Welcome to Best of the Week, written while you were sleeping.

Happy World UFO Day.

There’s been lots going on this week. Sir Martin Sorrell has been sending signals about a change of strategy for S4 Capital. The end of financial year closed the door on some woeful financial performances by our largest media and marketing companies. And the biggest CMO appointment of the year was revealed.

Thinking smart

Let’s start with the last of those three.

On Wednesday, IAG’s chief marketing officer Brent Smart was revealed as Telstra’s next CMO.

I last wrote about Smart when we covered the agenda-setting, whimsical “Tall Poppy” ad campaign for IAG’s CGU brand back in February. I was a fan of the strategy but not the execution.

As I wrote at the time, Smart is an unusual CMO in that he’s known for his willingness to take the spotlight, yet also has credibility around his team culture and the standards he sets his agency partners. It’s rare for all three things to be present in one CMO.

Telstra is an even bigger job again. In terms of complexity and size, it might be the biggest in marketing, maybe even more than Qantas.

Some Telstra CMOs have been more about maintenance mode. I don’t remember much change, good or bad, during Joe Pollard’s stint from 2014-2018. Similarly, Jeremy Nicholas , who has been in the role since 2018 didn’t start, or stop, any riots. He will hand over the brand in a similar (healthy) state to how he found it.

The last time Telstra went through a radical reinvigoration of the brand was during Mark Buckman’s term from 2011 to 2014.

In part, the timing of Telstra’s return to brand health was thanks to the company finally investing in product and customer service after the reputation-shredding Sol Trujillo years. It also helped that Vodafone’s network fell apart at the same time.

Nonetheless, much of the foundations of today’s Telstra brand were built during that short period a decade ago. There’s a lot of change coming for Telstra. 5G (and its challenge to NBN) is the new battleground. And the company is figuring out its media ambitions (although that doesn’t seem to be part of Smart’s remit) - it still owns a third of Foxtel Group, although seemed to want to sell down via the postponed ASX float, and it recently took a majority stake in streaming aggregator Fetch.

It makes for a fascinating time for Smart to take charge. He’s not the CMO you hire unless you want to change things up.

What happens at IAG will be just as interesting. What happens when a charismatic CMO moves on? It will be an opportunity to find out whether the team and structures that he built over the last five years can outlast him. It will take a while to know, but if it does, that legacy is arguably the best measure of a great CMO.

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Year end on The Unmade Index

When we started tracking The Unmade Index at the start of the year, I’d never have guessed it would become such an important tool in tracking just how badly the media sector is underperforming the wider, also slumping ASX.

But here we are, six months on and the index has ended the year an eye-watering 38.4% down. That’s compared to a 15% fall on the wider ASX All Ordinaries.

We began the index in January on a nominal 1000 points, and on Thursday the Unmade Index closed at just 616 points.

As you’ll see from the chart above, there wasn’t a single day in the year where the index rose back above 1000 points. Things really became painful in the last quarter.

Back at the end of December, we named James Warburton as our media CEO of the year, based on the growth of Seven West Media’s share price during 2021. It grew by 88% in 2021.

We won’t be naming a CEO of the FY22 financial year. Nobody deserves it. Every single media and marketing stock is significantly down.

In most cases, there’s very little they could have done to change the outcome. The falls were far more to do with investor sentiment towards media companies than any particular missteps. The performance of the index captures where investors think the market will go next.

Nonetheless, some companies have fared worse than others. Southern Cross Austereo did worst, losing 48.7% of its value over the last six months. Pureprofile did, if not best, then least badly, losing 26.7%

Let’s get an overview of where we’re at.

Nine - a year of treading water

We’ll start with Nine as the biggest locally listed media company. Because of its size, the company has lost the most in overall market capitalisation - more than $2bn.

Nine has felt like a company in a holding pattern while new CEO Mike Sneesby gets to grips with the parts of the empire with which he was unfamiliar having come back via the launch of Stan. Fifteen months in, he’s yet to publicly elucidate a wider strategy beyond going harder on the evolution from analogue to digital in all aspects of the business.

