Welcome to a midweek update from Unmade, the industry newsletter your boss actually reads.
Today: The verdict on Grant Blackley, and a profit warning from Seven West Media.
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A complicated legacy for Grant Blackley
Tim Burrowes writes:
The CEOs of our big media companies don’t often move on.
Before Grant Blackley’s departure from Southern Cross Austereo this week, the last time one of his counterparts announced an exit was nearly three years ago, when Hugh Marks quit Nine.
Unlike Marks, who left Nine at the peak of its $5bn valuation, Blackley leaves with SCA’s’s share price languishing at an all time low, of less than a $200m.
That comparison, however, is only one dimension.
When Marks inherited Nine in November 2015, his predecessor David Gyngell had already begun to turn around the company, and a refloat had cleared its books. When Rhys Holleran exited Southern Cross Austereo that same year, he left Blackley with a $472m debt hangover from the takeover of Austereo by Southern Cross Media. And that was in the days when half a billion dollars was a lot of money.
The largest piece of credit that Blackley gets is for ensuring the survival of SCA. Plenty of media companies with smaller debts have gone down; when Ten went into receivership in 2017, it owed Commonwealth Bank around $100m.
Early in his tenure at SCA, Blackley did a crucial $207m deal with Australian Traffic Network, preselling airtime for the next two decades. And over the next seven years, he slogged away at reducing the company’s debt - it now sits at a more manageable $100m.
So that’s the financial case in Blackley’s favour. There’s a negative argument too, also based on the facts. In a pattern which began before he arrived, SCA has consistently shrunk, in both profits and revenue.
We first published the above chart last August, when SCA’s full year FY22 numbers were released. The green bars represent revenues; the red line is EBITDA (earnings before interest, taxation, depreciation and amortisation) profits. It was the first time profits (coming in at $85m) fell below $100m.
The pattern continued when the first half results for FY23 were released in February this year. It was another historical low. The chart below compares yearly first halves only.
When I wrote our analysis of that, in February of this year, the headline we published was: “Southern Cross Austereo has had its worst ever start to a financial year. Can Listnr change the trajectory?”
Southern Cross Austereo has had its worst ever start to a financial year. Can Listnr change the trajectory?; And a bad day for Enero
However, the first draft of the headline ended with the harsher “When will something change?” As the old cliche goes, the definition of madness is doing the same thing over and over again; SCA’s board has now been presiding over that downwards red line for more than a decade.
Which isn’t to insist that Blackley was pushed. He’s been doing something of a press tour this week explaining that he wants to work overseas, and that he chose the timing. He told Media Week: “I have never had the opportunity to work or live in another country in a business I could add value to. I’d like to explore that and it is my number one priority.”
That stacks up. He already owns an apartment in Barcelona. And in recent months, he has been quietly stepping down from industry roles, including as chairman of Commercial Radio Australia. He’s also been a regular speaker in recent years on the overseas radio industry conference circuit.
If Blackley did go of his own volition, he potentially saved the board from an awkward conversation. When they ran a “succession planning” process last year, which leaked to the press, it looked rather more diligent than usual, with outside headhunters brought in. The view from many at the time was the the early leak about the process bounced the board into keeping Blackley.
Blackley has been far more brutally pushed in the past, incidentally. He was sacked as boss of Network Ten in 2011 after he refused to do the bidding of minority shareholders Lachlan Murdoch and James Packer. This time round things are more drawn out and amicable.
In the scheme of things, whether Blackley was jumped or pushed does not really matter though. Scores on the board will be how his tenure is assessed.
Aside from the financials, the next most important factor is the SCA’s audio streaming play, Listnr. The investment phase of Listnr has been a $15m annual drag on profits. However, Listnr is also the one growth story for a mostly traditional media company.
Listnr has put SCA ahead of its biggest rival ARN for monthly podcast listeners. We’re yet to know whether SCA’s strategy of building its own ecosystem, or ARN’s of licensing it in from iHeart, is the correct one.
