Welcome to Unmade, mostly written on Friday afternoon at a pleasant 3.5 star hotel in Sydney’s rainy Chinatown, and polished off this morning in a mildly hungover race against checkout time.

Happy World Nutella Day.

Bubble’s end?

I wonder whether we’ll look back on the last few days as the moment the tech bubble began to burst.

The tech sector hasn’t had as bad a fortnight since the moment the NASDAQ technology index peaked in March 2000, just before losing two thirds of its value when the Dot Com Boom became the Dot Bomb Crash. The index took 15 years to recover.

Twenty two years on, history might be rhyming. In a crazy few days back in 2000, the market shifted. The Superbowl has often been an indicator of irrational marketing exuberance. Some brands that can afford to advertise during the game are doing so because they’ve got more budget than sense.

Back in 2000, the Superbowl was stuffed full of dotcom advertisers beating their chests about their scale, even if many of them weren’t actually profitable. But within weeks, as interest rates began to rise and Japan entered a recession, the investment stopped flowing and gradually the big dogs started keeling over as the world realised they were running out of money.

This time round, it’s not quite the same. Crypto is shaping up as the big new advertising segment at the Superbowl in a week’s time. And many of the digital media giants who had a bad time of it in the last few days are still highly profitable. However, their share market valuations are so stratospheric that even the smallest piece of bad news - or headwinds, as they delicately like to put it - can panic investors who want to dream that the thing they’re buying has not yet peaked.

In the last fortnight, we’ve seen Netflix shares crash after subscriber growth slowed. Spotify’s headwinds were the beginnings of a boycott of its services over Covid disinformation on The Joe Rogan Experience podcast, which are yet to show up in terms of hurting its revenue.

On Thursday night Facebook’s market capitalisation faced a US$238bn (yes billion) crash - the biggest in business history.

And yesterday, News Corp suffered what looks to me like a blow to its hopes of floating Foxtel Group with news that video revenue has fallen.

So there are headwinds for some. But others are still enjoying a cruise.

Google’s parent company Alphabet revealed massive growth numbers yesterday, as did Amazon and Snapchat. Locally, the ASX bounced around all day and in the end closed slightly up. Our Unmade Index, which covers local media and marketing stocks, was up about 2%. More on that later.

Facebook’s fall

But all the headlines were about Facebook. The mood music has changed.

The big news is that Facebook, or rather Meta as the parent company is now known, seems to have peaked. The news that Facebook’s total number of users has declined for the first time, and that by some measures, profits are down, generated a stunning fall in the share price.

Having peaked at $384 four months ago, the share price is now $238, down nearly 40%. The worst came yesterday with a 26% fall, after Meta filed its end of year numbers.

It’s worth bearing in mind that the $238bn fall is a big headline, but in some ways it’s meaningless.

It only becomes a real loss for shareholders when they try to sell and they get less than they otherwise would have done. If the market follows its usual pattern, Meta’s price will recover somewhat as traders try to buy the dip. Mind you, I was surprised to wake up this morning and see that the price stayed flat on Friday.

Locally, it had already been yet another bad week for Facebook’s reputation.

Whistleblower Frances Haugen gave evidence to the Senate Inquiry into online safety on Thursday that the algorithm prioritises polarising ads because they drive more engagement.

And mining billionaire Andrew “Twiggy” Forrest launched criminal proceedings in WA, alleging Facebook is breaking anti-money laundering laws by not doing enough to prevent scam ads that use his image.

Going the criminal rather than civil route is interesting. Companies like Facebook and Google can easily absorb civil penalties, even in the millions, or in the case of Europe, billions of dollars. But, as marketing commentator Scott Galloway puts it, forcing Facebook executives to do a perp walk might focus minds.

Then came this week’s end of year financial numbers which covered the last quarter of 2021, along with the full year annual report. The word “headwinds” appears 34 times in the transcript of the investor call held by boss Mark Zuckerberg and his team.

Among the headwinds was the effect that Apple’s tightening of privacy settings on Facebook’s mobile operating system is having on the effectiveness of Facebook advertising.

With less data, it’s harder to target ads, and harder to measure their effectiveness. Facebook is still attempting to prosecute the argument that small businesses are the real victims of the privacy change. As chief operating officer Cheryl Sandberg put it in the call: “Q4 was also the first holiday season after Apple’s iOS changes, which have had an impact on businesses of all sizes – especially small businesses who rely on digital advertising to grow. This will continue to be a factor in 2022.”

But of course there are other places for those small businesses to spend their marketing dollars if Facebook and sister app Instagram stop being as effective.