The last few months have been characterised by exits of some of the key executives who were stalwarts of the successful Hugh Marks regime.

Chris Janz, who rebuilt of the business model of Fairfax’s printed newspapers before the Nine merger and then led the company’s game changing News Media Bargaining Code negotiations with Facebook and Google, exited in September after missing out on the top job.

Lizzie Young, who was managing director of local markets and group marketing and had a wider commercial influence on the business, announced her departure to lead ad platform startup WeAre8. Director of trade marketing Luke Robinson followed her out of the door.

Nick Young, Nine’s director of sales, digital and publishing, left for Nova Entertainment as chief commercial officer. Paul Brooks, Nine’s director of sales for Sydney, joined Coles.

Meanwhile, Sneesby has been promoting some of his old colleagues from his NineMSN days.

Alex Parsons, who was director of marketing at NineMSN back in the day, is now chief digital officer. He stepped up after leading the (not entirely successful in my view) integration of the Drive and CarAdvice brands.

And in May, Rebecca Haagsma was appointed as chief product officer. Earlier in her career she was director of product innovation at NineMSN.

A defining factor for Nine in the coming months will be sports rights. The company will need to bid big against Seven West Media to retain the tennis. And the next three summer Olympics are also up for grabs. Winning the rights might be good for ratings particularly for Brisbane 2032, but with the market aware that Seven West Media lost $50m on the Tokyo Games in 2021, it may not be an investor-pleasing move.

Seven West Media - still hunter and prey

Who would have thought that one of Australia’s biggest two TV companies would only have a market capitalisation of $644m? Even factoring in the company’s net debt of $295m, SWM now has an enterprise value below $1bn.

It’s a bizarrely low valuation for a company which has told the market it expects to report a full year profit of $335m-$340m. There must be some real pessimism out there for the immediate prospects of commercial broadcast television.

2022 has also been a year where Seven was digesting its takeover of Prime Media’s regional TV operations to become a single national offering.

James Warburton has been most vocal among the media CEOs about his appetite to do deals. Reportedly, Seven looked at buying some of Southern Cross Austereo’s regional TV stations before SCA appeared to change its mind about selling its television assets. Radio and outdoor tie-ins still look logical for the portfolio, although the deal logic looks more difficult with depressed valuations.

And Seven will be both hunter and prey in sports rights. Although Warburton has publicly indicated a switch back from cricket to tennis will be a priority if he can outbid Nine, Seven also faces a fight to hold onto AFL.

According to this morning’s Australian, Paramount, owner of Ten, will bid a blockbuster $600m per year bid. The last time round in 2015, Seven, Foxtel and Telstra agreed to pay the equivalent of about $430m per year between them.

This Monday’s share price moves will be fascinating. If Seven bids hard for AFL it may overpay and hurt profitability. If it loses out, then ratings will collapse. Neither option is particularly palatable.

Southern Cross Austereo - how to get rid of TV?

With a market cap now hovering only just above quarter of a billion dollars, Southern Cross Austereo looks increasingly like a media company in search of a strategy.

In the current low valuations market, SCA appears to have reluctantly put on hold its plans to sell its regional TV stations - which are affiliated to Ten in most markets.

Instead, SCA has been presenting its investments in podcasting and streaming through the Listnr platform as key to its future. However last week’s Infinite Dial survey suggests podcasting’s audience growth might be hitting a plateau.

Even with a share buyback progam helping prop up the SCA share price and a projected full year profit of around $85m-$90m, the market will be wanting to hear about new strategic directions when the company presents its FY22 numbers on August 22.

Speculation in The Australian’s Data Room column this week that Paramount might buy SCA to lock in a national offering before selling Ten in a couple of years time, looked a lot like it had been planted by an interested party.

HT&E - with the Grant deal done, what next?

Operating on a calendar financial year, HT&E - parent of radio company ARN - arguably doesn’t deserve to have seen its share price decline 46% this year, particularly so soon after augmenting its national footprint with the Grant Broadcasters acquisition.

