Among the creditors gathering at Sydney’s Sofitel Hotel at 10am on Monday week to hear from the Ten Network’s administrators, KordaMentha, will be representatives (and some senior executives) from some of the country’s TV major production houses. Companies like Endemol Shine — 50% owned by the Murdochs’ News Corp, ITV Australia, Fremantle, Warner Brothers, Fox Studios, CBS, Roving Enterprises and Working Dog. At stake: the future of tens of millions of dollars in format fees and other payments for dramas, comedies, sport, current affairs and other productions.
They will be after updates about the cash owed to them for their programs sold to the networks — well-known ones like MasterChef, I’m A Celebrity Get Me Out of Here, The Biggest Loser, Have You Been Paying Attention, Offspring, Australian Survivor, The Bachelor and Bachelorette, Gogglebox, The Project and more.
Some program suppliers want to know from the administrators whether their deals will make them unsecured or secured creditors. It could be some program suppliers insist the administrators change the terms of their contracts to allow the episodes to continue to be delivered. The administrators are in something of a bind — if they don’t keep paying the program makers the flow of episodes stops and Ten is left with insufficient content to fill its schedules — and to meet deals with suppliers.
[Who really killed Channel Ten?]
All will be watching to make sure a rival doesn’t get ahead of them in the payments queue — with most watching Endemol Shine closely in the belief that Ten’s biggest program supplier has a head start because of the Murdoch family links with Ten. All will be wondering if Ten has any money left. All will have noticed the claim by major shareholders, Lachlan Murdoch and Bruce Gordon in a letter to the board of Ten claiming that the company needs $100 million more by the end of July. Reported the AFR:
“The letter, a copy of which has been obtained by Chanticleer, said the billionaires understood the company would need $45 million ‘in the coming few days’. It said that the company would need to draw down $147 million by the end of this week and $173 million by the end of July.”
All will be wondering if their contracts with Ten are enforceable if the network goes into administration or collapses into receivership or liquidation. But at the back of their minds will be whether their rivals have been forced to carry Ten, as some larger groups (but not Endemol Shine?) have for the past three years or so with unusual contract terms.
[Murdoch and Gordon’s brutal, secret play for Ten]
To win TV program deals Ten forced some producers to accept very different contracts — in fact they were more finance rather than production deals where the program makers agreed to give Ten favourable trading terms. Instead of the normal payment system of an upfront payment to finance pre-production costs (which would include the idea, scripts if need be, hiring crew, cast, director and producers, location scouting, props buying and renting equipment) the production companies were told by Ten to finance that themselves, or were given a small commitment fee.
And instead of being paid by Ten as the programs aired (as is normal), some production companies report that they have had to wait for months for their payments, with the final payments being received up to six months after the final program aired. This was effectively the production companies financing Ten. That way Ten dribbled money out instead of bulky one-off payments that might have strained the finances. A sort of program supply on the never never.
All Ten had to finance its programming purchases and other costs was the $200 million revolving credit from the Commonwealth Bank. The $600 million or so in revenues was basically absorbed by staff costs, Ten’s own production costs (for news and Studio Ten, plus some sporting programs), Ten’s transmission costs (the rising cost of electricity in the past year or so has hurt the network), rents, etc.
Ten’s first half balance sheet shows a 30% rise in trade creditors — from $152.338 million in the six months to the end of February 2016, to $195.397 million in the six months to February 28 this year. The balance sheet entry for trade creditors appeared for the first time in the interim report his year — a year ago it was wrapped up in the catchall “payables”.
Much of the $47.6 million increase was due to the staggered program payments Ten was making to producers. On the other side of the balance sheet, the value of program rights jumped by just on $40 million (or 25%) to more than $183.96 million in the six months to February 28 this year.
Another figure from the company’s cash flow statement shows the squeeze Ten applies to its suppliers and employees. In the six months to the end of February 2016, Ten paid out $425.36 million to suppliers and employees, but that fell by $59 million in the latest half year period to $366.36 million. That’s despite little change in cash in from customers of $396.9 million ($397.9 million a year earlier). That’s a sign of the crimp the company has put on program and other payments.
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