Best of the Week: Marketing in a cost-of-living crisis; Who (apart from Ten) would want SCA’s TV stations?; Is Qantas blowing its brand advantage?
Welcome to Best of the Week, kicked off in the attic room of a genteel, albeit slightly ramshackle, townhouse hotel in London’s Sloane Square, and continued on the 10.31am out of Victoria.
Happy Make Up Your Own Holiday Day. And, also, Happy Earth Hour. I make no link between the two things, but you’re welcome to do so.
Today’s writing soundtrack: The Streets - Original Pirate Material. Twenty years went by, we’re older.
It’s the cost of living, stupid
This month, something shifted. For anyone working in the world of marketing, the major underlying theme for the coming months is no longer Covid. It’s going to be the cost of living.
My mind has perhaps been concentrated by currently being in the UK, where the British government made its half year budget announcement on Wednesday. As it happens, we’re now only three days from Australia’s Budget.
There are plenty of parallels between the two countries. Inflation is suddenly roaring, kicked off in large part by a shortage of workers driven by border and immigration restrictions, and exacerbated by rising global energy costs made worse by Russia’s war on Ukraine.
In the UK, annual inflation hit an eye-watering 6.1% this week. The British Chancellor’s measures - the main one of which was to reduce fuel excise by a measly five pence, (merely reducing the cost of filling a tank back to the price of a fortnight or so ago) - was widely judged as inadequate, even by the news mastheads that usually support the British government.
Along with the newspapers, every current affairs radio and TV show in the UK this week have been full of ordinary people weighing up their choices.
The BBC sent its journalist Phil McCann to a petrol station, which is up there with sending Amy Parks to AAMI Park.
For many, it’s not about putting off a holiday or car purchase. It’s about whether to buy groceries, or pay the electricity bill. Food banks spoke of people declining potatoes because they can’t afford the energy bill to cook them. Debt counselling services spoke of clients committing suicide.
With the Coalition government due to call an election in Australia within days, it will be fascinating to see whether it reacts better to the escalating situation, and delivers a budget next week that is able to make a genuine difference.
While Australia’s inflation rate is not yet - yet - matching the level of the UK and the US, it’s on the way upwards. It jumped from 3% to 3.5% over the last quarter. This week I’ve seen people sharing images of their Coles and Woolworths till receipts on Twitter. Could Coles’ gradual move away from making price its key battleground (remember “Down, down”?) prove to be a strategic mistake?
In Tasmania, people are selling their books to pay for their fuel.
For marketers, the reality is that working class and middle class consumers will have far less disposable income.
For some, it’s not just an impending cost-of-living crisis, but one that has already arrived. It means that price will become a crucial consideration for every marketing strategy. For a significant proportion of consumers, keeping heads above water will be a genuine consideration.
I wonder whether being inside the inner city marketing bubble will make some slower to recognise the changed landscape. I heard one suggestion from an Australian pundit this week that people should simple swap their car for public transport. For many in rural or regional Australia that’s not even an option when there is no public transport. In my corner of Tasmania, the only public transport option is to ask for lifts on. the local Facebook group.
Along with pricing, basics like unit size for products may come into play. A few years back, during a work trip to Cairo, I naively asked an FMCG marketer why he was selling laundry power in such tiny packets. It was because it was all his customers could afford, he told me. We’re not getting to that point are we?
Like most things, the effect will be unequal. But I suspect that even middle class households will start to make more conscious choices about how they spend their money. Even the comfortably off will start noticing prices.
The consumer psychology of the situation deserves some thought - the marketing opportunity may lie where people are reconsidering what were previously automatic brand choices. With the right offer, it might be easier to get people to switch.
There could be deeper effects though. It’s the first time in a generation that people in employment in Australia have faced the likelihood that for the foreseeable future they’ll be a little worse off each year, rather than a little better off.
If you really want to lose sleep, consider what will happen to consumer confidence when the value of people’s homes start dropping, as seems increasingly likely.
On Tuesday, Roy Morgan Research and ANZ said that their Consumer Confidence index had dropped by 4.6 points to 91.2 - that’s down 19.7 points on the same week a year ago, and the lowest since Victoria’s second wave of Covid in September 2020.
The number of people planning major purchases has fallen as abruptly as at any time apart from the early days of Covid.
If you work in marketing and aren’t already thinking about your cost of living crisis strategy, then you’ve not been paying attention.
