Kate Bulkley, Media Analyst.

Five’s future failing to add up

By Kate Bulkley

Broadcast News

For Broadcast March 18, 2010

How prescient can a broadcaster get? As we heard last week, Five is hurtling ever deeper into the financial mire. Its value has plummeted along with the advertising market, and none of its supposed consolidation partners seem interested in it anymore. And the title of the new David Jason vehicle that it hopes will lift some of the gloom? The Show Must Go On. That seems to sum up the short-term future of the channel.

With sales in 2009 down 21% and an EBITDA loss of €10m (£9m), owner RTL Group wrote down the value of Five for the second year running.

The cash-flow fall, a restructuring charge of €9m and a programming write-down of €22m (mostly on imported series that didn’t come up to advertising expectations) resulted in Five losing €41m in 2009. Five is now worth €112m on RTL’s books, compared with €252m at the end of 2008.

2009 was a dire year for all broadcasters, but for Five it was really bad: its ad share fell to 8.4%, down from 9.6% in 2008. As the smallest of the UK’s terrestrial broadcasters, it is at the end of the ads food chain, so to speak, and although the TV ad market is beginning to perk up, Five will be the slowest to see the benefit.

Meanwhile, the Dawn Airey broom swept out nearly a quarter of the workforce, and the programming budget has been sliced by £70m and focused on certain peaktime hours of the day.

Airey told me on the sidelines of an industry conference recently that the cost of production has “run away”. She says there has to be “a more equitable sharing of the costs” of programming with producers because broadcasters are “on their knees”.

Well, thank goodness for RTL Group chief executive Gerhard Zeiler, who says the group will continue to support Five because he believes that consolidation in the UK broadcasting sector is inevitable.

When it happens, Zeiler expects Five to be part of the consolidation. What that means for RTL shareholders is that Zeiler believes there is value in the Five asset as part of some kind of UK broadcaster roll-up. But the question is when and how, not to mention who would be involved in such a consolidation.

However necessary it may be from Five’s perspective, it’s hard to see a deal in the offing. Any renewal of a tie-up with C4 would have to be redrawn and factor in an incoming C4 chief exec who has to learn the regulatory cha-cha-cha that comes with working for a public service-commercial hybrid.

For the moment, Five has to keep doing the best it can to stand out with innovative programming and big names like David Jason and Justin Lee Collins.

The funding for an HD channel on Freeview has been pulled and moves into the pay-TV sector are not on the cards, despite Zeiler telling the RTS Cambridge Convention six months ago that pure free-to-air broadcasting was no longer a viable model. He believes Five is not big enough to make a pay channel work.

But at least there is a silver lining on the Long Acre clouds: Five may have been the worst-performing division of RTL in 2009, but RTL Group, which owns the likes of Fremantle Media and major players across Europe, is big enough to support it for the time being.

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