Welcome to Best of the Week, mostly written on Friday on the sort of glorious summer’s day that Sisters Beach does so well when it’s not raining.

Today’s writing soundtrack: Mezzanine, from Massive Attack. (Brixton Academy, July 2004. It seems so long ago, but what a gig, and what a light show!)

Happy International Sword Swallowers Day.

Coming out the other side

This week was a major milestone for our biggest media companies.

Flash back exactly two years, to February 2020. That was the last time our listed media companies were able to report a normal set of numbers during ASX reporting season.

A fortnight later, everything went to shit. Within the space of a few days the Melbourne Grand Prix was cancelled, the border was closed and the Reserve Bank was slashing interest rates.

The news articles from the time look rather quaint. Josh Frydenberg was warning that the borders could be closed for as long as six months. The ABC quoted a disappointed F1 fan asking (presumably rhetorically): "Are you going to close schools and supermarkets and everywhere else where people gather?"

This month, we got the first updates on how our media companies are faring as they emerge from the other side. My guess is that the next year will be a lot less dramatic,

There was a lot of hidden detail in the updates:

• Ooh Media finally revealed how much it got from the sale of Junkee;

• We discovered which Sydney radio station is about to disappear;

• We discovered what the loss of the Nine affiliate deal did to SCA’s profits;

• We found out Cathy O’Connor and Ciaran Davis’s 2021 pay packets;

• And we got an update on Seven’s all important debt level.

We’ll come on to all of that.

There were two levels of numbers released from the media companies this earnings season.

HT&E and Ooh Media both released 12 months of results, as they report against the calendar year.

Nine, Seven West Media and Southern Cross Austereo released their half year results for just the final six months of 2021, as they all follow the Australian financial year. And it has also been possible to extrapolate some half year numbers on the performance of Foxtel Group out of News Corp’s global results release.

In more normal times, year-on-year comparisons provide a reasonable yardstick on how companies are travelling. This time round, that exercise is misleading. After the bin fire of 2020, when normal media activities went out of the window, of course 2021 would look drastically better for most.

But how does it compare to Before Times?

So that’s the exercise I went through. I went back to the 2019 data to try to get a better sense of who has made it back to where they were before Covid arrived.

This comes with a massive caveat, by the way. Although most analysts like the EBITDA (earnings before profits, interest, taxation, depreciation and amortisation) profit number as a yardstick to judge how profitable a company is, there are a number of different ways to calculate it, including whether to exclude or include parts of the business bought or sold during the period. There are also different accounting standards. So it’s possible to argue that the numbers in the table below do not compare like with like. However, it’s as close as I can get.

Let’s start with the two companies offering a full year snapshot - Ooh Media and HT&E. Neither of them are yet back to where they were in 2019.

Ooh Media - the long way home

In terms of size, Ooh Media’s turnover of about half a billion dollars in revenue was still only three-quarters what it was in the same six months in 2019.

And at $77.6m, Ooh’s profits are still only just over half what they were in 2019.

For an outdoor advertising company, none of that is surprising of course. Outdoor has been one of the slowest mediums to recover

Across Ooh’s various formats, most are not yet back to 2019 levels.

Recognising that WFH is not going away, Ooh has pragmatically renamed its biggest segment - what used to be labelled Commute - as “street furniture and rail”. The $182.1m revenue from the sector in 2021 is an improvement on 2020’s $148.1m, but still well down on 2019’s $243.8m.

Ooh’s retail segment is also yet to fully recover, going from from $139.3m in 2019, to $106.2m in 2020, and $125m in 2021.

And Ooh’s Fly segment actually had a worse 2021 than it did 2020. Who’d have booked an ad campaign in an airport last year? It went from $65.9m in 2019 to $22.8m in 2020 and then sank to just $12.2m last year. That’s a loss of 80% of the segment.

However, OOH’s Road format has fully bounced back. It delivered $158.5m in revenue in 2021, up from $118.4m in 2020, and even ahead of the pre-pandemic’s $146.4m in 2019. Hurrah for billboard digitisation.

In terms of Ooh Media’s strategy in the media consolidation landscape, it seems likely the company will sit on the sidelines for the coming year. With its market capitalisation just below $1bn at present, by simply focusing on the basics, Ooh will likely see its profits grow dramatically which should then feed through to its share price.

In her guidance to the market this week, CEO Cathy O’Connor revealed that bookings for the current quarter are running at 93% of 2019 levels.