There was a lot of relevant information for marketers in Meta’s annual report. If you spend money advertising on Facebook, you should read it. The legalese of any company’s annual risk disclosures is often where juicy tidbits can be found:

“As is common in the industry, our marketers do not have long-term advertising commitments with us. Many of our marketers spend only a relatively small portion of their overall advertising budget with us. Marketers will not continue to do business with us, or they will reduce the budgets they are willing to commit to us, if we do not deliver ads in an effective manner, if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives, or if they are not satisfied for any other reason.”

We have implemented, and we will continue to implement, changes to our user data practices. Some of these changes reduce our ability to effectively target ads, which has to some extent adversely affected, and will continue to adversely affect, our advertising business. If we are unable to provide marketers with a suitable return on investment, the pricing of our ads may not increase, or may decline, in which case our revenue and financial results may be harmed.”

Not that marketers seem to have woken up to this just yet. Elsewhere, the company disclosed that during 2021, the number of ad impressions delivered was up by 10%, and it had pushed up the average price per ad by 24%.

That’s worth dwelling on for a moment. For all its brand toxicity and declining effectiveness, Facebook was still able to push up the average price of advertising by 24%. I presume that media agencies wouldn’t stand for that on behalf of their clients (if you’re a marketer, maybe you should ask your media agency about that), so presumably that price growth is being squeezed from those poor little SMEs that the company says it feels so sorry for.

There was also a surprising acknowledgment that the toxicity of Facebook’s brand is a risk to the company’s wellbeing:

“Maintaining and enhancing our brands will require us to make substantial investments and these investments may not be successful. Certain of our actions, such as the foregoing matter regarding developer misuse of data and concerns around our handling of political speech and advertising, hate speech, and other content, as well as user well-being issues, have eroded confidence in our brands and may continue to do so in the future. If we fail to successfully promote and maintain our brands or if we incur excessive expenses in this effort, our business and financial results may be adversely affected.”

Note the bits I’ve put in bold above. That’s quite an admission.

And yet, don’t feel too sorry for Facebook. It’s still a behemoth. Its revenues for the year were US$118bn, up from US$86bn in 2020.

Along with the slight fall in user numbers, one of the things that spooked the market was that profit fell by 1%, to US$12.6bn for the quarter. But that’s still a lot of profit. And for the full year it rose to US$46bn.

The size of Zuckerberg’s gamble on the Metaverse is also becoming clearer. The company lost $10.2bn (yes, billion) on its reality labs division last year. If Zuckerberg turns out to be wrong about the Metaverse, it will be the most expensive gamble in history.

It’s also interesting to note in the report that with a headcount of 71,970, Meta now employs more people around the world than the 60,000 or so active personnel in the Australian Defence Force.

Not that Facebook’s war with Australia last year left a mark. The payouts it has started making to Australia’s big media owners to avoid the News Media Bargaining Code don’t get a mention in the entire annual report. Indeed, the whole unfriending-of-Australia thing from almost exactly a year ago, when Facebook kicked news sites off the platform, didn’t even get an oblique reference.

Alphabet’s rise and rise

Meanwhile the share market liked Alphabet’s news a lot better.

Revenue’s from Google’s parent company were $257.6bn. That’s up by a massive 41% on the year before. That’s such an enormous, ridiculous number you need to stop and think about it, just to digest it.

The company made a profit for the year of $76bn.

While that’s good news for shareholders - and as a $1.9Tn (yes, trillion) market cap company there are a lot of them - it’s yet another sign that the company is too big. Companies operating in normal environments don’t return an operating margin of 31%. Normal companies are quite pleased if they get back a 20% profit on their turnover.

Just like Facebook, Google is squeezing ever higher rates out of its advertisers. It managed to put up the price-per-impression by an average of 35%. That’s only possible where a company holds monopolistic market power.

When it comes to legislators making the case for a breakup, the evidence is all there in the company’s 2021 annual report.

News Corp - news division recovers, as Foxtel slows

By comparison to Google and Facebook, News Corp - which released its quarterly earnings on Friday morning - is a tiddler with a US$13bn market cap.

Although it’s dual-listed in the US and Australia, News Corp still follows an Australian financial year, so it only released half yearly results yesterday. They were a mixed bag. The share market quite liked it, with a 5% increase in the share price.

The number I was most interested in was how the Foxtel Group, which the company owns two-thirds of alongside Telstra, is faring. This is the part of the business which News Corp is hoping to spin off and perhaps float. To do so relies on a growth story that potential investors can believe in.

Before I come on to the company’s subscription video services division, as it’s labelled in the report, it’s first worth mentioning the news media division.

Compared to the grim final quarter of 2020, the company had a better three months at the end of 2021.

Revenue to the news media division - which includes digital and print sales, advertising, and the Google and Facebook money - grew by $65m for the quarter to $617m. Mind you, digging out last year’s document, that’s still a long way down on the same quarter in 2019, where the number was $811m.

However the profitability is way, way up - presumably because the revenue is coming in despite the closure of so many of the community papers during the pandemic.

