Paul McIntyre: Seven Network turns screw on Packer

Seven network this week came within a whisker of smashing Channel Nine's 30-year grip on the country's biggest television treasure chest, with just A$2 million now separating the two arch-rivals in the A$2.8 billion annual metropolitan TV ad market.

The news shocked media observers and the Packer-controlled Nine. It is no secret the once untouchable broadcaster has struggled this year, but no one was expecting the extent of the collapse in its revenue base just revealed.

Nine's chief executive, Eddie McGuire, admitted the ratings and revenue battle with Seven was unprecedented, but remained defiant about Seven closing a A$92 million gap on Nine in the first six months of 2006.

But already some industry observers are predicting that by December, Seven will sink Nine's decades-long claim to the top TV revenue slot. And two years of Nine hauling in A$1 billion in annual revenues has also just been broken - for the 12 months to June, the broadcaster's take from the five mainland capital cities slipped to A$997 million.

Had it not been for Nine stuffing additional advertising dollars into its bag from hosting the Commonwealth Games this year, the figure would have been at least A$30 million lower and its long rule over TV advertising would have crumbled. Already it is clear that Nine's once-defiant demand that advertisers pay a minimum 10 per cent premium for simply being on Nine has vanished.

"The way I read the tea leaves right now, Seven will be number one in the [December] half," said media analyst Steve Allen from Fusion Strategy.

Seven's revenue surge in the latest industry figures from industry group Free TV gave it 36.4 per cent of the A$1.2 billion metro TV ad market for the six months to June, just behind Nine on 36.6 per cent and well ahead of a faltering Ten Network on 27 per cent.

McGuire did not rule out Nine's revenue base slipping further: "It's going to be a tight fight."

Apart from Seven's market-share romp, the news for the free-to-air TV sector overall was not good - the TV ad market declined 1.2 per cent to A$1.2 billion for the six months to June from a combination of a softening ad market and a continuing push from major advertisers to move their dollars to other media options.

The giant global consumer goods group Unilever is a case in point. It generates A$1.5 billion in sales from its New Zealand and Australian operation and spends about A$150 million on media advertising and broader marketing promotions. The Australia and New Zealand marketing head for Unilever's foods and icecream business, David McNeil, publicly flagged this week why major advertisers are making media owners nervous.

"We spend a little under 50 per cent of our advertising budget on TV," he said. "Three years ago it would have been around 85 per cent. So two things have happened. The TV mix has shifted from 80-90 per cent and we're spending not far off 50 per cent more in advertising and promotions than we did two years ago. The increase is going into lots of channels, traditional and non-traditional."

Those sorts of changes are spooking media owners with traditional media assets, and it is a key reason why McGuire and the chief executive of Seven, David Leckie, were both rumbling this week about their new-found passion for a global media buzzword - integrated or cross-platform media advertising deals.

The idea is particularly relevant for companies which have media assets in different sectors - PBL, for instance, has Nine in TV, ACP in magazines and Australia's biggest online player, ninemsn. Seven also owns a major magazine publisher, Pacific Publications, along with the rapidly growing Yahoo!7 joint venture.

TV executives privately disclosed this week that the 1.2 per cent decline they were hit with in the metro TV ad market in the June half could have been arrested had they been more committed to their cross-platform advertising initiatives.

"If the networks think its all about TV ads, we're in shite," one said.

Hence McGuire unveiled a new cross-media unit for PBL which is being established at Nine, called Nine Integration. He said it was absolutely central to the future. The idea, however, is nothing new. PBL executive chairman James Packer made a loud call for such thinking from his media companies in the late 1990s and ironically, the most resistance came from Nine. It was still king and deemed the whole idea unnecessary. But fast-forward five years and suddenly Nine's TV boss is committing to helping other PBL media companies so that Nine too can be helped.

Collectively the TV networks figure there's at least A$50 million in incremental revenues from cross-platform deals over the next year.

Beyond that they won't estimate, but the deals will need to quickly produce results in the hundreds of millions. Otherwise the impact from digital media options such as podcasting and internet advertising will continue their march into traditional media's revenue heartland.