SCA pushes for a dowry on the shotgun marriage
Southern Cross Austereo this week finally told the ASX what everybody knew - it would like to sell its regional TV stations.
SCA sees its future as an audio company - through its metro and regional radio networks Triple M and the Hit Network, and through its year old Listnr streaming app.
I doubt it will get a good price. TV networks aren’t worth what they once were. When CBS bought Ten out of administration for $213m in 2017, that was the least ever paid in real terms for a network. SCA is likely to get even less again.
There are a few factors weighing down the valuation.
First, and most pressing, there is no digital future for the owner of the stations. SCA’s main affiliate deal is with Ten, which supplies most of the content aired. But via 10play, Ten already streams directly to the regions where the SCA stations are for sale. Although it will be many years (and perhaps decades) away, there will come a time when the TV networks turn off their transmitters. At that point, the SCA stations will be worth nothing.
That’s one reason why WIN’s owner Bruce Gordon saw the writing on the wall and got back in bed with Nine, where he is now the biggest shareholder. In 2016 he went to court and failed in his “great geoblock of Wollongong” argument that Nine should be blocked from streaming to his affiliate audience in the regions.
Gordon, along with the like of the business partners Antony Catalano and Alex Waislitz, was also willing to sell his stake in Prime to Seven on a valuation of $132m at the end of last year.
In the 2021 financial year, Prime had reported revenues of $178m and EBITDA profit of $36.8m. That suggests a multiple of 3.5 times profit.
SCA recently released its half year numbers for the first half of the 2022 financial year, and broke down its numbers into TV and audio in the announcement. Those suggested TV revenue of $65.8m and TV profit of $17.5m for the half year.
Crudely doubling that profit number to account for it being just a half a year number, and applying the 3.5 multiple would suggest a valuation of $123m.
But who would buy it at that price? The most obvious bidder is Ten’s owner Paramount (since buying Ten, CBS became Viacom CBS, and then Paramount).
But a complicating factor is that the SCA affiliate deal is a nice revenue stream of relatively easy money for Ten, that would no longer be there if it bought the regional stations.
Instead, the calculation would need to be how much of that $65.8m half yearly revenue would drop straight to Ten’s bottom line if it was able to streamline the sales operations under one national team?
And that also complicates the calculation for anybody else considering bidding. With the prospect of a unified sales team, Ten would have a far better shot at making real cost savings than any other bidder.
Yet if SCA is to get a decent price, it needs to find competitive tension from somewhere.
Back in February, The Australian suggested there had been interest from private equity firms (the paper mentioned Allegro Funds, Anchorage Capital Partners and Platinum Equity) along with Ten and Catalano. They would only have a shot if Ten put in a laughably low ball offer.
I cynically suspect that at least some of the intent behind this week’s announcement to the ASX was an attempt to scare up another bidder to stop Ten from lowballing.
The clock is also ticking. The current affiliate deal is only a short one, expiring in July next year. Seven now owns Prime, taking those two partners out of the affiliate mix. And Nine is now the direct employer of what was the WIN sales team.
You’d be pretty brave buying the SCA stations if you knew you’d just beaten Ten to the deal and you would have to immediately begin negotiating an affiliate deal.
So that puts Ten in the box seat.
Which also explains, I suspect, the other part of SCA’s announcement of a $40m share buy back. Boards usually do that when they are either desperate to shore up the share price, or don’t have a better strategy for investing capital.
In the company’s February update, it revealed it had $60m sitting in the bank. Mind you, it had also drawn down $128m of its debt facility, which expires in a little less than four years. So it’s sitting on a net debt of $68m.
In the short term though, the announcement worked its magic. Despite nothing changing about the fundamental health of SCA as a company, its share price rose by 10% for the week, up from $1.60 per share to $1.76.
Still, that’s well below SCA’s $2.38 high point of last November.
The company’s market capitalisation still sits below half a billion dollars, leaving it underneath that of its most bitter direct rival HT&E, owner of Australian Radio Network.
Mind you, the SCA TV deal feels like housekeeping. SCA wants to get out of TV; Ten is the logical owner. A deal will probably get done.
Unmade Index - a week of continuing recovery
The Unmade Index of ASX-listed media and marketing companies finished a broadly positive week with another day of growth.
Having grown by 0.16% on Monday, 1.37% on Tuesday, 1.21% on Wednesday and standing still on Thursday, yesterday saw growth of another 0.25% for The Unmade Index.
The index is now sitting on 941.6 points - still well below its nominal 1000 point opening at the beginning of the year, but at least comfortably above the 900 mark again.
