BOTW: Picking media stocks in a tough sector (why Ooh, Nine, SCA and HT&E get the nod)
BOTW: Picking media stocks in a tough sector (why Ooh, Nine, SCA and HT&E get the nod)
Welcome to Best of the Week, written in Kirribilli on Friday night and Saturday morning.
Today’s topics: Picking media stocks; Amazon and Twitter join the AI race; and the new Carlton ad.
Happy Record Store Day.
Ready for a weekend maths quiz? Try putting these numbers into an equation…
Unmade’s paying members get 30% off a pair of tickets for our conference humAIn - human creativity x AI. That’s a saving of $216.
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Unmade’s paying memberships start at $65 per month, and you can cancel any time.
You do the maths….
Declaring an interest, placing my bets
Tim Burrowes writes:
A few days back I made some media investments, via my self managed super fund. Previously, I had formed the view that as we write about them so often on The Unmade Index, I should stay away from media stocks.
Two individuals helped change my mind. The AFR’s legendary outgoing Chanticleer columnist Tony Boyd used to talk about the performance of his Chook Super Fund, and the company shares he invested in. And commentator Scott Galloway, presenter of the excellent Pivot podcast regularly declares his investments. Also, it was getting annoying seeing certain stocks sitting at what looked like bargain prices and not doing anything about it.
The key thing is to declare those interests, which is what I intend to do here. However, for gawd’s sake do not take any of what follows as financial advice. My track record suggests I’m a terrible investor.
The amount I invested from the family super fund this week was relatively small $10,000. I’ve got my doubts that media stocks are the best overall bet, althoiugh I might put a little more in later.
I decided to invest in every stock on The Unmade Index (except one - I’ll tell you who that is further down). It means that when I write about the performance of all these companies, I’ve got skin in the game. Like they say: no conflict, no interest. It will also have the happy side effect that as a shareholder, I’ll be entitled to ask awkward questions at AGMs of any CEO who won’t give me an interview. They’ll love that.
However, I did not allocate funds equally. It was an interesting process deciding how to split my investment. I looked at each of the 13 media and marketing stocks on the Unmade Index and decided how to spread that $10k according to a mixture of maths and instinct.
The maths was driven by their most recently published profit numbers compared to their market capitalisations. Along with their debt levels, the scale of dividends these companies pay (or don’t) and performance of their sectors, it helped create a formula of sorts. The X factor was more personal: What I think of the management.
So here’s how I allocated those funds - and why:
Four stocks got a 15% allocation each - Ooh Media, Southern Cross Austereo, HT&E and Nine, all for different reasons…
Ooh Media - good management
While the outdoor sector is likely have a bumpy few months in a downturn, the long term prospects of a digitised out of home world are worth betting on.
However, the main reason for the disproportionate investment was the Ooh Media management team. When it’s my money at stake, I want unflappable, trustworthy executives. That describes CEO Cathy O’Connor, chairman Tony Faure and CMO Neil Ackland.
Mind you, I hear on the grapevine that the recent replacement of Ooh’s long serving chief sales officer Tim Murphy with Paul Sigalof has created some internal ructions, so we’ll see how that plays out.
Southern Cross Austereo - cheap at $200m
My reason for over-investing in SCA was different: Put simply: it looks cheap, particularly as it still pays a decent level of dividends.
More than a decade of declining revenues and profits, has seen the company’s market capitalisation slump to $200m as the investment community doesn’t seem to be picking up what CEO Grant Blackley is putting down.
The value of the company’s regional TV licences, which are mainly affiliated with Ten, will one day decline to zero as audiences transition to streamed viewing. But Free TV will, I’m sure, lobby to maximise squatters’ rights on the spectrum when it comes time to hand it over to the government to auction it on to telcos.
SCA has also already done the hard work of digitising its national radio operations.
And most importantly, SCA’s streaming service Listnr is worth more than the market is giving the company credit for.
HT&E - debt free
Despite the apparently similarities to SCA, the reason for betting on HT&E is different.
Most attractively, it’s almost entirely a pureplay audio company via its ownership of ARN. That makes it a potentially valuable bargaining chip when the media sector creaks back into deal making mode.
Thanks to the recent sale of its stake in software company Soprano, HT&E is now pretty much debt free, which is no bad thing during a time of high interest rates.