Any board that has a realistic prospect of a better share price would be mad to get involved in big deals until it can negotiate from a position of strength. And I think that’s going to be a reason why some momentum may go out of media M&A for the next few months - several CEOs will see a route to growing profitability (and getting their performance bonuses) without the need to do a big deal.

Speaking of Cathy O’Connor, we also learned in this week’s update that her first year as CEO was not unlucrative. Thanks to a short term incentive cash bonus and her long term incentive, her basic salary of $1.1m rose to a total package of $1.8m.

And one more nugget was to be gleaned from the annual report. When Ooh Media sold youth publisher Junkee Media to RACAT Group as part of its back-to-outdoor-basics strategy in December, the company declined to reveal the price. Perhaps that was at least partly because it was embarrassed to do so. We learned this week that having bought Junkee for a valuation of $13m back in 2016, Ooh Media only got $2.5m from the sale.

HT&E - the year of bedding in

Which brings me on to HT&E, the other company that had a full year of numbers to share.

HT&E, for now at least, is mostly an audio company. It owns the Kiis and Gold radio networks, one or other of which lead in most metro FM radio markets, and is also the local owner of the IHeartRadio streaming franchise, which is the biggest player in Australian audio streaming. It says it’s on a three-year path to its streaming operations being profitable.

The company has been on a ten year mission to make its life less complicated as it has become ever more audio-focused.

For a while, it was big in outdoor and newspapers too.

A decade ago, when it was still known as APN News & Media, the company sold APN Outdoor to private equity firm Quadrant. Four years ago, it sold Adshel to Ooh Media. And last year it sold its 4% stake in Ooh Media, which it had opportunistically bought for a bargain price when the share price crashed in 2020. HT&E also still owns struggling Hong Kong outdoor company Cody.

The company has also been out of newspapers for a while, selling its Queensland titles to News Corp in 2016, around the same time it exited its interest in NZ newspapers via the float of NZME (which also triggered the messy dispute with the Australian Tax Office that was finally resolved last year).

And also last year, HT&E agreed to sell its long held 25% stake in software company Soprano for $139m, although that deal later fell over, for the time being at least. It remains on the company’s books with a modest valuation of $19m and Macquarie is trying to sell it for HT&E. If that gets done, the price would likely clear the company’s current $90m or so of net debt.

The major new piece of information about HT&E that came out from the update was tactical rather than strategic.

The company’s Western Sydney hip hop and RnB radio station The Edge will soon disappear, replaced by a new brand focusing on new music, and living both on FM and digital. Targeting the 15-29 demographic, I reckon it will be marketed as digital-first despite its FM signal reaching well into metropolitan Sydney.

For those that have been watching, the disappearance of The Edge has been on the cards. Breakfast duo Mike E and Emma departed at the end of the year and have since been picked up by Southern Cross Austereo’s Listnr streaming platform.

The Edge, meanwhile, is currently coasting in neutral, ahead of the relaunch at the end of next month. From 9am to 6pm, the current weekday offering is simply the Beats That Move You show. It’s the same strategy that was adopted by Lachlan Murdoch’s Nova Entertainment when it was winding up Classic Rock to relaunch as Smooth FM in 2012.

Expect a marketing blitzkrieg. This week HT&E informed the market that it was budgeting $8-9m over and above its normal spend on digital audio. The last time the company went that big was when CEO Ciaran Davis poached Kyle Sandilands and Jackie Henderson from SCA’s 2DayFM and relaunched Mix as Kiis in 2014.

When I spoke to him after the results announcement Davis said that the whole team, under new GM Emily Copeland who previously ran FBI Radio, is in place - including the talent. Without naming names, he said the new on air talent were familiar names “with large distribution platforms themselves”. He added: “The team are ready to go and the talent are hired.”

He declined to answer when I asked whether the new format would go beyond hip hop and RnB. I suggested that given Copeland’s background it might occupy a similar space to the ABC’s youth station Triple J. After hesitating, he conceded: “I don’t think you’d be far wrong.”

Meanwhile, like other players, HT&E has a lot on its plate without going after a transformative deal.

With so many market leading radio stations, HT&E has not been getting the commercial rewards it deserves since the pandemic began. The money just hasn’t been in the radio sector. HT&E should see its revenues and profitability surpass 2019 levels as the market bounces back.

And there’s a big piece of internal work to be done too. Late last year HT&E agreed to buy regional radio operator Grant Broadcasters, and now faces the task of integrating those 58 stations.

Both of those factors should help the company bounce back from its current $600m market cap closer to its $1bn or so valuation of three years ago.

