Ten shares tumble as profit sags

SYDNEY - Ten Network Holdings, Australia's third-ranked television broadcaster, said first-half profit fell 22 per cent as advertising spending slowed and it failed to produce top-rating shows. Ten shares fell sharply.

Net income dropped to A$42.9 million ($50.2 million) in the six months ended February 28, from A$54.8 million a year ago, the Sydney-based company said in a statement to the Australian Stock Exchange.

Sales fell 5.5 per cent to A$464.5 million.

Executive chairman Nick Falloon posted a 7.7 per cent fall in television sales after mainstays of Ten's schedule such as Australian Idol and Big Brother lost viewers. New programmes including diet contest The Biggest Loser have failed to stop some advertisers shifting to Seven Network, which leads ratings with Desperate Housewives and Lost.

"The content that Ten has isn't working as well as that of the other networks," said Tim Johnston at Tyndall Investment Management in Sydney. "The ratings decline we've seen over the last 12 months is starting to be reflected in revenue."

Falloon said he did not expect to match last year's television result. "With the end of the long advertising boom, the competitive ratings environment and major sporting events impacting the start of 2006, we anticipated a different landscape this year and planned accordingly," he said. Ten shares fell 11c, or 3.6 per cent, to A$2.94 at the close in Sydney. They slid as much as 6.9 per cent earlier in the day as profit fell short of the A$49.8 million expected in a median estimate of five analysts surveyed by Bloomberg.

"The market has obviously not paid heed" to the cautious profit guidance Ten gave at its shareholder meeting in December, said Greg Fraser, a media analyst at Shaw Stockbroking in Sydney.

"The TV market has been slowing from record levels in 2005, so in this context, this is a very good result."

Ten was the biggest loser among Australia's three commercial networks last year, with its overall audience share falling 1.9 points to 21.9 per cent as talent shows The X Factor and Australian Idol failed to retain viewers.

Still, it defended its ratings lead with viewers aged 16 to 39, prized by advertisers because of their spending power.

Advertising spending in Australia's five biggest cities fell 1.8 per cent to A$1.48 billion in the second half of 2005, with Ten's market share falling to 30.9 per cent from 31.5 per cent a year earlier. Seven gained 2 per cent to 32.9 per cent, according to industry body Free TV Australia.

Ten's advertising sales in March, the first month of the current half, were "significantly" lower because of pressure on ratings and Nine's Commonwealth Games, Falloon said. "After March we're seeing some positive signs in the revenue market, but it's way too early to call," he said.

The television advertising market should expand by no more than 4 per cent this year, Falloon said, cutting a December forecast for as much as 5 per cent growth.

The network will cut its forecast spending accordingly to 4 per cent, he said.

Earnings before interest, tax, depreciation and amortisation at Ten's TV business fell 19.6 per cent to A$156 million in the half. Earnings at Ten's Eye Corp outdoor advertising division rose less than 1 per cent to A$14.5 million.

Ten and Seven won the broadcast rights for the Australian Football League from 2007 in a joint A$780 million bid in January. It was the most expensive broadcast deal in Australia's sporting history.

Ten and Seven had started negotiations with Foxtel Management, the nation's biggest pay-TV provider, to on-sell some of the games, Falloon said.

Ten is 58 per cent owned by Winnipeg-based CanWest Global Communications. It will pay shareholders a first-half dividend of 12c a share.

- BLOOMBERG