BotW: Foxtel's closing window; Seven braces for ABC's revelations; 2Day kills another breakfast show
BotW: Foxtel's closing window; Seven braces for ABC's revelations; 2Day kills another breakfast show
Welcome to Best of the Week, kicked off on QF1563 after a quick work trip into Auckland and Sydney, and wrapped up this morning on a mild day in Tassie.
What may interest those working in the tough Australian advertising market, is that those working in NZ wish they had it as good. The grass is always greener.
Lots happening this week, including Foxtel going on the block, the end of another 2DayFM breakfast show, and Seven West Media about to be hit by new revelations.
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As good as it gets: Foxtel on the block
As was intended, reaction to yesterday’s News Corp financial year results announcement was dominated by talk of a sale of Foxtel Group.
It came in a carefully prepared paragraph towards the beginning of global CEO Robert Thomson’s commentary to the market, which has been waiting all year for some kind of restructure or sale of assets by News Corp.
“We are confident in the Company’s long-term prospects and are continuing to review our portfolio with a focus on maximizing returns for shareholders. That review has coincided recently with third-party interest in a potential transaction involving the Foxtel Group, which has been positively transformed in recent years. We are evaluating options for the business with our advisors in light of that external interest.”
While there may well have been “third party interest” - this morning’s Australian Financial Review nominates private equity firm Platinum Equity - News Corp is trying to create some competitive tension around a media asset whose challenges are only going to become harder.
Having missed the window to float Foxtel as a separately listed company, it’s to the credit of the Foxtel management that News Corp still has some options. The pivot to a streaming-first company while holding on to declining broadcast revenues has gone better than other companies attempting the same trick around the world.
Sports platform Kayo and entertainment service Binge passed 1.5m paying subscribers each in the last quarter.
In the face of higher costs and the continued decline of high value broadcast subscribers, Foxtel’s profits declined to $310m from $347m in FY23.
That’s the worst year since News Corp started incorporating the full Foxtel results into its accounts in FY19 with a $380m profit, after moving up to a majority holding alongside Telstra. It’s been a relatively soft landing.
But the headwinds are coming. A sale needs to take place fast.
Thanks to NRL and AFL, the fourth quarter of each financial year is usually the best one for Foxtel in revenues and profits. Kayo subscribers will likely plateau or dip again in this current quarter.
Crucially for Binge, Warner Brothers Discovery is set to at last launch Max into the Australian market early next year.
That will be the end of Binge’s HBO content pipeline - House of the Dragon, The Last of Us, White Lotus et al.
Although Foxtel also has an output deal with NBC Universal, and some of its own original content, including Colin from Accounts, Strife and Gogglebox, Binge will be a much weaker product without HBO.
The environment will be tough in a different way for Kayo.
The next NRL rights deal is coming and may be wrapped up this side of Christmas. Nine currently has the free to air rights while Foxtel has the paid rights.
Nine will go all out to win all the NRL rights, to spread across Nine and its pay platform Stan.
The only way Foxtel could keep NRL would be at a massively increased cost.
With a deal of perhaps seven years, the NRL would likely require a parent company guarantee from News Corp in the event that Foxtel can’t keep up the payments. Foxtel’s one-third minority owner Telstra would be unlikely to step up, leaving News Corp on the hook if it’s still the owner.
News Corp is already owed $600m as a shareholder loan to Foxtel. That calculation will be a major factor in any sale.
Meanwhile, Foxtel’s new aggregation device Hubbl is Schrödinger's cat. Nobody knows for sure if it’s a success or failure.
Yesterday’s results revealed the launch costs of Hubbl were US$51m, but shared no numbers about how many devices have been sold. Those who watch the sector suggest there are fewer than 50,000 Hubbl units in the market, with many of those sold at a steep discount. Word is that new sales are trickling in at just a few hundred per week. If the truth was substantially different, chances are the story would have been told in yesterday’s update.
So other than Platinum Equity, who might buy Foxtel? While there are some possibilities, there is no obvious trade buyer.
Nine would be a good fit, but with its crunched market capitalisation of $2.2bn, taking on Foxtel’s debt would be tough.
WBD might be interested in buying Binge at a fire sale price as a vehicle to launch Max, but not necessarily the rest of the company. And WBD might form the view that the audience will follow the HBO shows across anyhow.
Comcast’s NBCUniversal is already in business with Foxtel and Seven West Media as a content supplier. But as time goes on, it seems less inclined to launch its streaming service Peacock into markets outside the US. In its reporting today, the AFR appears to have heard from a source that NBCU is not interested.
Some combination with the break-up-ready Seven West Media’s free to air Seven Network would be complementary - they already share AFL and cricket rights with Foxtel - but a deal structure is hard to figure out given SWM’s tiny capitalisation.
Which takes us back to private equity. Against the odds and despite the challenges, Foxtel is still a decent business.
It brought in revenues of US$1.9bn in the last financial year. The broadcast business still throws out strong average monthly revenues $90 per subscriber.
As is the way of private equity, cutting costs to the bone and grinding out profits for years to come is a realistic possibility. Depressingly, even the most likely one.
There’s an urgency about the deal. News Corp will never get a better price than now.
News Corp readers now matter more than advertisers
Meanwhile, Foxtel is just one part of the puzzle for News Corp.
