Reality bites at MediaWorks as profits halve

MediaWorks acting chief executive David Chalmers. Supplied 1st June 2016 by Mediaworks

MediaWorks blamed a soft television market for a profit slump as the company sought to steady itself after controversial chief executive Mark Weldon's departure.

Acting chief executive David Chalmers yesterday provided figures showing the TV3-owner saw earnings before interest, tax, depreciation and amortisation (ebitda) nearly halve in the year to December 2015, mostly due to stagnant television advertising and a suite of big-budget reality programmes that ramped up production costs.

Chalmers told the Herald while conditions were challenging they wouldn't see an about-face in the company's strategy of focussing on local content production.

"That's not a great combination, in terms of getting the results you want ... but irrespective of cycles, you need to have that presence in the market," he said.

Weldon, the company's former chief executive and architect of the reality programme strategy, had been tasked with restructuring a company facing industry-wide pressures on revenues and costs, but resigned suddenly last month in the aftermath of long-time news anchor Hilary Barry's shock departure.

Weldon had earlier made high-profile calls to axe current affairs shows Campbell Live and 3D, and set up Paul Henry to front a multi-platform breakfast show.

Chalmers paid tribute to the work of his predecessor and said the past year had seen the company integrate its radio, television and online branches and merge disparate newsrooms in Newshub.

Figures show MediaWorks' debt position is considerably more settled than it has been in recent years with equity ($215.5 million) now exceeding liabilities ($146.5 million) by a considerable margin.

At its peak under previous private equity owners Ironbridge, the company's liabilities peaked at $797 million before lenders pulled the pin and triggered a receivership and substantial writedowns of the amount owed.

Los Angeles-based vulture fund Oaktree Capital emerged as the company's sole owner and appointed former NZX boss Weldon as chief executive.

The fund is now also the company's main lender, and on Christmas Eve annual repayments were met through an equity issue rather than taking cash out of the business.

Chalmers paid tribute to the radio component of MediaWorks which propped up the sagging earnings in television.

"Radio is the biggest part of our business - in revenue and earnings. That was the case in '14, is in '15 and will likely be in '16," he said.

Part of this tumultuous history is reflected in financial years being of inconsistent lengths and difficult to compare, either changed to match that of clients or interrupted by receivership.

Taking these differing reporting periods into account, Chalmers' figures tell the story of Weldon's strategies running headlong into soft television advertising and sharply rising production posts.

Normalised figures, calculated by the Herald, show revenue rose 1.5 per cent for the year, with the rise far outstripped by a 10.4 per cent rise in costs. The combination saw trading income slide 42.3 per cent.

Total advertising revenue of $274.4 million was on the back of a 6.7 per cent rise in radio receipts just outweighing a 4 per cent decline in television advertising earnings.

Chalmers noted the 2015 figures included two Decembers - bumper seasons for advertising - and any normalised results for this period were likely to be overly generous.

The company had used receivership to terminate many expensive output deals, seeing costs for content decline substantially in 2014 - but Weldon's reality strategy reversed these savings.

The hitching of MediaWorks to a number of high-profile and expensive series such as The Bachelor, The Block, Masterchef and Dancing With the Stars saw normalised costs for content and production rise 14.8 per cent to $122.6 million.

Chalmers said decisions had yet to be made about commissioning shows for 2017, but noted the second season of The Bachelor had performed well.

The figures for the 2015 year were provided by Chalmers in a briefing to media. He said MediaWorks would not be filing audited accounts to the Companies Office this year and the company had assurances from the Companies Office that such filings were not required at present.

Asked if he would - in lieu of publishing the accounts on the Companies Office - provide a copy of them to the Herald, Chalmers replied in the negative.

"No we won't. Part of the privilege of being in a private equity situation is the ability to reorganise in private," he said.

MediaWorks are currently searching to find a permanent replacement for Weldon and Chalmers said he would consider applying for the job.