Is the ABC's business model sustainable?

Speculation suggests that following the Expenditure Review and the Productivity Commission findings, the ABC could face a $22.5m pa. efficiency dividend.

I have previously speculated that the government would not deal with the ABC along ideological grounds but based on it's business model. I firmly believe that the ABC will be seen to be just as full of alleged cronyism as many of the trade unions.

A classic example is a recent disclosure on the costs of the three part ABC production on Paul Keating hosted by Kerry O'Brien. This production cost taxpayers $1.2m, much to the disgust of local production companies who asserted such a production could have been done for $50k using local companies and Laptop based production techniques?

Instead the ABC "contracted" O'Brien's own production company and incurred his fees in addition to his production company hire contract.

If this is the norm rather than the exception, then the ABC could be seen to be diverting projects to its "own" and inflating costs. The Efficiency Review and Productivity Commission will of course determine this.

At risk also for the ABC is their ABC overseas network franchise.

Since speculation has gone public, we now have a metric with which to work, namely the efficiency dividend of $22.5m a year and can measure its potential impact on the ABC's business model. If it is as flawed as I suspect the ABC will very vulnerable financially.

Total 2013/14 Revenue $1.2bn

Additional Income for the last 5 years is $225m over ten years for ABC overseas at $22.5m pa. Plus $10m for the "Fact Check" unit. Total additional revenue outside government funding provisions $35.5m pa.

Employee emoluments $477m pa (2013/14 includes redundancy provisions)

So at risk for the ABC is the $22.5m pa for international networking plus the efficiency dividend of $22.5m a year. It is yet to be seen if the remaining funds for the "Fact Check" unit may also be at risk. So conservatively they could face $50m a year in reduced income over the next five years.

Now take a look at their wages bill as a percentage of both current revenue and against future declining revenue. It is already ridiculous and unsustainable at 38% and will now blow out even further.

This is set to be devastating for the ABC. If as suspected, the ABC's production costs are being inflated to keep them "in house", that increased redundancies that will blow out the existing provisions, that some new funding has already been siphoned into inflated salary packages at the expense of production budgets, and current salaries are set to balloon as a percentage of income, then suddenly Mark Scott has a monumental business challenge on his plate.

Add to this the ABC's poor program ratings and the scene is set for epic changes at the ABC, most of which they will have brought on themselves through questionable business management.

The ABC seems to sense a change, they no longer refer to "ratings" because they are very poor, they now refer to "reach". This basically means they are producing less and less content for a greater share of a shrinking audience, strange business?

The ABC's current financials look like this;

Total revenues 2009, $972m. In 2014, $1.2bn (+$228m)

Total non-salary (production) costs 2009, $681m. In 2014 $840m (+$159m)

Total salaries inc. redundancy provisions 2009, $428m. 2014 $477m (+$49m)

Of the $228m in new revenue, 26% went into ABC salary packages?

(Alarmingly if the unspent 5 years of the 10 year overseas broadcast budget is taken out, then 43.5% of new income for the period went into salaries?)

But with the potential introduction of an ED and the potential loss of the O/S franchise, the ABC fiscal outlook on current projections looks like this;

Total revenues 2014, $1.2 bn, 2019 $0.95bn, (-$250m)

Total non-salary production costs 2014, $840m, 2019 (index linked) $1.34bn, (+ $160m)

Total Salary costs 2014, $477m, 2019 (index linked) $620m (+$143m)

Total revenues 2019, $0.95bn, less costs of $1.24bn is - $290m loss.

(Assumptions are +/- 10% based on standard business models and on published ABC financial reports 2009/10, 2013/14).

On these trends the ABC could potentially hit the wall as early as 2016/17 without drastic changes.

Spigelman and Scott may chose to resign in disgust at the government to "spend more time with their families", but this will only add to the ABC's woes by forcing the current government to "appoint" some new management.

As Laurel and Hardy so succinctly put it, "Another fine mess you've got me into Stanley"