Similarly in holding mode until profitability can be rebuilt is HT&E’s Cody Out of Home in Hong Kong which remains in lockdown. Don’t write off the company hanging on to it, or even reinvesting in the medium yet again. Intriguingly, Davis said of Cody: “You know I love outdoor. Is it core? Probably not, but it is a business we like.”

But that doesn’t mean Davis is not thinking about a transformative outdoor deal down the track, even if it’s not talking about it at the moment. The Quadrant private equity owned outdoor firm QMS still looks to me like a good fit, one day.

“If you look to media companies of the future they have to have scale of attentive audiences; they have to be offering multi-platform content for advertisers and consumers; they have to have data-targeting capabilities,” he said. “ That guides us as a business as we look to broaden and consolidate.”

Incidentally, we also learned about Davis’s remuneration in the company’s annual report. He did pretty well. Short and long term bonuses topped up his $980,000 salary to $2.465m.

SCA - under (kind of) new management

HT&E’s biggest rival, Southern Cross Austereo, also reported this week, albeit only sharing the last six months’ numbers.

Coming the same day and time that larger rival Nine released its half year results, SCA’s announcement was somewhat overshadowed.

Perhaps most noticeable is that although revenue was about the same in 2020 and 2021, profit fell right back.

In the main that was because 2020 was artificially high because SCA was a big recipient of JobKeeper, to the tune of $35.4m in the 2020 half.

SCA is a company with three major assets. It owns (but doesn’t particularly love) regional TV stations; it owns radio networks Triple M and Hit; and its audio streaming platform Listnr is now one year old.

CEO Grant Blackley told me this week that Listnr has now reached half a million signed in users. “We only launched our major brand campaign for Listnr on Boxing Day so the achievement of 500,000 known, signed in users in the absence of that marketing showcase is a pretty good testament.”

By indirect comparison, HT&E’s iHeartRadio, which has been in the market for the best part of a decade, claims 2.17m of what it cutely describe as “lifetime” registered users.

Blackley told me that Listnr is signing up new users twice as fast as HT&E. He also said that it took Listnr half a year to deliver $10m in streaming revenue - twice as fast as HT&E.

Like HT&E, SCA says that the growth in audio streaming is not cannibalising radio revenue.

In television, we got a first look at the effect of SCA’s loss of its main affiliation to Nine, which got back together with Bruce Gordon’s WIN Corporation. Instead SCA is now mainly aligned with Paramount’s lower rating Ten.

However, although revenue fell as a result of having lower rating audiences, SCA’s underlying TV profits improved, because the percentage of advertising dollars it must give to Ten is lower.

The company’s total revenue in the TV segment fell from $84.7m for the half to $65.8m. But excluding the now wound back government Covid support, EBITDA profit for the segment actually rose from $13.7m to $17.5m. As Blackley put it.: “When we moved across to Ten, our strategy was never about revenue and ratings; our strategy was about increased profitability, which we’ve been able to increase by 27%.”

Just as Seven now owns its old regional affiliate Prime, and WIN’s sales staff all work for Nine now, the logic is starting to stack up for Ten to acquire the segment from SCA, which would be a cheerful seller at the right price. The ability to sell subs streaming platform Paramount Plus would tie in with Paramount’s global strategy

Blackley observes: “They use their TV asset not only as an independently viable business but as a reach and customer acquisition driver for their Paramount Plus product.”

In radio SCA is facing its biggest challenge, with either a Triple M or Hit station bottom in just about every metro FM market.

Late last year, the company took an axe to its management structure with Hit Network boss Gemma Fordham leaving altogether and Triple M boss Mike Fitzpatrick moving out of that role.

It marked the biggest shakeup of the company’s radio management in a decade. However, whether it will also signal a change of the radio operation’s culture remains to be seen, given that the top job is still held by a long time servant of the company.

Dave Cameron (who long time Hamish & Andy listeners will remember as “Grumpy Dave”) is in charge as chief content officer, with regional and metro content bosses sitting underneath him in the new structure. With Blair Woodcock already installed as head of regional content, perhaps Fitzpatrick is still in the running for the metro gig.

As Blackley put it to me, somewhat gnomicly: “Fitzy is currently not working with us at this point in time but remains employed by the company.”

”Dave being firmly at the helm would like to gain some continuity in that role. We have had quite a number of people express an interest in being head of metro. While we’re moving through those 20 applications of people who have presented themselves to us from a domestic and international level, we’re in no rush.”

