Welcome to Unmade, written in London while you were sleeping on Saturday morning.

Happy Independent Bookstore Day.

Today’s writing was done to David Gray’s soundtrack of 2000, White Ladder.

Reminder: Unmade’s paying supporters receive this email before everyone else. It’s just one benefit of backing independent journalism.

Stepping back into the world of ad industry conferences this week felt surreal. It was a parallel universe where Covid might as well not have happened. Struggling for a seat on packed commuter carriages, waiting impatiently for delayed Tube trains, searching for a table in a crowded pub, walking into hotel conference rooms without a mask wearer in sight. The UK population - or at least those who have chosen to come back to the cities - have decided to act as though the pandemic is truly over.

However, there is a symptom of post-Covid lockdown syndrome that I need to warn you about. Formal clothes shrink while hanging in the wardrobe for two years. All is not well in the kingdom.

I went to a couple of decent industry events - the Future of Brands conference, organised by Mediatel (they’re also involved in Australia’s annual Future of TV conference), and New Video Frontiers, organised by Videoweek.

Television frontiers

On both sides of the planet, TV was a big topic this week. In Australia, Telstra took a majority stake in aggregation service Fetch, while Ten’s owner Paramount emerged as a serious bidder for the next cycle of AFL rights. And in London, the conversation focused on the implications of the subscription streaming services introducing ad-supported tiers and what that means for audience measurement.

So first, let’s get to the Telstra investment in Fetch. It’s worth bearing in mind that although it’s a transformative deal for Fetch, it’s small enough for the $48bn market cap Telstra that while it issued a press release, it did not see the need to announce it to the ASX.

The telco will spend about $50m on buying a 51% holding in Fetch.

Although Australia has seen its local streaming failures (most notably Seven and News Corp’s joint venture Presto, and Quickflix), there have also been local success stories. The two that stand out are Nine’s streaming service Stan, and Fetch.

Fetch is an interesting local product without a direct international equivalent. The nearest is perhaps the US-based Roku, which has three main parts to its business - set top boxes, smart TV software and advertising. Fetch is mainly in the box business.

While the likes of Stan went big from the start, Fetch inched forward, staying neutral as an aggregator whilst picking up non-exclusive deals with just about everyone. CEO Scott Lorson must be a good diplomat.

Fetch offers two main set top boxes - the $169 Fetch Mini, which is a pureplay viewing device, and the $449 Fetch Mighty PVR which is also a storage and recording advice. Each box takes inputs from both traditional broadcast and the internet. (Declaration of interest: I have a complimentary subscription to a Fetch Mini.)

Some of the company’s telco partners also offer Fetch as part of a subscription. Fetch also announced an upgraded fourth generation version of the Fetch Mighty this week. The boxes are sold by Australia’s major electronics outlets including JB Hi-Fi, Harvey Norman and The Good Guys.

As viewers become increasingly used to flitting between broadcast television, ad-supported catchup and on-demand, and subscription-based streaming, the question of which remote control will reign supreme is unsettled.

Manufacturers of smart TVs would prefer it to be them. Fetch would like its customers to navigate their viewing through its box. In Australia, Foxtel has also belatedly joined the aggregation game by adding a handful of other streaming apps to its iQ Box navigation. The Apple TV box, the Chromecast, Playstations and Xboxes are other options.

One key battleground is around simplicity of the navigation - and content discovery - for the user. Another dynamic is where partners bundle subscriptions as part of the package. The Optus SubHub, which allows its customers to manage all their subscriptions in one place, plays into that. Other telco partners for Fetch include iiNet, Aussie Broadband, Primus and Dodo.

For Fetch, success means offering access to as many subscription, movie purchase and rental options, and ad-supported offerings as possible, while staying neutral. It runs a low cost model, taking a modest clip of the ticket, and staying out of the content creation business.

That last point now looks increasingly savvy, given the way investors have turned agains the likes of Netflix for their expensive content slates. However, it also helps explain why Fetch did not see the same sort of explosive growth as the content-owning streamers. Until this week.

The major missing piece for Fetch was an arrangement with Australia’s largest telco Telstra. Instead, Telstra white labelled Roku’s technology for the Telstra TV box, which also explains why Roku is not a big name in Australia. That deal was due to end in a few months.

So Telstra will change horses to Fetch’s technology. The move will see Fetch’s 670,000 active subscriptions more than double when combined with Telstra’s 800,000. The deal has been in the offing long enough that Fetch should be able to deliver the switch away from the Roku technology without hitting supply chain problems, despite the global chip shortages.

From the outside, the Telstra arrangement had once looked unlikely because the telco still owns a third of Foxtel, alongside News Corp. Telstra had been hoping to reduce its stake via the planned ASX float, but with that stalled, Telstra seems to be stuck with Foxtel whether it wants it or not.

Perhaps what changed the dynamic though was the arrival of Kim Krogh Andersen two years ago as Telstra’s group executive for product & technology. Rather than recommit to Roku, he opted for investment in Fetch and the added security of an ownership stake. $50m starts to look like a bit of a bargain.

Telstra is a big enough and complex enough organisation that Fetch and Foxtel will effectively have different internal stakeholders.

