavily regulated free-to-air television environment and the other half was in the largely unregulated online environment.
The online sector has none of the regulatory burdens under which free-to-air television networks operate.
There are no local content requirements for the online sector. The local content quota regime does not apply to online content businesses.
Free-to-air television networks, for example, are required to show more than 4,300 hours of Australian content a year between 6am and midnight.
Included in that total are myriad quotas and sub-quotas related to specific types of programming.
With children’s programming, for example, we are required to produce 390 hours a year, at a considerable cost.
Local programming accounts for about 70% of Ten’s total programming costs. All the commercial free-to-air networks invest heavily in local content and it is fair to say that as online content becomes more popular, the free-to-air television industry’s ability to invest in local content is threatened.
Ten is successfully positioning itself for a digital and convergent future.
But the existing media regulatory framework does not reflect the rise of digital media and the convergence of media – and nor is it a level playing field.
The media industry needs a framework that is focused on the future. Media regulations must focus on how to best serve Australia for the next 100 years, not the past 100 years.
Media regulatory reforms cannot be conducted in isolation. The Government needs to look at media reform in a holistic manner, and in the context of a media industry that has changed dramatically over the past decade and will continue to change.
Earlier this year a number of ill-conceived, incremental reforms were introduced to Parliament, including the abolition of the 75% reach rule and the introduction of a subjective, highly uncertain public interest test for media mergers. Thankfully these proposals were defeated and as a result we now have an opportunity for comprehensive
reform of media regulation.
It is a mistake for the Government to cherry-pick specific issues in isolation, be it the removal of the audience reach rule, or retransmission, or anti-siphoning, or licence fees, or anything else.
Any reform of the media industry need to be comprehensive and needs to take into account all forms of media content and media distribution. It needs to take into account the rapid and revolutionary changes in the way Australians increasingly choose to consume their media, onscreen, online, in print, digital, narrow or broadcast.
In the converged media environment exactly the same content is often delivered across multiple different platforms – pay television, mobile, internet and free-to-air television –each of which is subject to a different level of regulation. Viewers may not even know which platform their content is coming from.
If competing services are not regulated or policed to the same extent, it is vital that there is a reduction in the regulatory burden on free-to-air television. A level playing field across content rules, tax levies and diversity is vital to maintain the strength and competitiveness of Australian media and its ability to continue to invest heavily in local content.
Chief Executive Officer and Managing Director, Hamish McLennan:
Thank you Lachlan and good morning ladies and gentlemen.
As you know, this is my first Annual General Meeting as Ten Network Holdings’ Chief Executive Officer and Managing Director.
I joined Ten on March 18 this year. But my connection to our Company stretches back many years. My father ran his own television production company and as a child, I spent many hours at Ten’s North Ryde studios in Sydney as Dad worked on shows such as the Amco Cup and Parkinson in Australia.
As I wrote in the 2013 Annual Review, my number one focus is to improve Ten Network’s ratings, revenue, earnings and return to shareholders. That requires a clear strategy, hard work, commitment and the right investment in our content and distribution channels.
It also takes time, but we have made a strong start to turning our Company around.
When I joined Ten Network nine months ago, it was soon apparent to me that the Company needed a new focus and a refined strategic direction.
The main TEN channel’s focus on people aged 16 to 39 was no longer sustainable, as this was a declining part of the Australian population and was increasingly of less interest to advertisers.
The launch of our youth channel ELEVEN in 2011 and the relaunch of ONE later that year had both been very successful. But we were not using the multi-channels to their full potential and we were not optimising the audience and revenue opportunities they presented.
Ten Network had a digital media strategy, but it needed to be redefined and needed to give consumers new and compelling reasons to use Ten online.
During 2012, the main TEN channel suffered because of some poor programming choices and poor production execution. At the same time, the Company’s Sales division was not operating as efficiently or effectively as it could and was not maximising revenue opportunities across all of Ten Network’s assets.
Finally, there were clear gaps in our leadership team.
Before I take you through the key changes that have occurred at Ten this year – and the early results of those changes – I want to acknowlege and thank the Company’s senior executives, many of whom are here today. They have worked tirelessly and with great passion and commitment to help turn this Company around.
I also want to thank the 1,000 employees of Ten Network for their drive, enthusiasm and dedication. It has been a challenging year, but all our staff have embraced the changes made this year.
Lachlan mentioned the proposed new financing facility, which will be discussed later in this meeting.
