BOTW: Rupert puts the band back together; Netflix sets its Aussie ad price; see you in Melbourne
Welcome to Best of the Week, mostly written on Friday afternoon with a degree of nervousness about technology cutting me off before I could send this, and rewritten this morning to take in the breaking announcement from News Corp. We’ll come on to that shortly.
The wild weather in NW Tasmania caused some brief power outages at Sisters Beach, and there was no Telstra mobile signal for most of yesterday. It turns out that a lack of calls can be simultaneously pleasant and ominous.
The local creek has become a fast flowing river and the people next door have a swimming pool in their back garden that wasn’t there on Thursday. At least we’ll be heading into summer with full water tanks.
Happy National Chicken Cacciatore Day.
Today’s writing soundtrack: Currents, by Tame Impala.
Unmade’s paying members are special. Along with access to all our paywalled content, members also get free or discounted access to our events. Further down in today’s email, we announce our first Melbourne event, and right at the bottom is a tiny paywall, beneath which you’ll find a discount code to attend for free.
Today’s topics: News Corp’s next big deal; three weeks til Netflix launches ads in Australia; Marketing predictions for 2023.
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The video advertising seesaw
That was impressive.
It’s not even six months since the bosses of Netflix capitulated to media economics and accepted that advertising is too big a revenue stream to ignore.
This week the company announced that it will turn on the tap sooner than most people expected, launching its $6.99 Basic With Ads tier in just under three weeks’ time. Australia will be one of the 12 launch markets.
It will change the weather in the local TV advertising market.
Over the last seven or eight years, video advertising inventory has been in relatively short supply. Recognising its effectiveness, advertisers have been content to pay a much higher CPM than they do for online display ads; not as much as they would for broadcast television, but high nonetheless.
Soon, that high price will be tested as a couple more waves of ad-supported content hits the market.
As we covered in this week’s Tuesdata, people are spending more time than ever watching video and television. But the rise of subscription services had meant that an increasing proportion were becoming unreachable to brands. The pendulum is starting to swing back on that.
Netflix aside, all the local TV players have been finding their biggest growth in ad-supported video on demand (AVOD), as viewing habits switch away from linear broadcast.
And channel-based, free ad-supported TV (FAST) is about to go through a landgrab process too. Paramount announced the limited local launch of Pluto TV channels at its Upfront event last week. Nine made some (very) vague noises about FAST at its event, and Seven is the local market leader with about 50 FAST channels already.
Assuming viewers gravitate towards all this ad-supported video content at the same speed it is being pumped out, that creates a lot of new, monetisable eyeballs.
The economics of supply and demand suggests that marketers may soon expect to start paying a lower CPM once there’s a glut of video inventory.
Beyond advertising, the Netflix move creates a second headache for the local players too.
That $6.99 price gives Netflix the lowest entry point in the market. The basic price for Nine’s Stan and Foxtel’s Binge is $10. Paramount Plus is $8.99. Disney Plus is $11.99. What remains to be seen is whether the new tier merely retains people who were already paying subscribers, or widens the overall pool.
Nine hasn’t disclosed it to the market yet, but based on the trajectory the company has previously shared, the number of active subscribers to Stan has likely peaked at 2.5m and even begun to fall again. Stan makes up something like $1bn of Nine’s current $3.3bn valuation. That could be brutal for Nine’s share price when it comes clean in its half yearly results in four months’ time.
Share market sentiment also has a lot to do with Netflix’ moves this week.
Six months ago, it announced the launch of the ad-supported tier at the same time it revealed that its number of paying subscribers had peaked.
This Wednesday morning, Australian time, will see the next set of Netflix quarterly financials. The November 4 launch date for the advertising tier will change the conversation about any bad news within the subscriber numbers.
This Thursday sees the Foxtel Media 2023 Upfront in Sydney. Binge’s subscriber numbers have also peaked (although House of the Dragon may have helped turn that around). I wonder whether they’ll announce an ad-supported tier for Binge.
News Corp gets back in bed with Fox News
And speaking of Foxtel, parent company News Corp made an interesting announcement this morning.
They’re putting the band back together.
Rupert Murdoch wants to re-merge News Corp with Fox Corporation.
In Australia, News Corp is the better known company. It owns two-thirds of Foxtel, with Telstra as the minority party. It owns the major news mastheads of national broadsheet The Australian, news.com.au, plus metro mastheads in every state except WA. Much of the company’s profits come from its majority stake in real estate platform REA Group.
Fox Corp, meanwhile, is focused on US TV interests, included its notoriously right wing news network Fox News, along with Fox Sports and the Fox TV network.
News Corp’s market capitalisation is around US $10bn, while Fox Corp is worth around $17bn.
What both organisations have in common is the Murdoch family as the biggest voting shareholders. Rupert Murdoch and son Lachlan also run both organisations together.
Legally they’re two companies, but spiritually, they’re one.
The language of the short announcement couches the plan as less than a done deal.
