The battle for sports rights has reached a "tipping point" where free-to-air broadcasters may not be able to afford to bid any higher, says Seven West Media chief executive Tim Worner.
Mr Worner on Wednesday blamed a "tough market" as Seven reported a $745Â million loss for the full year due to a $989 million impairment. The impairment includes a write- down of television assets and other intangibles and losses on investments.
Overall revenue was down 2.7 per cent to $1.6 billion compared with the previous year, which included the Rio Olympics. The company recorded an underlying net profit of $168 million. Management's outlook is for earnings to drop 5 per cent this financial year to due the soft advertising market.
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Why are sports rights so important for media channels?
Sport coverage is crucial to almost every major media network in Australia, and online players are again disrupting the terrestrial broadcasters.
In that environment Seven has warned that sporting codes might need to adjust their expectations in broadcast rights negotiations.
"Sports rights have reached a tipping point in this country," Mr Worner said. "Given changes in the market, price rises are not sustainable."
Mr Worner used Big Bash Cricket as an example of why television should not pay through the nose for sports rights and receive some benefit from increasing the sport's popularity. The Big Bash is one of the sports under negotiation.
Chairman Kerry Stokes also used his letter in the company's annual report to raise the issue. He said Seven would continue to cut costs at the same time as "investing in compelling content, including our long-standing associations with the Olympics, Australian Open Tennis and AFL".
"These properties provide strategic relevance and increase our exposure to millions of viewers across free-to-air television and mobile devices," he said. "However, some of these contracts we entered into in the past do not reflect current market conditions."
Chief financial officer Warwick Lynch said about $70 million in write-downs in 2020-21 relate to the upcoming Tokyo Olympics. Seven's internal forecasts show it will not make as much money from the Olympics as it expected when it negotiated the deal three years ago.
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Mr Worner said Seven was "operating in a very different market to the one we are operating in now" when it negotiated the rights. "At the time we made a series of market growth assumptions, they did not eventuate.
"[But] just because we have reached certain accounting outcomes, it does not affect the effectiveness of these events. Huge numbers of Australians are going to flock to see these events."
![Seven has written off $70 million of the cost broadcasting the 2020 Tokyo Olympics because it now expects much lower ...](http://web.archive.org./web/20170819044207im_/https://www.fairfaxstatic.com.au/content/dam/images/g/q/y/0/j/k/image.related.articleLeadwide.620x349.gxx2uo.png/1502869369992.jpg)
The company will pay a fully franked final dividend of 2¢ a share in October.Â
Shares closed 2.5 per cent lower on Wednesday at 77¢, extending a three-day decline from an opening price of 83¢ on Monday.Â
These sports code have to start to recognise the power of what we bring to them.
Seven CEO Tim Worner
The bulk of Seven's $1 billion write-down relates to a $432 million reduction in the value of its television licence (down from $1.4 billion to $955 million), $110 million in the value of Pacific Magazines and The West Australian's goodwill and mastheads, and $63 million from the value of program rights.
The value of Seven's equity investment in various companies, including Yahoo7, Draftstars, Community Newspapers, Starts at 60, New You, TX Australia, and Red Live, was written off by $180 million.
![Tim Worner said the cost of getting rights to sports like Big Bash should recognise commercial television's positive ...](http://web.archive.org./web/20170819044207im_/https://www.fairfaxstatic.com.au/content/dam/images/g/x/q/2/u/x/image.related.articleLeadwide.620x349.gxx2uo.png/1502869369992.jpg)
Earnings from Yahoo7 dropped 41 per cent to $15 million, while Red Live's contribution to the bottom line completely disappeared. The event division delivered profits of $5.3 million last financial year thanks to the popularity of the Edinburgh Military Tattoo's tour in early 2016, but generated a $100,000 loss this year.
"I can tell you we are working on getting [the Tattoo] back in the future," Mr Worner said.
![Seven's live events division Red Live failed to deliver a profit this year, compared with a $5.3 million profit last ...](http://web.archive.org./web/20170819044207im_/https://www.fairfaxstatic.com.au/content/dam/images/g/t/b/2/b/2/image.related.articleLeadwide.620x349.gxx2uo.png/1502869369992.jpg)
And a smaller impairment relates to Presto's failure and Seven selling its one-third share of Sky News to News Corp.
"The $7 million loss does relate to the exit costs of Presto slightly offset by a gain on the sale of Sky News," Mr Lynch explained.Â
Seven's operating costs went down $20 million to $1.4 billion, with most of the cuts borne by Pacific Magazines, while television operating costs increased nearly 7 per cent.Â
Seven's production arms enjoyed an 11 per cent increase in revenue to $97 million. This includes productions such as My Kitchen Rules and A Place to Call Home.
Meanwhile the passage of media reform is not certain, with the government still needing several votes from the crossbench despite securing One Nation's support on Tuesday. The reforms include scrapping broadcast licence fees, which will reduce Seven's obligation from a $35 million fee to a $10 million spectrum charge.  Â
Mr Worner said he would not speculate on specific mergers but said "like every media company in Australia we are all looking at various potential outcomes. But we are not going to speculate on any specific outcomes".
Seven had not seen much advertising uplift from rival Network Ten falling into administration, he said.
"The fact of the matter is that Ten is still putting their content out and they are doing what they do ... television actually is in very good shape regarding the content and the audience is still there."Â
Seven has debts of $726 million and access to $100 million from a $900 million credit facility, which expires in October 2020.
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