Power without profit: why Stokes retains the failed Seven network

Who thinks Seven West Media (SWM) is a good investment at the moment? This week, the company revealed its half-year profits had halved as a result of falling revenue and rising costs. Management told investors that, once again, there would be no dividend.

There’s been no SWM dividend since 2017, when investors were told there would be a “temporary” pause on dividends. In 2019 the company suffered the ignominy of being dropped from the ASX 200, Australia’s premier list of listed companies. When that happened, its shares were 48 cents. Its share price is now 24 cents, with occasional ventures to 23 cents this week, and its market capitalisation is just $350 million.

When it was formed more than a decade ago by the merger of West Australian Newspapers and the Seven Media Group, it briefly had a market value of $4.1 billion. The company is also carrying $257 million worth of net debt. The company is spending millions of dollars supporting its shares in a buyback, which is keeping the shares around the 24-cent mark. According to the company’s latest accounts, over 14 millions shares, worth $3.86 million, were purchased in the six months to December 31, 2023.

Seven’s management continues to insist things will come good and they still “believe in the power of television”, but its sludgy mix of facile reality TV, sports and right-wing news and current affairs hardly looks appealing.

One of the few people who does think the company is a buy is Kerry Stokes. His Seven Group Holdings has increased its minority shareholding to above 40% — but not for financial reasons. Seven Group has now written nearly a quarter of a billion dollars off the value of its stake in SWM since 2021-22: $83.4 million in 2021-22, $75.9 million in 2022-23, and the largest of the lot, $90.2 million in the December half of 2023-24.

The latest impairment sits pretty poorly with all the brave talk from the War Criminals’ Network about the coming turnaround — though Seven Group Holdings’ stake was valued at $167.1 million at the end of December, which values SWM at around $417 million, well above the $350 million the company is capitalised at this week.

In its 2022-23 annual report, Seven Group was brutally honest about why it was persisting with its shareholding. In the notes to its financial accounts in the annual report, Seven Group explained that Seven West “is the leading listed national multi-platform media business based in Australia. The group’s investment in Seven West Media is held for strategic purposes”.

There you go: “strategic purposes” — a phrase that didn’t appear in the 2021-22 annual report or Tuesday’s 2023-24 interim report.

Why “strategic”? Seven is one of three weakly performing free-to-air linear TV networks with little commercial future. But it can still aggregate lots of eyeballs for its reliably pro-Coalition news and current affairs, and it remains part of the news ecosystem, which gives it political influence. The real power is in Perth, where SWM controls The West Australian as well.

That paper functions as the in-house newsletter and chief enforcer of the mining and fossil fuel lobby that controls that state and its government-for-hire, currently managed by WA Labor. Kerry Stokes and Gina Rinehart dominate the place — their only challenger is Andrew Forrest, who is slowly sounding more and more like a Greens MP, except one with billions of dollars at his disposal.

With WA crucial to Labor’s reelection chances federally, owning the only newspaper and a TV outlet allows Stokes to influence local and national politicians in a way that’s never reflected in SWM’s rotten share price.

But that power comes at a cost for Stokes. How many more impairments can SWM inflict on its largest shareholder? Perhaps Stokes could look for a partner. One possibility is a sports betting company like Sportsbet (owned by Irish group, Flutter). The Financial Review reported this week that at least one betting company was sniffing around for free-to-air spectrum to screen animal torture for betting. But why rent when you could buy a big stake in the whole joint for tuppence?

Or there’s the AFL, which might find a 50% stake in a free-to-air network appealing. The AFL could easily find the money, and have its own national broadcasting operation. Plus the power that comes from continuing to be a big dinosaur even in a world headed for extinction.