As media valuations crash, is history about to repeat itself, a decade on?
Welcome to Unmade, mostly written on Tuesday afternoon on a chilly day at Sisters Beach, Tasmania, and wrapped up on an even colder Wednesday morning after an early start for the Socceroos game. We got there in the end.
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The big chill
Next week marks the ten year anniversary of one of those “Where were you when you heard?” moments for anyone who worked in media at the time.
Actually, there were two such moments, two days apart.
On June 18, 2012, Fairfax Media’s CEO Greg Hywood made a big announcement. It contained so many bombshells we struggled to decide how to angle the news story for Mumbrella. Fairfax was planning 1,900 redundancies, closing two of its major printworks and turning its broadsheets The Sydney Morning Herald and The Age into tabloids.
Two days later, the boss of News Corp (or News Limited as it still was back then) Kim Williams dropped more bombs.
His company was going to remake the TV ownership landscape by buying out the stakes that James Packer’s Consolidated Media Holdings held in Foxtel and Fox Sports in what would be a stepping stone on the way for News Corp to go from 25% owner of Foxtel to majority owner. And News Limited was also buying Australian Independent Business Media, the publisher of Business Spectator and the Eureka Report.
Downplayed, towards the end of Williams’ announcement, came the news that there would be redundancies at News Limited too. Unlike Fairfax Media, the company did not put a number to it. It was only when I published my book Media Unmade last year that the human cost finally made it into the public domain - it was 1,600 staff, about one in ten of the work force.
In the space of two days, 3,500 media jobs disappeared. It was the worse week in the history of Australia’s media.
The late June timing was no coincidence.
These things usually happen at the end of the financial year. That way, the next year’s figures see the full benefit of the cost savings. It also means that when bad company results for the year are released to the market a few weeks later, the CEO can both acknowledge the company’s faltering performance but also point to the layoffs as the problem already being addressed.
That’s why share prices often go up when redundancies are announced.The market likes the short term improvement of profits that cost cutting usually brings.
In the absence of a better plan, CEOs sometimes feel forced to make cuts when a share price is in trouble. Ultimately their job is to do what the shareholders want.
Sometimes, it’s also the right thing for the business. In the case of Fairfax, the only way that the newspapers could survive was to remove the fixed cost of printing the newspapers itself. Hywood decided the company was in the news business, not the printing business. And it also needed to produce the news more cheaply - which in turn meant the job cuts.
Other times boards make short term decisions to to try to keep the share price up. A few years later, the decision by Fairfax Media to float Domain earlier than its boss at the time Antony Catalano thought was wise was driven by share market perceptions. The company’s revenues had fallen off a cliff in late 2016, and if there was no other piece of news to give the market in the February 2017 update, the price would completely tank. So they announced that they would float Domain.
Drop bear market
Which brings me on to The Unmade Index.
As regular readers of Unmade will know, we started the index at the beginning of the year. Through the magic of Google Finance, The Unmade Index tracks the performance of Australia’s ASX-listed media and marketing companies.
Each day it gives us a number for how much the media and marketing stocks have moved.
We started the index on a notional 1000 points. I would never have guessed that less than six months later, the index would have lost a full third of its value.
Yesterday it closed at 673.9 points, down by 3.64% for the day and 32.6% for the year to date.
I tried to look up the definition for a 30% fall. Over 10% is known as a correction. And 20% signals a bear market. But there doesn’t even seem to be a term for a 30% fall. What’s worse than a bear? A drop bear market?
These media and marketing stocks have performed far worse than the wider ASX All Ordinaries. That’s only (only!) down 7.7% for the year to date.
In large part, that’s because media stocks tend to be volatile. Marketing spend is an indicator of the state of the economy, so the shares race up at green shoots and drop like a stone when there’s bad news.
As a double whammy, the global investment community has also decided that subscription streaming is no longer a guaranteed winner, and that has in turn tainted all the broadcasting stocks, and indeed all types of media. In the US, Buzzfeed fell by 40% yesterday. Its market cap is now just US$310m.
Locally, the latest chill for the market was yesterday’s shock from the RBA which put interest rates up by a full half percentage point, when most commentators had predicted quarter of a point, or at worse 0.4%. It was a signal of just how concerned the RBA (finally) is about inflation blowing out the cost of living.
But The Unmade Index was sinking long before that. In fact, it’s fallen for the last eight weeks in a row. Last week it fell just over 4%, the week before that was the worst week of the year (so far), down by 7.54%.
It’s been a rotten six months for all the big media stocks.
The share price of Nine, the biggest local player, briefly dipped to exactly $2 yesterday, having started the year at $3. What was a $5bn market capitalisation is now down below $3.5bn. Like the wider index, it’s off by 32% for the year to date.
Seven West Media is similarly down 30% for the year to date. Yesterday its market capitalisation dropped below $700m.
Southern Cross Austereo fell below a market cap of a third of a billion dollars yesterday, the lowest valuation in the company’s history. It’s down by 36% for the year so far.
HT&E, parent company of ARN, is down by 32% YTD.
And the price of outdoor firm Ooh Media is also on struggle street, down by 26%.
Real estate advertising has the worst of both worlds, being exposed both as a media stock and a property stock. The Nine-aligned Domain is down by 47% for the year to date, and fell below a $2bn market cap yesterday. And the News Corp-aligned REA Group is down by 38% for the year to date.
We don’t include News Corp on the Unmade Index, by the way, because most of its profit comes from outside Australia. News Corp is down by 24% for the year to date.
There is an argument that all these share prices are meaningless in the short term. The market bounces around each day, and it’s not real in the same way that an annual profit number is. These price falls came without any of the media companies actually releasing any bad numbers - just a fear of what lies ahead. The August results season will be a dangerous time.
Up to now, the media companies have been performing reasonably well in terms of profits, thanks to the recovery of the post-pandemic advertising market and also, for the publishing companies, the spoils of the News Media Bargaining Code deals with Google and Facebook.
Google and Facebook’s parent companies Alphabet and Meta share prices are down for the year to date by 19% and 43% respectively, as it happens. Poor old Google is now only worth one-and-a-half trillion dollars.
Because everyone is down together, I’d be surprised to see the sort of desperate year-end moves we witnessed a decade ago. While profits hold up, its less likely that shareholders will put boards and CEOs under pressure to try a new strategy. It’s not as if somebody else in the chair could necessarily have done any better.
There’s a comfort in being in the pack. When everyone else was on the rise and Southern Cross Austereo was sinking, I was not surprised to read that headhunters had been appointed to plan a succession for CEO Grant Blackley. But now everybody is down by roughly the same amount, it’s harder to argue that somebody has the wrong strategy.
That’s probably good for everybody’s job security, from board room to newsroom. Under pressure boards and CEOs are more likely to make desperate moves, and pulling the redundancy lever is number one in the playbook. That doesn’t seem to be the case at the moment.
That calculation changes though if the cost of living crisis slows down the economy which would in turn hit marketing spend and create an advertising recession.
Media usually gets a lift off in what Sir Martin Sorrell dubbed the quadrennial effect years of Olympics and US elections. But that’s not until 2024.
Instead, the next best thing the world has to look forward to as a marketing boost is the World Cup in Qatar at the end of this year.
Having eventually seen off the UAE this morning, the Socceroos are on a knife edge to qualify. They need to beat Peru next Tuesday.
That’s something everyone in the industry has in common with the Socceroos. We’re all on a knife edge.
Time to let you go about your day.
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Have a great Wednesday.