A few months back, the company’s stake in software company Soprano was almost sold at a valuation of $149m. On a sum-of-the-parts basis, the company is worth more

And in 2021, HT&E made a profit of $60m.

The least likely outcome is that HT&E stays as it is. As mainly an audio company, the company is something of an orphan. Tie-ups with outdoor companies - whether by merger or acquisition - still looks like an obvious option.

Ooh Media - a long delayed bounceback

Speaking of outdoor companies, Ooh Media shareholders had another rotten year.

Having done a big fund raising early in the 2020 pandemic, the share price has never recovered.

The OML share price of $1.21 is less than a third of its 2019 $3.62 peak.

Meanwhile the outdoor advertising market is yet to fully bounce back.

Enero - The lone holdco

Little Enero doesn’t always get much of a mention in our coverage of the Unmade Index. Since WPP Australia was fully taken over by its London-based parent company, Cap Gemini took The Works’ parent company RXP, and GrowthOps was taken private, there are no other agency holding companies on the ASX.

Like the media stocks, Enero - which owns BMF among its agency portfolio - has been punished on valuation more than the wider ASX. That’s despite having continued to report decent results.

The market must be truly trepidatious about the coming advertising recession.

Still, Enero may shortly overtake SCA for market capitalisation, something that would have looked extremely unlikely five years ago.

Pureprofile

Research and survey company Pureprofile is another company whose low valuation is more a result of market sentiment than its own deeds. Having traded its way out of trouble over the last couple of years, its prospects may be better than the share price suggests.

Domain - exposed to the coming property crash?

And then comes Domain, majority owned by Nine. Because of that (and its size) we only weight it at 40% in The Unmade Index.

What fascinates me about the real estate platforms is that while their fortunes have some correlation with house prices, they are not directly linked. Perhaps it’s as simple as the fact that owners might have to do more advertising when properties are selling slower.

Still, it was a rotten six months for Domain too - down by 47%. It’s now below a $2bn market cap.

News Corp - unprofitable in print?

And there’s one big media company which we don’t include in The Unmade Index. News Corp is dual listed in New York and Sydney, but most of its profit and revenue comes from outside Australia.

Perhaps the non-Australia dynamic explains why the share price has only (only!) fallen 30% so far this year.

In Australia, News Corp is a two-speed company.

It’s made great strides in figuring out its news masthead business models, including subscription revenue and the News Media Bargaining Code money.

But Foxtel Group (of which it owns two-thirds) is more of a puzzle. It’s an awesome business with awesome debts to match. The broadcast customer profits are falling away faster than the lower margin streaming subscribers are growing.

Binge and Foxtel’s broadcast entertainment offering will go backwards if (when) it loses HBO. Ditto for sport, particularly if Paramount snatches the AFL rights.

Intriguingly, the AFR reported a few days ago that the company has quietly restructured with a US company called Alesia Holdings Inc becoming the technical owner of the main Australia businesses.

That means a little more transparency about the local performance of News Corp. From the Alesia filings, the AFR deduced that Foxtel made a loss of $112m in FY21. Meanwhile News Corp’s local news arm made a loss of $40.9m in FY21.

We should get the next set of News Corp annual numbers in just over a month’s time. That will also give some clues about Foxtel’s hefty debt numbers.

Classic Sorrell

This week’s Mumbrellacast interview with S4 Capital boss (and WPP founder) Sir Martin Sorrell is worth a listen.

Despite being recorded in the noisiest cafe in Cannes, Sorrell was on classic form.

Along with his usual not-entirely-subtle sledging of his holding company rivals - and he was giving it out to Dentsu in particular - there was a noticeable change of tune.

These days Sorrell has stopped talking about growth through merger. Instead, it’s now all about organic growth. I suspect the reason is a pragmatic one. Since the S4 Capital share price crashed over auditing problems with its annual accounts, it would take a brave founder to sign up for a sale deal to sell for half of the price in shares in S4 and only half in cash, as has been the formula until now.