After I expressed surprise at hearing classic Kylie Minogue and Daryl Braithwaite back-to-back on the 2DayFM breakfast show, Blackley acknowledged that network’s Sydney flagship, part of the Hit network, has begun to chase a slightly older audience.

“Purposely we are positioning above what is Kiis and Nova, and below WS, and substantially below Smooth. We are going firmly into that slot. It’s a subtle but noticeable change. We are not going to compete in a top 40 manner at all.”

I have a hunch that it won’t be the last change of direction for 2DayFM.

Nine - Sneesby’s bonza first half

Which brings me onto Nine’s first full half since CEO Hugh Marks was no longer in the building.

It’s a result that was unambiguously the best in the market.

Marks bequeathed to his successor Mike Sneesby an operation that was doing well in just about every part.

Nine was the only media company reporting this week whose revenue has not only bounced back to 2019 levels, but surpassed it - up from just under $1.2bn revenue in the second half of 2019 to $1.3bn in 2021.

Unusually, the rise in revenue of $150m in those two years was surpassed by a rise in profitability of $155.5m. It’s rare for every dollar in revenue growth to drop to the bottom line, let alone beat it

Factors at play there will include, I suspect, the extra Google and Facebook News Media Bargaining Code money coming with little cost attached, reduction of costs made during the pandemic, and the move of subscription service Stan into profitability.

The story of Nine’s current success does not come from any one medium. While the Google and Facebook deals have made publishing look a lot healthier, free to air television has had an unusually good time of it, the ad-supported video on demand wave has arrived, and Stan has, for now at least, started to make a profit contribution.

As Sneesby put it: “Everything is the underlying theme. Every part of our business is firing, not through accident, not through cycles in the market. They’re all contributing in a positive way to this result.”

I also have a pet theory about the Olympics. Seven has first right of refusal on Paris 2024, but I suspect that Nine is taking the possibility more seriously than it is letting on. The European time zone, and the 2028 Los Angeles Olympics time zones are less than perfect for prime time Australian audiences, but Brisbane 2032 is a huge prize.

With Stan, AVOD and free to air, Nine is arguably the only company that could monetise the Olympics across all media. As Sneesby said to me talking generally about sport: “We are the only television business which has the ability to distribute across the leading free to air network, combined with the leading BVOD service, combined now with subscription streaming as part of the Stan Sport proposition. The lens through which we are able to look at a sport is unique.”

Back when Nine snatched the tennis away from Seven and ditched the cricket, a management team quietly worked on the project on a weekly basis for many months, building up the business case. They then had to sit on their hands and wait for Seven’s exclusivity period to expire.

Is the same work already going on behind the scenes this time, I asked Sneesby. It was the only time he hesitated slightly during our conversation, before he replied: “I’m not going to go into any detail on work that we might or might not be doing in the business. Suffice to say, there is always a significant amount of work going to assessing existing, new and returning content opportunities.”

My guess is Nine’s Olympics war room is already in session

Closing the loop on Seven and Foxtel

Although Seven released its numbers a couple of weeks back, it’s still worth doing the exercise of comparing its numbers to 2019. Admittedly, it’s going to be harder to make future comparisons because Seven took over regional operator Prime at the end of the year. But nonetheless, Seven’s revenue (driven partly by the Olympics) rose in 2021 to well above 2019. Profit rose similarly too.

It’s also worth looking at Foxtel Group too, given its hopes of a separate ASX listing.

These numbers are derived simply from examining the subscription TV segment of News Corp’s global numbers which were released a month back. News Corp owns two-thirds of Foxtel, and Telstra the other third.

The EBITDA number is likely a little wooly (within a larger group, central costs can be switched between lines a little more arbitrarily). But nonetheless it’s interesting to see a story of revenue plateauing at just over US$1bn for the half for the past three years, and profit plateauing at $200m for the last two.

If the company is going to get a float away, it will need to move fast.

Unmade Index: An eventful week

After a wild week on stock exchanges around the world, The Unmade Index was less volatile than most, finishing the week back above the 900 mark. Yesterday it rose by 0.8% after a 1.3% fall on Thursday.

Yesterday, HT&E saw the biggest percentage fall, although the price has been bouncing up and down all week, often on quite low trading volumes for the day.

Time to let you go about your weekend.

Unmade will be back on Monday with a new experiment - my colleague Damian Francis and I will be recording out first podcast together, in which we examine the coming week’s agenda.

Have a great weekend.

Toodlepip…

Tim Burrowes

Unmade