Downsides include the need to invest in digitising the regional Grant Broadcasters stations it bought last year. That sort of merger cost always ends up being more than predicted.
And the company’s biggest talent asset - Kyle Sandilands and Jackie Henderson - could walk out the door; their contract is up next year. As they demonstrated when they left 2DayFM a decade ago, they are big enough talents to make the weather fior the sector.
Nine - genuinely multi-media
Of the four who got 15%, Nine was the one I had the biggest doubt about going big on. If Hugh Marks - who took Nine from a TV network to a modern media company - was still in charge it would have been the single biggest bet.
It’s possible that Nine has peaked. However, in terms of impact across multiple sectors including free to air TV, subscription video, radio and publishing it’s dominant.
Two years in, I’m still waiting to see whether new CEO Mike Sneesby is, as Logan Roy would have it, serious people. I know that in TV, winners have parties, but the big Christmas bash at the Ivy was a signal I didn’t love.
Still, creating Stan was one of the media success stories of the previous decade for which Sneesby takes all the credit; and the company is well on track to win the TV year again. Within the individual parts of the business, there are many good operators.
Within classifieds, Nine’s majority ownership of Domain offers exposure to the real estate market, which is perhaps the best of the classified segments in the long term. It balances out the lacklustre performance of Nine’s automotive portfolio.
News Corp - worth less than the sum of the parts
Just behind, I invested 14% in News Corp.
Locally, the company is a well managed business with a stable leadership team.
I was influenced by the argument put forward by Colin Morrison in Flashes & Flames this month that we will yet see a re-merger of News Corp and Fox Corp, and that this will see the creation of a much more valuable business, along with spin-offs.
Before that though comes the almost indefensible Dominion lawsuit for Fox News (owned by Fox Corp) in the US, and the foolish decision of Lachlan Murdoch to sue Crikey over its election denial criticisms.
Of course, shareholders get almost no voting power, as that’s held by the Murdochs in a special class of News Corp shares. This week’s excellent Vanity Fair article suggests that James and Elisabeth Murdoch could yet redirect the company back away from the extreme right once Rupert is no longer around. That would get my (not voting) vote.
Seven West Media - what Kerry wants
Like SCA, Seven West Media looks a little on the cheap side, with a market cap of $660m. It got 10% of my allocation.
Like News Corp, it’s one of those companies which shareholders would be safest to assume is being run primarily on the whim of the proprietor, in this case Kerry Stokes.
However, CEO James Warburton is an able salesman and deal maker and I suspect those who come along on the ride will go okay.
The downside of SWM is that its main assets - TV and The West Australian newspaper group - are decidedly old school. I’m sure it still plans to find a way into subscription TV. I hear that all of the final candidates for CMO (the role which eventually went to Optus’s Mel Hopkins) were from customer-acquisition backgrounds.
Yesterday saw a story planted in The Australian’s Dataroom speculating on a tie-up between Foxtel and Seven. It barely budged the share price.
Pureprofile - Domain expertise
Next came research house Pureprofile, which got 5% of the allocation.
For most of its time on the ASX, the company was a basket case. A little under three years ago, CEO Martin Filz arrived, bringing domain expertise and a calm demeanour.
With board ructions no longer disrupting things, Pureprofile is finally starting to feel like a well run business.
Enero - adland exposure
Enero got 3% of the investment. A bet on Enero still feels like a bet on BMF, although there’s more to the group that that.
I’ve no view on Enero CEO Brent Scrimshaw, who’s been in charge for three years. For somebody in the comms industry, he has a surprisingly low profile.
Given the agency world’s exposure to the vagaries of economic cycles, I would be surprised to see the share price sink a little more yet (it’s already down more than 50% over the last year).
Aspermont - B2B, out west
Aspermont also got 3%. They’re big in B2B publishing and events, particularly in the mining sector.
We only recently added them to The Unmade Index, and I’m yet to form a view on the current management team.
Motio - on the way
Out of home company Motio got 2%. Maybe they deserved more. Alongside Ooh Media, they’re the only other outdoor company on the Unmade Index. In its current setup, Motio is a young company, mainly built from Ooh Media’s non core assets.
IVE Group - evolving out of print
IVE also got 2%. They’re trying to reinvent themselves from a print group to “Australia's leading holistic marketing company”. They’re a long way from creating that perception in my mind.
