GMA-7 net income in 2011 plummets 39%

With the lack of election spending, advertising budget cuts of clients and higher production costs in 2011, GMA Network's net income took a beating

MANILA, Philippines – GMA Network Inc. said its net income in 2011 plummeted 39% to P1.72 billion from P2.82 billion in 2010 as less money came in from advertisers and more money was spent on operating expenses. 

“Our net income took a beating,” admitted Ronaldo P. Mastrili, GMA’s Vice President of Finance at a financial briefing for analysts and media on April 10.

“We experienced the lowest net income level of the past 5 years in the 4th quarter of 2011,” said Mastrili.

Financially, it was a double whammy. First, total advertising revenue dipped 9% to P13.08 billion since locals spent less without the 2010 elections and multinational corporations cut back ad budgets because of the uncertain economic realities abroad. 

Second, operating expenses increased 8%, as GMA shouldered costs for the newly launched GMA News TV.

President and COO of GMA Network Inc. Gilberto R. Duavit Jr. stood by the P8.98 billion operating expenses in the name of making the channel more competitive.  

“The spending was driven by the desire to win in the national ratings last year,” explained Duavit.

GMA representatives cited their 3.1-point lead in household audience share over rival ABS-CBN and 18.6-point lead over newcomer TV5. They cited ratings results provided by Nielsen TV Audience Measurement.  

Still, Duavit signaled there would be changes in GMA’s financial strategies for 2012, given the direction the network had taken in 2011.

Election-spending, production costs in 2011

“We lost P2 billion in airtime revenues in 2011,” said Mastrili, referring to revenues from election-related ads from the 2010 national polls.

With the 2013 mid-term elections on the horizon, Duavit said they anticipated that “policital advocacies would come out as early as the 4th quarter.”

However, profit actually hit a historic low in the last quarter of 2011.

Duavit also cited the poor economic climate abroad in 2011. “It should also be noted that we received very clear indications from the advertisers that there would be cutbacks because of the global financial environment that existed at the time,” he said.

He speculated that the cut in ad spending internationally likely affected all networks and not just GMA.

The network also realized an 11% increase in production costs last year.

Duavit explained that bulk of the hike in production costs came from transforming Channel 11 from a day-time drama platform into one that provides news and current affairs content.

“If not for the news channel, we would have seen an increase in production costs in the mid-single digit levels,” Duavit said.

Early bird scheme for advertisers

GMA-7 has decided to sign up more advertisers at the start of the year with an early bird scheme.

Thus although the economic climate abroad remains rocky, Lizelle G. Maralag, the head of the network’s marketing and productions, said that as of April 10 GMA-7 had “already met 85% of 2012 revenue targets where ad spend is concerned.”

Duavit added, “We are seeing double digit growth in ad spend this year…. We are looking at a guidance figure of P2.8 (billion) for ad [revenues].”

Bolstered by the positive preliminary figures, Duavit shot down one analyst’s idea to emulate TV5 by pirating big talent to attract more advertisers. 

“It used to be the norm that the stars created the program and the network was measured in terms of who its stars are. We would prefer to see it the opposite way that it is the programs that make the stars and the network that creates the programs and the opportunities,” the company president said.

Spending plans for 2012

The GMA-7 President sees the network tackling not only low ad growth but also the high spending that was hurt net profits in 2011.

He said GMA-7 would try to reduce programming costs by “no less than 3%.”

On top of that reduction, capital expenditures will be toned down. After nearly P896 million in capital expenditures in 2011, Duavit said GMA-7 would eye only P650 million in capital spending for 2012.

He said that capital expenditure budget would primarily go towards funding 2 new stations. 1 would be located in Illocos to serve speakers of the local illocano dialect, while the other will be in the Bicol region. “The cost of each station is to be north of 50 (million)” he said.

According to Duavit, the rest of the funds would be funneled towards programmed upgrades including repairs to “production facilities which will allow (GMA-7) to move more consistently towards high definition programming and existing transmitter sites in more previously unconsidered rural areas.” – Rappler.com