ABS-CBN to capitalize on digital shift, honor debts after franchise denial

Ian Nicolas Cigaral - Philstar.com
ABS-CBN to capitalize on digital shift, honor debts after franchise denial
Employees and supporters light candles at the gate of the the ABS-CBN compound in Quezon City on May 5, 2020.
The STAR / Miguel de Guzman

MANILA, Philippines — Embattled media giant ABS-CBN Corp. said Thursday obligations would still be settled despite suffering a financial blow over the unprecedented rejection of its broadcasting franchise and disruptions caused by the pandemic.

“In terms of material contracts and/or financial obligations that will be affected by the non-renewal of its broadcast franchise, ABS-CBN is currently in discussions with its creditor banks with respect to its long-term debts,” the network said in a disclosure on Thursday.

“We are not aware of other material contracts, nor have we received any claims or demands, the payment obligations of which will be adversely affected by the Resolution,” it added.

Lenders with loan exposure to ABS-CBN have earlier expressed confidence the Lopez-led media network can honor its liabilities which stood at P21.3 billion as of end-September last year. The Bankers Association of the Philippines last week added a default, if any, can be safely absorbed by the banking industry.

ABS-CBN sent the report to the local bourse after trading of its shares were indefinitely suspended last July 13 to give time to the network to inform investors about how to proceed with business without a fresh 25-year broadcasting franchise.

Shares at the network resumed trading on Thursday when it closed 29.9% down at P10.36 apiece from P14.85 each last July 10. 

In a departure from tradition observed on other franchises, the Duterte administration shut down the media conglomerate’s free TV and radio channels a day after its old license expired on May 4, a first since the Marcos dictatorship. This was a closure cemented by Duterte’s allies in the Lower House last July 10 when the network’s license application was rejected at the committee level.

As it is, ABS-CBN admitted the franchise denial has “adversely affected” the company. Aroujd half of the firm’s unaudited consolidated revenues as of September last year were generated from free-to-air advertising, which without a franchise, will inevitably be erased from the company’s balance sheet.

To offset losses, the network said investments on non-core ventures would be discontinued while capital expenditures are rationalized and workforce cut.” Citing an example, ABS-CBN said KidZania Manila, an amusement park the firm owned, will be shut down after five years in operation, while layoffs would begin August 31.

Apart from cost-cutting measures, ABS-CBN said the media entity would boost investment on other businesses such as international licensing and distribution, digital and cable segments as well as content syndication on various streaming platforms.

“The Company takes into consideration the probable shift of consumer behavior in terms of accessing content, as well as the ever-changing technology available to the public,” ABS-CBN said.

Wait-and-see mode

Despite ABS-CBN’s contingency plans however, analysts are pessimistic. “ABS will be significantly hurt without franchise as other businesses are still losing money, which is why the company plans to retrench workers,” April Lee Tan, research head at COL Financial, said in a text message.

“Shift to digital will help, but revenues from the business is still small versus ad revenues from free-to-air business,” Tan added.

Beatrice Lopez, equity analyst at Regina Capital, agreed. “The timing of the franchise decision was disadvantageous in a business point of view since ABS's various businesses are also contending with the effects of the pandemic,” Lopez said.

“The amalgamation of these factors makes survival more challenging but pivoting to digital platforms may be beneficial in ensuring that they still have viewers,” she added.

Tan expects investors to “adopt a wait-and-see attitude” on ABS-CBN shares in the short run. The company is still awaiting a decision on its pleading before the high court to invalidate its initial closure last May, while some lawmakers at the House of Representatives are moving to put the franchise to a vote at the plenary.

But Regina Capital’s Lopez has an investment warning. “Positioning in ABS right now carries significant risk since there is still uncertainty regarding its profitability,” Lopez said.

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