That scaling up to 1.5m or so subscriber base does two interesting things. One is that it provides a critical mass for Fetch to potentially become an advertising player in its own right as that revenue stream grows in the streaming sector. And it also provides a moat against Roku which may well look to Australia as a future market, once it loses the Telstra relationship. Shortly after the announcement that Telstra was switching away to Fetch, I spoke to a Roku executive involved in its international arm, during the coffee break at the New Video Frontiers event. They’ve no plan for Australia as yet.

AFL’s great timing

Sticking with TV, the two most important content engines in Australian television are NRL and AFL.

This week, the Sydney Morning Herald revealed that AFL management is looking to get its next rights round wrapped up this side of Christmas.

At present Seven holds the broadcast rights and Foxtel Group the pay TV, which is spread across both Foxtel broadcast and its streaming platform Kayo.

Although there was a two-year extension agreed during the pandemic, the last time the rights were properly negotiated was in 2015. It was a deal worth $2.5bn for six years. At the time it looked like the value of sporting rights had peaked. Most of the money came from Foxtel, with owner News Corp infuriated at being blindsided by NRL doing a deal with Nine a few days before.

But that was before the impact of streaming. This time, prices will be driven up by value, not ego.

There will be another factor too. Ten’s owner Paramount will be in a much better position to mount a full bid, for both the free to air rights to run on Ten, and the pay TV rights on Paramount Plus. Last time round Paramount Plus didn’t exist.

Yet Seven knows that losing the rights would be a disaster. Ten never recovered from the decision of its then proprietor Lachlan Murdoch to relinquish its slice of AFL back in 2011, in the mistaken hopes of snatching NRL from Nine.

Similarly, Foxtel Group is heavily reliant on its exclusive AFL games for subscriptions to Kayo and Foxtel.

Seven has no subscription streaming play and Foxtel has no free to air partner, which points to the two organisations working together on a bid again.

The temptation for Foxtel and SWM to over-bid will be huge, given the loss of audience that would follow if the rights move. Remember though that Ten will be just as highly motivated to end its decade of pain at the absence of the sport.

The price will set the tone for the entire TV market for the next few years. For all involved in bidding, it could be a choice of winning and bleeding to death slowly, or losing and being quickly decapitated.

I wonder whether the rights will end up split across multiple broadcasters and streamers on different nights, as the English Premier League does in the UK. It might reduce risk for all concerned.

The finances will be perilous whichever broadcaster AFL ends up with. Historically sponsors and advertisers have been persuaded to increase their rates when a rights deal cost increases, but is there a point beyond which they would not go?

Parent company guarantees could play a role in negotiating any long term AFL deal. With Foxtel about $2bn in debt, and Seven West Media’s CEO James Warburton doggedly digging his company out of its own debt hole, negotiators would be crazy not to ask what happens if the winning bidder stretches themselves too far and goes to the wall.

Would News Corp (and more to the point minority owner Telstra) be willing to guarantee any Foxtel deal? And would Kerry Stokes’ profitable industrial arm Seven Group Holdings be willing to guarantee any bid from Seven West Media (of which it owns 39.2%)?

If the answer is no, then a Paramount (or, long shot, Amazon Prime) deal might offer more certainty of going the distance anyway.

Another responsibility for the AFL will be to safeguard the longterm health of the sport. There will be an argument that Seven offers bigger free to air audiences than Ten, while Foxtel Group would do the same over Paramount Plus. Yet, history suggests that in the end the sporting codes always take the biggest cheque. Whoever wins, it’ll be a big one.

The Unmade Index: Better finish to a bad month

The Unmade Index of Australia’s listed media and marketing companies saw a slightly better finish to the month after dropping into correction territory earlier this week.

Yesterday The Unmade Index nudged back up 0.36%, although the index remains stranded below the 900 level - well off the 1000 points it kicked off with at the beginning of the year.

Among the biggest losers in April was Nine, which lost 10% of its market capitalisation over the month, and another 0.74% yesterday. HT&E fared even worse in April, down by more than 11%.

By contrast, Seven West Media rose 3% in April, including just over 2% yesterday.

Dr Spin: A right Messence

Dr Spin writes:

Dr Spin hears that staff at WPP’s two newly merged agencies Mediacom and Essence have been told to stop referring to the new creature as Messence. So please don’t call it Messence. Thank you.

Don’t forget…

Before I leave you for the weekend, a reminder that we’re running Unmade’s first event in just under three week’s time, on the evening of Tuesday May 24.

We’ve chosen the topic we believe is the most pressing one for the industry - the impact of the cost of living crisis. With energy costs at record highs, inflation rising and interest rates about to follow, the coming months are going to be uniquely challenging for anybody involved in marketing to price sensitive consumers - which is everyone working in the communications industry.

We’ve put together a brilliant panel. You can read more about our four speakers on the event website, although I suspect you’ll already know a lot about most, or all, of them.

As CMO and VP of marketing at Optus, Melissa Hopkins already has a front row view of how consumers are behaving. Aimee Buchanan leads GroupM, the country’s single biggest planner and buyer of advertising. Prof Jana Bowden has deep expertise on consumer behaviour. And Al Crawford is among the most impactful strategist I’ve ever met.

I can’t wait to moderate the conversation. In keeping with Unmade’s style, it will be an informal event - it’ll take place at The Forresters pub in Surry Hills.

Tickets are $69, or $10 for members of Unmade’s paying subscriber tier. (Email damian@unmade.media if you’ve misplaced your discount code.)

Have a great weekend.

Toodlepip…

Tim Burrowes

Unmade

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