SCA is also further ahead of ARN in investment in digitisation of its radio stations. SCA’s operation is now pretty much fully digital. ARN still faces that expensive process as it folds its regional acquisition of Grant Broadcasters into the operation.
In the radio ratings battleground, SCA is, on most measures, behind ARN, although the gap has closed recently. SCA’s two networks are Triple M and Hit, ARN owns Kiis and Pure Gold.
The deciding factor in the big battleground of Sydney was the defection of Kyle Sandilands and Jackie Henderson from 2DayFM (part of the Hit Network, or Today network, as it was then) to launch Kiis. Again, that occurred before Blackley’s tenure.
Arguably the loss of talent would not have happened on Blackley’s watch: Along with Hugh Marks, he owned and ran RGM Artists, for a time Australia’s biggest talent shop.
Who’s to say what the SCA trajectory would have been if the Kyle & Jackie O Show had stayed with 2Day?
Blackley’s successor John Kelly will start with an immediate lift to the bottom line. While Kelly’s base pay is going up from $600,000 to $800,000 per year including super, Blackley was on $1.2m. Kelly will also not hire a replacement COO.
SCA also owns regional TV licences, mostly affiliated to Ten, with that renewal due before the end of next month.
These are something of an orphan asset. When linear viewing ends, they’ll be worth nothing because all the content is made and owned by Ten. So the name of the game is to milk the TV stations for profit for as long as possible. The risk in selling them off cheaply is that one day a future government will want to bribe broadcasters to hand their spectrum back to be auctioned to telcos.
And then there’s the consolidation game. Back before the Nine-Fairfax merger, Nine-SCA had seemed more likely. One of many possible permutations now would be SCA combined with an outdoor company, most obviously QMS.
That however, will all be a question for John Kelly.
Unmade Index tips into the red
Seja Al Zaidi and Tim Burrowes write:
Yesterday was another downer for the Unmade Index, our measure of how ASX-listed media and marketing stocks are performing. The index dipped by 0.54%, closing at 675.9 points.
B2B player Aspermont saw an unusually big fall, with its usually lightly traded shares losing 16.67%. Among the larger stocks, Domain’s fell 1.77%.
Despite Seven issuing a profit warning yesterday with CEO James Warburton saying the decline in TV ad spend had been greater than he previously predicted, Seven West Media shares rose slightly, suggesting that the market had factored that in even before he owned up.
And research house Pureprofile saw its share price rise 3.85% yesterday, despite an announcement in yesterday’s quarterly update that it would be closing its programmatic unit. (Unmade will look more closely at PPL’s numbers later in the week.)
Time to leave you to your Wednesday. We’ll be back with more tomorrow.
Have a great day.
Publisher - Unmade
From an SCA spokesperson:
A few pertinent points to make on this story today:
- Grant Blackley joined SCA in 2015
- In 2016, SCA sold $10m of annual earnings for $207 million to the Australian Traffic Network for a 22-year period to broadcast its news and traffic reports. This included an upfront payment of $100m to reduce the debt load.
- In 2017, SCA sold its Northern NSW TV assets to WIN. So while SCA lost earnings of $10.5 million from the sale, it sold the assets for a 5x multiple of $55 million. The funds were used to further reduce the debt load.
- These two transactions effectively reduced SCA’s normal earnings by $20.5m per year thereafter – but thankfully substantially reduced debt and improved SCA’s balance sheet.
- SCA has unashamedly invested in digital audio via LiSTNR for the future strength of the company, and maintained the investment through the COVID period. The investment to date has been $45 million or $15 million each year for FY 20, FY 21 and FY 22. The company has offered guidance to be cash flow positive no later than FY25.
- LiSTNR is the leading Australian podcast publisher and #1 sales representation house in Australia inclusive of exclusive rights with Stitcher and Wondery.