Despite an announcement overnight of a merger with social media marketing company XX Artists, the days of S4 mainly growing by takeover seem to be at least on pause.

Letters: Why the DAB gloom?

On Wednesday, I wrote about the new edition of The Infinite Dial survey and what it suggested about the growth of podcasting and penetration of DAB+.

Unmade - media & marketing through an Aussie lens

To the Infinite Dial... and beyond

Welcome to Unmade, written in the UK while you were sleeping. Unless you were staying up late for the Nick Kyrgios thriller, that is. What a game. Wimbledon is looking pretty good this year…

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13 days ago · 4 likes · 5 comments · Tim Burrowes

Ford Ennals, the incoming CEO of Commercial Radio Australia, writes:

Tim, We don’t share your rather gloomy prognosis, in fact quite the contrary.

Demand for digital audio entertainment and information is booming, podcast listening continues to grow and there is strong potential to commercialise the new opportunities in digital audio.

Radio has sustained an astonishingly high weekly reach over the six years that Infinite Dial has been undertaken – and this year’s results, despite the impact of a worldwide pandemic, are a testament to listener loyalty and the success of the industry’s multiplatform strategy.

Radio listening across multiple platforms remains important with AM, FM, digital, DAB+, podcasts, apps and smart speakers all playing a role.

To answer your question we see DAB+ as showing strong growth and playing a more important role. The Infinite Dial shows 20% of the population listens to DAB+ weekly – bear in mind this is a nationally representative study and includes regional areas that do not yet have DAB+.

In the five metro markets where DAB+ is well established, GfK Survey 3 shows 32% of those aged 10+ listened via a DAB+ radio each week.

Commercial DAB+ stations increased their total audience by 39% year on year, 62% of households have access to a DAB+ radio and more than 78% of all new cars sold in Australia are fitted with DAB+ radios.

Podcasting is complementary to radio – it does not have the mass reach of radio which is pretty much ubiquitous but with monthly podcast listening growing to 40% - higher than the US - it does have significant and increasing scale.

With a two-hour weekly increase in listening time to over 7 hours, you can expect to see increased monetisation of podcast’s valuable highly targeted audiences.

Regards, Ford Ennals, Commercial Radio Australia

Tim responds: Thanks very much for the response, Ford. And indeed for the data on DAB+. That’s more information than I've been used to seeing over the last decade or so. Any chance of sharing a bit more information about average listening as well as cumulative audience? Or at the very least, what percentage of average listening is coming via DAB+?

And I agree with you about the power of podcasting. Not every medium needs to be a mass medium to be a great medium.

On the same topic, reader Gavin writes:

It seems plausible that during lockdown people got bored with listening to radio and tried out a few podcasts...then stuck with them when they realised there was an alternative to mass market radio.

But I’m not sure about including “catch up radio” in radio listening. What differentiates that from a podcast? Has this been double counted, I wonder...

DAB is a great invention for places like Europe, due to political and physical geography. Less so in Australia, where different rules apply. At least we went straight into DAB+ but, as you say, the number of extra channels we’ve been given as a result is insignificant if you’ve got any sort of radio/podcast app on your phone.

And Steve Allen, director of strategy and research at Pearman Media adds:

Morgan Research says for Q1 2022, 17.49% of people report owning a Smart Speaker, so quite a contrast. Also Morgan also says 16.62% downloaded Podcast, again a distinct difference!

Weekend listening

In the unlikely event you’ve not heard enough from me, then please do give today’s edition of the Fear & Greed podcast’s Weekend Edition a listen. It’s just gone live.

The F&G team was kind enough to invite me to adjudicate their weekly debate on the big stories of the week. It’s perhaps the most fun I’ve had on a podcast this year.

Speaking of podcasts, Unmade will be back on Monday with Start the Week. I’m already aware of one big, controversial issue for the industry which will break tomorrow.

Meanwhile, the little message at the top of my Substack dashboard is reading “Post too long for email” which is a sign it’s time to stop writing and let you enjoy your Saturday. Have a great weekend.

Toodlepip…

Tim Burrowes

letters@unmade.media