In that pre-Covid quarter in 2019, the company’s news division reported a profit number of just $66m, and then delivered exactly the same number in 2020. As you’ll see above, in 2021 the profit number for the quarter jumped by 68% for the news media division to $111m for the quarter. I guess the Google and Facebook deals are less onerous than the challenges of writing, printing and distributing newspapers to regional Australia were.

But the data from the subscription video services division suggests a race against time to get a float or other deal away.

Revenues for the division were down by $13m, or 3%. I think that’s the first time since Foxtel launched that this has occurred.

On the plus side, the streaming side of the business had more growth, although the company was tricksy in how it shared the numbers.

It said entertainment offering Binge rose from 431,000 paying subscribers a year ago, to 928,000 at the end of 2021.

With sports service Kayo, it only disclosed that it had risen from “648,000 subscribers (624,000 paying)” to “over 1 million Kayo subscribers (total and paying)”. I suspect there were significantly more than last year’s 24,000 freebies being given away to get Kayo above the 1m headline number.

And paying subscribers to the streaming offering of Foxtel Now actually fell - from 258,000 to 211,000.

There was no disclosure of how new news service Flash is faring. I’ve heard reasonably well-informed industry speculation that a disappointing number of trials has resulted in only a small number of paying customers, maybe 400.

The video segment’s profit fell quite hard as a result of the amount it has been spending on its streaming push. Profit for the quarter was down by 31% to $86m.

The numbers suggest that the full year story for the division will be one of something like a $2bn turnover and $400m profit. And that’s being generous. Whether that’s enough to get a float away at a valuation that’s worthwhile for News Corp based on the investment it has put in, is questionable. I wonder whether a merger with Seven West Media’s TV assets ends up on the table instead.

Newsfeed

Jeff Zucker out at CNN

One of the media industry’s most powerful executives, CNN president Jeff Zucker, has resigned after failing to disclose a relationship with another executive. It comes just a few weeks after the firing of CNN news anchor Chris Cuomo who failed to disclose conflict of interest involving his brother, New York governor Andrew Cuomo. It also comes against the backdrop of a merger of CNN’s parent company WarnerMedia with Discovery Inc.

The Witches finally launch their “app”

Anti-News Corp campaign group Mad Fucking Witches finally released a web-based app designed to help its supporters put pressure on advertisers. The project, which was crowd-funded to the tune of more than $130,000, had been repeatedly delayed.

The simple website is designed to allow supporters to look up individual businesses and then email those listed as a “foe” demanding they stop advertising with News Corp titles. The site crashed on its first day but later came back online. It lists a number of small charitable organisations and local businesses among the foes it is urging its supporters to bombard with emails.

SCA invests in trade marketing

Southern Cross Austereo has appointed Lucia Elliott into the new role of national trade marketing director, and promoted Megan Parkes to national trade marketing Manager. SCA’s portfolio includes regional TV stations mainly affiliated to Ten, radio networks Triple M and Hit Network, and the Listnr audio streaming platform.

Elliott previously led marketing for the Boomtown regional media initiative and was also marketing director for now defunct trade marketing body The Newspaper Works.

CHEP to reboot

Omnicom agency CHE Proximity - which was created out of the merger of Clemenger Harvie Edge and Proximity a decade ago - is to launch what its recently arrived CEO Justin Hind describes as “a new agency model”.

Under Hind’s predecessor Chris Howatson, CHEP dominated the industry awards landscape with a model which closed the gap between agency and consultancy. Hind was previously co-founder of With Collective, which positioned itself as the place where technology and data met agency creativity. It was bought by Dentsu Aegis in 2016 and later merged into Isobar.

Unmade Index: Another wild week in medialand

The Unmade Index enjoyed a strong finish to the week, with Australia’s listed media and marketing companies up by 2% on Friday.

Real estate platform Domain was the only stock to fall, while Australian Radio Network’s owner HT&E saw the biggest rise.

Dr Spin: Issues management done right

Dr Spin writes:

The ad of the week came from, of all places, a public service broadcaster.

The British Broadcasting Service’s “This is our BBC” showcases the range of shows and information on offer to UK viewers.

It launches as - but given the amount of work involved was probably commissioned long before - the Conservative government announced that it intends to end the funding of the organisation through a national licence fee.

Dr Spin can only hope that the ABC, which faces similar challenges with its government funders, is capable of making the case for its existence with half the panache.

That’s it for today.

As ever please do feel free to share your thoughts via the button below. As ever, I sincerely apologise to those I haven’t yet replied to. (That includes you, Steve).

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I’m heading out of town in the direction of a long awaited reunion with the cats (and family). I can’t wait.

Have a great weekend.

Toodlepip

Tim Burrowes

Unmade

letters@unmade.media