The facility is an important part of the turnaround plan for Ten. If it is approved by shareholders, the facility will give our Company greater operational freedom and increased flexiblity to invest in content. That investment will support our strategic plans and will be measured, prudent and consistent.
I would like to thank Lachlan Murdoch, James Packer and Bruce Gordon for their support of the proposed new financing facility and their ongoing commitment to Ten.
There have been a lot of changes at Ten Network over the past two years and, more specifically, I have made many changes since March this year.
Let me explain some of the key changes and why they make sense.
Following the sale of the Eye Corp assets in Australia, New Zealand, Indonesia and the UK in late 2012 and early 2013, Ten is a pure-play free-to-air television and digital business.
That focus, coupled with the significant cost and debt reduction program conducted since 2011, means the Company is extremely well positioned to take advantage of improvements in its audience performance and the television advertising market.
Ten Network is one of only three players in the $2.8 billion capital-city free-to-air television advertising market. We have strong relationships with major advertisers and, despite what some people assert, there is plenty of room for three viable commercial free-to-air television networks.
As mentioned earlier, the main TEN channel’s focus on younger viewers was no longer sustainable.
After extensive research and analysis, it was clear that TEN needed to focus on people aged 25 to 54. That was set as the new demographic target market for TEN. Our attitudinal target market is people who are “young at heart”.
People aged 25 to 54 are the largest and most lucrative age group for TEN to target. They represent the biggest slice of the television audience. They drive the success of the highest rating programs on Australian television.
People 25 to 54 are the age group with the biggest share of disposable income. They are the biggest spenders in key product categories such as groceries, cars, home loans, mobile phones and entertainment. Advertising campaigns aimed at 25 to 54s account for the majority of the television ad revenue market.
Key media buyers and advertisers endorse and support the strategy of focusing TEN on 25 to 54s.
The research and analysis also highlighted the need for TEN to return to offering viewers Event TV, particularly in the key program genres of reality, sport and “shiny floor” entertainment.
TEN, of course, already had Event TV programs, including MasterChef Australia, The Biggest Loser and the Australian Formula One World Championship in Melbourne.
But it needed more. Live sport sits squarely in the Event TV category: that is why this year we acquired the rights to the KFC T20 Big Bash League – which starts this Friday, December 20 – and the XXII Olympic Winter Games in Sochi, Russia, which start in early February 2014.
Event TV also includes TEN’s recent hit The Bachelor Australia and new programs for early 2014 such as So You Think You Can Dance Australia, Puberty Blues 2 and Secrets & Lies.
One of the most significant moves by Ten Network this year was the launch on September 30 of the first phase of tenplay, our new, industry-leading digital platform.
Conceived and developed in a remarkably short timeframe, tenplay gives users a vastly improved experience and starts to deliver on our TV Everywhere strategy – that is, giving people access to our content any time, anywhere and on any device.
Tenplay is already exceeding our targets in terms of advertising revenue and in terms of the number of people using and engaging with it.
I will discuss the results of tenplay in more detail soon, but it has helped turn a program such as The Bachelor Australia into a true multi-screen experience for consumers. During its run, The Bachelor Australia generated more than 8.3 million video views on tenplay – 60% above forecast – and attracted more than one million unique visitors.
Strengthening Ten Network’s management team has been one of my priorities.
This year we have recruited several key new executives, including Executive General Manager, Russel Howcroft; Chief Digital Officer, Rebekah Horne; Chief Sales Officer, Louise Barrett; Chief Brand Officer, Matt McGrath; Director of Morning Television, Adam Boland; General Counsel, Stuart Thomas; Head of Research, Analytics and Inventory Management,
Sarah Keith; and Head of Finance, Felicity Conlan.
On Monday we welcomed John Choueifate as Ten’s new Sydney Director of News, and in February Peter Meakin joins as Executive Director of News and Current Affairs.
The focus on people aged 25 to 54 and Event TV has been accompanied by a more disciplined and rigorous approach to how we commission and develop content. The programming execution mistakes Ten made during 2012 were unacceptable and will not be repeated.
Ten Network’s ratings performance this year was clearly not good enough, particularly on the main TEN channel.
But since we shifted TEN’s focus to people 25 to 54s, we have seen growth in our audience in that demographic. It is early days but we have seen increases.
Just as importantly, our advertising revenue has stabilised in recent months.
According to the latest figures from the data company SMI, from July to November Ten’s advertising grew faster than the total metropolitan free-to-air television advertising market.
