When James Warburton handed over the reins of Seven West Media (ASX: SWM) to Jeff Howard in April 2024, it was always going to be a baptism by fire with the media giant grappling with formidable challenges in an increasingly difficult television landscape. 

This was reflected with the Company reporting a significant downturn in earnings, with Group EBITDA before significant items plummeting by 33% to $187 million for FY24. The decline is largely attributed to the continued weakening of advertising markets, a reality that has plagued the entire industry.

Seven’s total revenue dropped by 5% to $1.4 billion, marking a $73 million decrease from the previous year. The statutory net profit after tax plunged by 69% to $45 million, while the underlying net profit, excluding significant items, fell by 46% to $78 million. These stark figures underscore the harsh economic environment in which Seven West Media is currently operating.

Struggles in Television Advertising

The decline in Seven’s earnings is reflective of broader issues affecting the television advertising market. The total TV advertising market experienced a sharp 8.2% decline during FY24, with metropolitan markets shrinking by 12.1% and regional markets by 5.5%. Although the Broadcast Video on Demand (BVOD) market grew by 12.7%, this was insufficient to counterbalance the overall decline and was coming from a smaller base that is dominated by Netflix and the like. 

Seven’s television revenue fell by 6% to $1.24 billion, driven largely by a 7% drop in advertising revenue to $1.1 billion. Despite these challenges, Seven managed to increase its revenue share of the total TV market to 40.2%, a 1.7 percentage point gain, highlighting the Company’s resilience in an otherwise shrinking market. This growth was attributed to targeted content investments, which helped the network maintain its position as the number one network for national audience share for the fourth consecutive year.

Cost Control and Future Prospects

In an effort to mitigate the impact of declining revenues, Seven West Media has implemented a rigorous cost reduction program. The first phase of this initiative delivered $25 million in savings during the second half of FY24, leading to a 4% reduction in costs compared to the same period in FY23. Overall, the company managed to limit its operating cost growth to just 2%, aligning with previous guidance. However, these efforts were not enough to prevent a significant decline in EBITDA.

Looking ahead, SWM has announced an expansion of its cost reduction efforts for FY25. The company aims to achieve a year-on-year decline in costs, with a targeted cost reduction of $108 million, including the remaining $35 million from the previous program. The cost-saving measures are part of a broader strategy to provide a platform for improved performance, especially as the company anticipates revenue growth from digital sports rights under new cricket and AFL contracts.

SWM Managing Director, Jeff Howard, emphasised the company’s commitment to driving improved profit and cash flow despite challenging market conditions. 

“Our new operating model establishes clear accountability for driving our own financial destiny,” he said. 

“We will build a better and more resilient media business that captures the clear opportunity in digital and maximises the financial returns in our traditional businesses.”

Impact of Potential Gambling Advertising Reforms

Adding to the Company’s woes is the looming threat of federal reforms to gambling advertising, which could severely impact Seven’s revenue. With a substantial portion of its advertising income tied to sports broadcasts, particularly cricket and football, Seven is vulnerable to any restrictions on gambling advertising. The Federal Government is considering a cap on gambling ads, limiting them to two per hour until 10 pm, along with bans around live sports events.

If enacted, these restrictions could exacerbate the financial pressures on Seven, which is already struggling with a downturn in advertising revenue. The potential loss from a blanket ban on gambling ads could be significant, as major broadcasters have warned that such measures could force them to reduce their $1.6 billion annual investment in news, sport, and local drama.

Free TV Australia, representing the country’s commercial broadcasters, has expressed grave concerns about the impact of these reforms, arguing that they could destabilise the industry. However, advocates for the ban, such as Tim Costello from the Alliance for Gambling Reform, argue that other countries have successfully implemented similar restrictions without catastrophic consequences for broadcasters.