Nine is now close to returning to a $5bn capitalisation, while Seven West Media is now comfortably back above $1bn. However, Ooh Media, HT&E and SCA are all still well out of the three comma club, where they would belong in more certain times.
Qantas - back in business, but brand pain to come?
Earlier this month I had my first international flight with Qantas in a couple of years. I’d been looking forward to it.
Although I’ve had family reasons for pinging backwards and forwards to the UK since the borders reopened, I’d been doing it on whatever One World airlines had points flights available. That included Emirates, Air Japan and, until Hong Kong remained mostly closed, Cathay Pacific.
So I was pretty happy when the cancellation of my Cathay flight saw me moved onto a Qantas flight instead. I struggle to rationalise why I like the brand so much.
Going away felt like coming home.
And so does the release of what was intended to be the big advertising campaign of the airline’s 2020 centenary, with a plethora of Aussie stars once again performing I Still Call Australia Home.
With a brand asset as powerful and beloved as that song, there’s absolutely nothing wrong with remaking it over and over again as The Monkeys have here.
The brand also weathered Covid perhaps better than any other global airline. It found ways of staying in the news and maintained its links to its customers.
When the inflight magazine arrived in the post each month, I’d always turn to the back, to see whether the route maps were back yet, as if there might have been a secret decision to reopen Australia which I would first discover there.
Now though, Qantas is back in business and facing what is starting to look like a major new test for the strength of the brand.
The policy of allowing passengers to book with the reassurance they can make booking changes without charge has left its telephone staff unable to cope. I suspect that in addition, call centre resources were cut during Covid and have not been reinstated.
Based on the anecdata, call waiting times of three hours and more are currently commonplace. Imagine being able to fly from Sydney to Perth in the time it takes for someone from Qantas to pick up the phone.
For many customers, rather than getting on board flights, that phone marathon will be their first experience of Qantas in two years.
This week in a further sign of getting back to business as usual, Qantas launched one of its semi-annual double points promotions. “Points Guy” Stephen Hui jokingly made a serious point. Perhaps the only reason for chasing status at the moment is that it allows passengers to get their call answered faster.
And there is a wider upswell. A Change.Org petition has just kicked off, claiming that average call waiting times are five hours, 36 minutes. The anecdotes it shares suggests widespread customer disgruntlement.
I recognise the comment about the buggy website as something I’d learned to live with, even before the pandemic. It was just a price of being a superuser of the Qantas website. Without noticing, I’ve become adept at the workarounds. When the Qantas site crashes in one Chrome window, switch to Incognito mode. If that doesn’t work open it up in Safari. And if things get really desperate, delete all of your cookies and live with none of your passwords working across the web.
It doesn’t sound great when you write it down, does it? I feel like I’m a bit of a foolish brand fan for putting up with that sort of thing without getting more cross, or switching loyalties. That Emirates flight was amazing. And the Japan Airlines one wasn’t bad either.
The call centre problem is well on the way to becoming a brand issue. I wonder what the pre and post pandemic Net Promoter Score for Qantas looks like.
These complaints are the sort of things people used to say about Telstra when the telco was at its worse.
It would be such a shame if a great company like Qantas survives the pandemic better than any other airline, only to trash the brand because it can’t get on top of its on-the-ground customer experience.
Speaking of housekeeping, before I let you go about your Saturday, let me offer up a couple of plugs.
First, I’m so proud of the depth of our reporting in my colleague Damian Francis’s hard look at the insurance marketing sector which we published on Wednesday.
It’s behind the paywall, and I’d challenge anybody looking for an overview of marketing in the insurance sector to fail to find the value in it. If you’d like a picture of the sort of in depth reporting we aspire to as Unmade grows, then that was it. If you haven’t already, please do give it a go.
Second, I also had the pleasure of talking about myself this week. Nigel Marsh (who you may know either as a former ad exec or as the author of the memoir Fat, Forty and Fired) was kind enough to invite me to join him on his podcast The 5 Of My Life, in which his guests chat about their favourite movie, book, song, place and possession.
If you’re not already thoroughly tired of me, you can hear it via this link, or on your favourite podcatcher.
Have a great weekend.
Toodlepip…
Tim Burrowes
Unmade
letters@unmade.media
Given it's recent purchase of Prime, Seven may well be interested in buying it's local news producers/middlemen in Tasmania and the NT, and the more remote parts of Queensland, NSW and SA.