Across those five months, the television advertising market increased about 4% compared with the same period in 2012, while Ten’s revenue was up 5% despite our weaker ratings.
In November alone, the market was flat while Ten’s revenue was up about 4% compared to November 2012.
These early signs of improvement underline why and how Ten Network is leveraged to capitalise on growth in our audience and the television advertising market.
There is a lot of talk these days about the rise of online media and the effect it is having on people’s media consumption habits.
But it is worth remembering that free-to-air television remains a powerful force in terms of reaching and engaging with consumers.
Free-to-air television is found in 99% of Australian homes, compared with household penetration rates of 80% for the internet, 65% for smartphones, 54% for PVRs, 33% for tablets and 28% for pay television.
About 14 million Australians watch free-to-air television every day.
Of all the time Australians spend with “screens”, watching television accounts for 95% of their video-based viewing.
While some other media are, of course, growing, free-to-air television is still the only medium that can reach big numbers of people in one hit.
The strategy for the main TEN channel is now set. It is aimed squarely at people 25 to 54, who account for the largest share of disposable income in Australia; who represent the largest share of both the free-to-air television audience and the free-to-air television advertising market; and who are the biggest spenders in key product and services
As part of the new focus on people aged 25 to 54, TEN is investing in Event TV, including premium sport and new reality and “shiny floor” programs.
The commissioning, development and execution of content for TEN has improved.
Re-setting TEN’s target market means that there is now very clear differentiation between TEN and ELEVEN, our highly successful youth-orientated channel which is aimed at 13-to-29-year-olds.
At the same time, there is a clearer distinction between TEN, ELEVEN and ONE, which targets men aged 25 and over.
All three of our television channels are clearly segmented to optimise audience and revenue potential.
Ten Network’s Sales department has been restructured and revitalised this year, making it more responsive to our clients’ needs and more strategic in how it works with clients.
Three new divisions were set up in August this year: Trading, Client Service and Generate. The restructuring was driven by feedback from advertisers and media agencies, in terms of how they wanted to work with us and how they wanted our Sales department structured.
For example, Generate is a highly focused, content-led ideas department with staff who are working with our clients to extend their strategies and brands across multiple screens – television screens, smart phones, tablets, desktop PCs, connected television sets, games consoles – and into media content.
In just three months, Generate has worked with some of Australia’s biggest advertisers. It is producing incremental revenue for Ten Network and the Generate team are currently working on more than 90 commercials.
Also in August we launched INTENSIFY, a program that offers advertising packages to small and medium-size advertisers, primarily first-time users of television advertising. The response to INTENSIFY has been very strong and it is tracking ahead of budget.
Another key development in the Sales department is the new “one screen” approach. Sales executives are selling across all Ten Network assets – TEN, ELEVEN, ONE and tenplay – and as part of that, we are bundling ads across all assets to drive incremental advertising revenue.
The setting of a new target market for TEN started to be reflected on air from late July on.
From then until the end of the 2013 ratings year on November 30, we saw a 2% increase in the number of 25-to-54-year-olds watching TEN between 6pm and 10.30pm, and a 5% increase between 7.30pm and 10.30pm.
We are not hiding from the fact our ratings performance in 2013 was unacceptable and that we must improve in 2014. But those increases from late July on are an early sign that the strategy for TEN is producing results.
The launch of the first phase of tenplay on September 30 this year was a key strategic move by Ten Network.
The tenplay digital platform is designed to transform Ten Network into a true multi-platform media content company, a company that delivers best-in-class products and audience experiences.
With tenplay, we are building audiences on and off network, and we are growing and diversifying our revenue base.
In its first month, tenplay generated very strong increases across all measures, including video views and user traffic. About 440,000 tenplay apps have been downloaded and that number continues to increase.
The second phase of the rollout of tenplay started in October. Since then, we have introduced a new TEN Eyewitness News app, launched tenplay on the new Xbox One and launched tenplay Kids.
During 2014, we will continue to expand tenplay with new content, new distribution channels – including the launch of HbbTV – and new partners.
For 2014, we are completely focused on improving Ten Network’s ratings, revenue, earnings and return to shareholders.
The main TEN channel will expand its strategy of focusing on people aged 25 to 54 with Event TV across key genres such as sport, reality, “shiny floor” and news and information.
TEN will also introduce a new 6pm weekdays family entertainment show to build our early evening audience.
The strategies for, and content of, ELEVEN and ONE will continue to be refined to ensure they are adding to the total business, while tenplay will build on and deepen its initial success.