Sports Entertainment Group - overvalued?
The Craig Hutchinson led Sports Entertainment Group, owner of SEN radio network, got just 1%. Given their likely full year profits - perhaps $7m - it’s hard to see why it deserves its current $50m market cap.
The Market Herald - no thanks
The Market Herald was the only stock on the Unmade Index I chose not to buy. I’ve no confidence those running the board would look after minority shareholder interests. The whole thing is a shitshow.
Week one
The portfolio has been in place for just under a week.
So far, I’ve lost $35.50. I told you I was a bad investor.
Unmade Index back above 700
Seja Al Zaidi writes:
It was a positive end to the week on the Unmade Index, which made it back over 700 points for the first time since February.
The index of ASX-listed media and marketing companies rose 1.62%, to700.4.
The biggest winner was Nine, which rose by 2.45%. Ooh Media and Seven West Media both posted 2.44% rises.
The biggest loser was Enero Group, which has been in the red for most of the last two weeks. It fell by 1.59%.
The Week in AI: Amazon and Twitter join the race
humAIn’s curator Cat McGinn writes:
Amazon unleashes Bedrock
Amazon joined the artificial intelligence race with cloud based generative AI service Bedrock. Customer-owned data uploaded to the service will not be fed in to the wider model.
Playing the Elon Game
It emerged that Twitter is developing an AI project, despite demands from CEO Elon Musk for the industry to pause global development. The company has spent an estimated $100m on 10,000 graphics processing units. Tech companies typically use GPUs to work on large AI models, due to the computational workload the technology requires.
Sources say an AI-based ad platform could be on the cards, with the objective of tempting advertising dollars back to Twitter, given the capacity of generative AI to create audience-specific assets at scale.
Earlier in the year Musk hired AI engineers Igor Babuschkin and Manuel Kroiss from Alphabet's AI-research subsidiary, DeepMind.
A thousand flowers must bloom
Chinese tech and e-commerce giant Alibaba unveiled its AI chatbot, Tongyi Qianwen, which is to be integrated into Alibaba's workplace messaging app DingTalk and voice assistant Tmall Genie “in the near future”.
The name Tongyi Qianwen is roughly translated as "Unified Thousand Questions" or "Seeking an Answer by Asking a Thousand Questions."
The announcement came as the regulatory body Cyberspace Administration of China unveiled draft measures for managing generative AI.
Silver Machine
A Kuwaiti media outlet unveiled an AI-based virtual news anchor. The presenter will read online bulletins and respond to audience questions live.
The anchor AI is called “Fedha”; meaning silver, and is to appear across Kuwait Times and Kuwait News. Abdullah Boftain, deputy editor-in-chief for the outlets, said the move is a test of AI's potential to offer "new and innovative content."
US to explore accountability measures for AI
In the US, the Biden administration began to seek public input on a legislative framework and potential accountability measures for AI systems.
The National Telecommunications and Information Administration (NTIA) aims to explore AI "accountability mechanisms" to ensure AI systems are legal, effective, ethical, safe, and trustworthy. NTIA's findings will inform the federal government's approach to AI-related risks and opportunities. Meanwhile, the Center for Artificial Intelligence and Digital Policy urged the Federal Trade Commission to prevent new commercial releases of GPT-4, citing concerns about bias, deception, privacy, and public safety.
Italy issues compliance laundry list for OpenAI
The tech company will have to move to more robust age verification methods; provide the legal basis for processing people data for training its AI; provide means to correct disinformation and have records removed if inaccurate; allow people to object against their data being used; and allow users to exercise their rights over their personal data, consistent with current GDPR legislation
OpenAI is also required to conduct a public awareness campaign to inform Italians that it is processing their information to train its AIs.
Campaign of the Week: Long Live the Keg
In each edition of BOTW, our friends at Little Black Book Online highlight their most interesting marketing campaign of the week
LBB’s AUNZ reporter Casey Martin writes:
LBB’s campaign of the week comes from Clemenger BBDO and Carlton Draught. Playing on the disappointment when the keg dies at a pub on a busy afternoon, comes a creative spot dramatising the situation.
Time to let you get on with your Saturday. We’ll be back with more next week.
Have a great weekend.
Toodlepip…
Tim Burrowes
Publisher - Unmade
tim@unmade.media