New York, NY (October 14, 2022) – News Corporation (“News Corp” or the “Company”) (Nasdaq: NWS, NWSA; ASX: NWS, NWSLV) announced today that the Company’s Board of Directors, following the receipt of letters from K. Rupert Murdoch and the Murdoch Family Trust, has formed a Special Committee composed of independent and disinterested members of the Board (the “Special Committee”) to begin exploring a potential combination with Fox Corporation (“Fox”) (Nasdaq: FOXA, FOX).
The Special Committee, consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, will thoroughly evaluate a potential combination with Fox. The Special Committee has not made any determination with respect to any such potential combination at this time, and there can be no certainty that the Company will engage in such a transaction.
Neither the Company nor the Special Committee intends to comment on or disclose further developments regarding the Special Committee’s work unless and until it deems further disclosure is appropriate or required.
Given that it’s what Rupert appears to want, it’s likely to happen. It’s also a classic Murdoch move.
News Corp only split into 21st Century Fox and the new News Corp less than a decade ago, in 2013. At the time it was a pragmatic move because Murdoch was frustrated that financial markets did not recognise the value of the sum-of-the parts.
Then in 2017, Murdoch announced an even more dramatic deal, selling 21st Century Fox to Disney, which wanted to get its hands on the company’s studio assets - the likes of The Simpsons, Titanic, Avatar and the rest.
It saw Murdoch give up his seat at the entertainment-making table (except as a shareholder in Disney) and remain in the news game.
Fox Corporation was created to hold the rump of 21st Century Fox broadcast assets not covered in the Disney deal. Fox News was by far the biggest.
One of the odd dynamics this created was that although Sky News Australia looks increasingly like its cousin Fox News, the two are owned by different companies. For now, anyway.
The announcement raised some immediate questions.
What will it do for company debt levels? Over the years, Murdoch has been a genius at using financial engineering to make debts go away. Could that happen again?
What does this mean for Foxtel Group? When the IPO market seized up just as Foxtel’s profits slowed down, it killed off hopes of a float. Could this be a route to Telstra being bought out, or Foxtel’s high debt level being reduced?
Will the deal create a warchest? There’s a logic in Seven West Media’s WA newspaper assets being part of the News Corp stable. AND SWM’s broadcast TV interests would also be complimentary to Foxtel’s paid play. The two organisations already co-exist around AFL and (for now) cricket.
Will it affect voting interests in the Murdoch Family Trust referred to in the announcement? As it stands, the 91-year-old Rupert Murdoch holds four votes, while his offspring Lachlan, James, Elisabeth and Prudence have one vote each. When he passes, the future direction of the company will be determined by the four family members. There’s a good chance that the right-leaning Lachlan could be outvoted by his more liberal siblings, taking the whole organisation in a new direction.
Who would have most authority within this newly merged company? At Fox Corp, Lachlan has slightly more power as executive chairman, while Rupert is still top dog at News Corp.
It’s tempting to describe this as Rupert’s last big deal. But they said that when he split the company nine years ago. And again when he sold to Disney in 2017.
There will be a lot to unpack in the coming weeks.
Announcing Unmade’s first Melbourne event
I’m delighted to announce that next month Unmade will be running out first event for our community in Melbourne.
Our panel will be looking back at the wild marketing year of 2022, before looking forward to what seems like an even more turbulent 2023. The terrific panel consists of:
Andrea Dixon, who leads marketing across Asia Pacific and Japan for Docusign;
Richard Curtis, boss of branding agency FutureBrand;
Naomi Johnson, GM of Havas Media Group in Melbourne;
Nick Garrett, global commderce and marketing practice lead at Deloitte
Once again, we’re doing it in a pub - at the Grace Darling Hotel, after work on Tuesday November 15.
Unmade’s paying supporters are entitled to two complimentary tickets each. Details of the coupon code appear under the paywall right at the end of this email. For non members, tickets start at $69.
For those with a nose for a bargain, subscribing to Unmade only costs $65 per month. You do the maths.
Index breaks the pattern
After declining for six trading days in a row, the Unmade Index of ASX-listed media and marketing companies bounced back somewhat yesterday, rising by 2.77%. This outperformed the wider ASX All Ordinaries, which rose by 1.67% on Friday.
Domain was the best performer on the day, up by 4.05%, which also helped the price of majority owner Nine move upwards by 3.69%. Seven remained stalled, just below a $700 market capitalisation.
The Unmade Index is 35% down for the year.
Time to let you enjoy your Saturday. Here in my corner of Tasmania, the weather seem to be improving just a little. Best to go for a walk on the beach while the rain radar gives its blessing.
If you’re in Melbourne, please do consider picking up tickets for our event. A good way of bringing us back regularly is to support our first one.
I’ll be back on Monday with Abe Udy for the Start the Week podcast.
Have a great weekend.
Below this paywall, Unmade’s paying members will be able to see the discount code to get two complimentary tickets to our Melbourne event. The code is: