The advertisers aren’t buying that. Nine hasn’t been able to command the same rates for advertising that rival and market-leader Seven has. “Seven has had a few runs on the board for the past few years,” Cox explains. “And can command a premium for being number one.”
In 2011, Nine made $1.9 billion in revenues, which included contributions from its television, ticketing and magazine division, the last of which was recently sold to a German publisher for $525 million a month ago. The company is due to release this year’s annual report in the next few days.
So much debt, so little time
What’s brought the debt situation to a head is the inability of Nine to cover the $2.9 billion portion of its debt that must be repaid or refinanced in February next year. “That’s what’s brought about the immediate situation,” says Cox. “But overall, the debt-holders have been agitating for the past year to get CVC out as an equity holder and swap their debt for equity.
“They had been treading water on this argument for the last six months, until recently. But to get major financing organised before February, they have to do it in advance. The clock was ticking.”
If the debt isn’t taken care of by February, the directors could be liable for trading while the company is insolvent.
This situation was foreseeable, says Cox. “In the short term, nothing has changed,” he says.
“What we have seen is a cyclical financial situation, where the revenue has been suffering in the whole media industry, in television and newspapers. We get that about once every 10 years in my experience. Some businesses can survive.”
Cox says both Seven and Nine suffer from too much debt, but Seven has been able to better this manage, both through how it arranged its finances and by its better ratings performance, even though its share price has suffered recently.
The standoff and the future
Like many high-stakes negotiations, there are risks for all parties.
If Nine is placed into receivership, Cox says, many of its contracts will be broken. This means its venue arrangements (through Ticketek, the event ticketing company it owns) and many of its programs could be up for grabs by rivals.
But Apollo and Oaktree argue if Nine is placed into receivership, its contracts could still be honoured.
The latest offer, which would see Goldman Sachs owning 7.5% of the company and the hedge funds owning the rest, is a compromise. Goldman originally wanted 30%, but has agreed to the lower offer on fears it will get nothing. The hedge funds still want the whole lot. It’s now up to them to “go back to their people” and see if they can accept the latest offer.
The compromise may be seen as reasonable, but Cox says some of the debt holders may prefer to simply write the whole thing off. Others might want to stick it out and see if they can get some value out of their debt.
Ultimately, if Nine isn’t placed into receivership, coming out of this ordeal with less debt bodes well for its future.
“All media is in a very difficult and challenging world at the moment,” Cox says. “The challenge coming from online will affect television, especially as the NBN leads to more on-demand and streaming services. Television will be under threat.
“When you’re looking forward as a television company, I would presume they would want to have as little debt as possible for the future. The less debt, the more protection.”
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