On the investor call, there was a pointed question about why the company is hanging on to its news arm when other parts of the business such as real estate (thanks, Damian Eales!) and book publishing (thanks, JD Vance!) are going so much faster.
There was also an analyst question about why there was no new news about progress towards a bigger restructure after a year of hints at each quarterly update. A News Corp - Fox News restructure no longer feels particularly imminent.
The toughness of the environment faced by News Corp Australia is there in the numbers. Advertising revenue in Australia was down 11% for the year from US$412m to US$366m.
Buried in the figures is another interesting fact: significantly more of News Corp’s revenue now comes from readers (US$419m in circulation and subs) than advertisers (US$366m).
In 2022, the first year News Corp shared the numbers for, reader revenue (US$474m) was broadly the same as advertising (US$466m).
In FY23 the gap became US$28m. And in FY24 the gap almost doubled to US$53m.
That helps explain why News Corp’s restructure focused its cuts on the advertising operation and mostly protected its content teams.
Another rough one at Seven
The coming week is going to be another messy one for Seven West Media.
On Monday night, the ABC’s investigative program Four Corners will focus on the culture at SWM. The promos started to run on Thursday, featuring Amber Harrison, whose affair with former CEO Tim Worner saw her lose everything.
While Seven is already spinning that the ABC’s focus is on ancient history, Four Corners’ track record is of unearthing new facts. I’d be amazed if this report is merely built on an eight year old story. Monday night will be that rarest thing for the TV industry these days: appointment viewing.
The timing is exquisitely tricky for new CEO Jeff Howard. Just 36 hours later Howard, who is yet to talk publicly since taking charge three months ago, will front the company’s end of financial year results announcement.
Howard’s job will be to offer hope to the shareholders in a company whose value has fallen by 60% in a year, whose culture is in question, is facing a debt larger than its market capitalisation, that can’t afford to pay a dividend, that is facing a collapse in audience, is experiencing an unprecedented advertising recession, and whose communications operation is barely on speaking terms with many of those in the trade press.
Good luck with that.
SCA makes the call on 2Day breakfast
This week, Southern Cross Austereo pulled the plug on another failed 2DayFM breakfast show.
It's the seventh in the decade since Kyle Sandilands and Jackie Henderson defected to Kiis FM and upended the Sydney radio market.
Although it was for the best, given how little progress The Hughesy, Ed & Erin Show made, the timing did not follow the usual cycle. Normally, such decisions are made closer to the end of the ratings year, when contracts expire.
The joint statement from Dave Hughes, Ed Kavalee and Erin Molan didn’t sound like they’d had much of a hand in writing it: “We’ve loved our time together on 2DayFM Breakfast, however, due to some of our families living in different cities we are unable to commit to 2025, so with a heavy heart we are moving aside so 2DayFM can find the team to take them forward in Breakfast. We are so grateful to Sydney for their support, and to double the number of listeners in three years is something we are immensely proud of, and we will miss each and every one of them.”
So grateful they chose not to do a final show to say goodbye to those beloved listeners.
The explanation for the timing may lie with Hughes’ future with SCA in his home city of Melbourne. After the unplanned exit of Marty Sheargold, Triple M Melbourne is a month into a temporary breakfast show hosted by Wil Anderson, Dale Thomas, and Rosie Walton for the next eight weeks until the end of the AFL season.
Meanwhile, Molan put out her own, not entirely accurate, spin on the data on Instagram, claiming: “When we started this little show against all the big dogs in Sydney we had less than 200,000 listeners… in 3 years we doubled that to over 400,000.“
When Hughes, Kavalee and Molan took on the show at the beginning of 2021, they inherited a 4.2% share and cumulative audience of 301,000.
In the most recent ratings survey, 2Day ended on a 3.6% share of the 5.30-9am timeslot and cume of 353,000.
Over the last decade, SCA management were criticised for not giving previous lineups time to find an audience. For instance, poor old Dan Debuf and Maz Compton only got nine months in 2015.
This time SCA gave it three-and-a-half years. At least that was enough time to know for sure.
COTW: Flat share with Jason Donovan
In each edition of BotW, our friends at Little Black Book Online highlight their Campaign of the Week
LBB’s APAC reporter Casey Martin writes:
Optus is offering something new from a telco brand, free usage of the network service for seven days with no strings attached. To accompany this, the ad campaign needed to match the audacity of the new offering.
Pulling in two of Australia's biggest stars, Delta Goodrem and Jason Donavan, Emotive have played on the diva popstar/ 80s heart-throb tropes to highlight that not even the wildest imaginations could think of a catch.
In case you missed it:
On Monday we discussed Labor’s imminent moves around new gambling legislation:
StW: Labor backs off on betting ads; Rex regrets; and digital ad levy firms up
On Tuesday we argued that adland has an opportunity to gain social licence by giving the public what they want by reducing betting ads:
On Wednesday, Seven hit the milestone of its debt being bigger than its valuation:
On Thursday we talked to News Corp critic Eric Beecher about his new book The Men Who Killed The News:
On Friday we looked more closely at advertiser boycotts in the name of brand safety:
Elon may be a terrible platform proprietor but he's got a point in his court case against advertisers
Time to leave you to your Saturday.
I’ll be back with Abe Udy and Cat McGinn on Monday for Start the Week.
Have a great weekend
Toodlepip…
Tim Burrowes
Publisher - Unmade
tim@unmade.media
