BOTW: Thick red lines; radio rivalries; journo pomposity; and streaming's state of play
Welcome to Best of the Week written on Friday following four days stuck on the couch at beautiful Sisters Beach, Tasmania.
After four years of being unable to make the line appear, no matter how hard I tried, it was a weird sort of relief to finally see a positive result. Somewhere in the back of my mind, I’d started to worry I was doing my Covid tests wrong. Despite all the eye watering, had I not been jamming those swabs far enough up my nostrils? Turns out, until this week, I’d merely been lucky.
What was a new experience to me will be familiar to just about everybody else. After croaking my way through Monday’s Start the Week, I finally triggered a nice thick line and joined the club.
It was then an odd three or four days of operating at what felt like half power. I stayed online, in what was a big week for industry data and developments. Yet each time I sat at my desk to write something, I couldn’t quite maintain a train of thought.
Instead, I powernapped on the sofa, like Barnaby Joyce on a Canberra footpath, until the red line vanished again yesterday.
Which leaves us with a lot to catch up with in a week when News Corp released its financials, the Melbourne radio wars became twice as spicy, Standard Media Index and the TV networks published 2023 data; and a once in a decade change came to US TV rights.
We’ll get to all that shortly. Also, happy All The News That’s Fit to Print Day.
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A week of hefty clues and big moves
News Corp - read between the lines
News Corp shared its quarterly results on Thursday morning. While the numbers were backwards looking of course, there were a couple of hints about what might happen next. Structural shakeups and AI deals are on the cards.
In News Corp’s quarterly financial updates, there are typically three tiers of information worth looking out for. On the day, alongside its numbers, the company publishes written commentary.
For those who listen in on the live earnings call, CEO Robert Thomson generally goes a little further in his prepared remarks. And sometimes the nervous analysts pluck up the courage to ask him a follow up question that persuades him to go a little further again (although those answers often sound scripted too).
For at the second quarter in a row, Thomson dropped a heavy hint that the company is close to doing a deal with at least one AI company to pay for News Corp content to train their large language models.
In the investor call, he went out of his way to praise the “thoughtfulness” of OpenAI boss Sam Altman. Later he volunteered that negotiations are “at an advanced stage”.
And for News Corp kremlinologists, another hint was just as fascinating. This time last year, Rupert Murdoch called off his attempt to bring News Corp and Fox Corp back together as one company. It never felt like the end of the process. At the last earnings call three months ago, the company said it was once again looking at its structures.
Last month came a fascinating thesis that a three-way arrangement between News Corp, Fox Corp and Warner Bros Discovery could provide an elegant way to bring Fox News back into the News Corp stable while taking the empire out of the entertainment business.
At the beginning of Thomson’s comments on this week’s call, he delivered the following, carefully scripted paragraph: “Given the potential of our world-leading brands, we remain intent on creating long-term value for investors, and, as part of that commitment, our diligent, concerted review of the company’s structure continues apace.”
While that anodyne paragraph could mean almost anything, it was early in his scripted remarks - the third paragraph. It was clearly intended to land with his audience of investment analysts.
During the Q&A, Analyst Craig Huber tried to get a bit more out of him: “I assume you guys did an awful lot of work behind the scenes before you even talked about it three months ago in your conference call. You’ve certainly done some more in this last three months…?”
Thomson did indeed have (a little) more to say, citing financial regulator the US Securities and Exchange Commission as a reason he was choosing his words with care (while in the process confirming that there must be something of substance to be careful about).
“Your presumption about preparation is not ill-conceived. But this being a rather sophisticated audience, one which understands the nuances of phrases and the subtleties of the SEC, you can take the words I used in my statement as purposefully delivered. There is clearly much introspection, not casual, not peripheral, but significant, serious introspection about structure, and it’s functional, not emotional.
“And the prevailing truth is that we have created options for our shareholders.”
The only possible message to take from that is, that the least likely option for the company is to retain the status quo.
Thomson also, provocatively, shared his disdain for journos who chase awards over readers, suggesting some of those who lost jobs to AI and market forces have only themselves to blame.
“Almost 60% of journalists have lost jobs in the US. Candidly, unfortunately, a certain percentage of that is down to journalistic pomposity and prize consciousness not audience consciousness and relevance consciousness.”
The News Corp numbers included detail of how Foxtel Group is travelling as it prepares to launch its new aggregation play Hubbl in just under a fortnight.
That Hubbl launch will be important. For the first time since it got serious about streaming, Foxtel Group had two consecutive quarters of declining subscriber numbers.
The group’s total number of subscribers across Kayo, Binge and Foxtel Now fell back to 2.794m from 3.013m in the previous quarter. That’s a drop of 219,000 subscribers, or 7%.
However, compared to the same quarter a year before, the group remained narrowly in growth - up from 2.678m.
That rise of just 4.3% year-on-year suggests Foxtel Group’s streaming growth is plateauing. Previous years saw rises of 92% (2019-20); 63.7% (2020-21); and 24.6% (2021-22).
Seasonality is the story
Splitting out Foxtel’s streaming services tells another part of the tale.
Binge appears to have hit its own plateau, hovering at the same number for four successive quarters (1.48m, 1.49m, 1.45m and 1.47m).
And Kayo always dips for the quarter because of the absence of NRL and AFL. A lacklustre cricket calendar and predictable Formula 1 season made things worse this time.
The drop for Kayo was the worst quarterly fall it has seen, losing 230,000 subscribers.
Foxtel’s squeezy financials
As sports rights have got pricier and revenue has levelled off, Foxtel Group has inevitably become less profitable.
The graph above (the green bars represent quarterly revenue; the red line profit) initially looks chaotic). But patterns start to appear when you look for the same quarter for each year.
In revenue terms, Q2 was up fractionally on a year before (from US$462m to US$470m).
But in profit terms, it was Foxtel’s second least profitable Q2 on record, with profit of US$77m, down from $90m for the same quarter the previous year and US$86m the year before that.
The numbers also point to the Australian part of the News Corp empire faring worse than the US and UK arms of the news division.
Globally, revenues grew by 3% for the quarter, while profits grew by 16%. It’s grown revenue by 2% for the half and profit by 10%. Much of that came with help from the company’s book arm, HarperCollins.
Things are hard in the business of news. The quarterly chart slightly obscures the most concerning element for News Corp’s news media division, which is being hampered by Australia’s weak ad market. Local revenue for the division was down 6% year on year. Subscriptions held up - ad sales did not.
It was the worst second quarter the company’s news division has seen, with profit falling to $52m.
Meanwhile, the week also saw Fox Corp release its quarterly numbers. The company’s centre of gravity is the US, so it gets less attention in Australia, but the extraordinary performance of Fox Corp’s FAST (free ad supported TV) offering Tubi TV was notable.
As Brian Wieser pointed out in Madison & Wall: “Tubi ended the calendar year up by 30% on my calculations, with approximately $900 million in ad revenue. With what I estimate at around 0.9% of total ad inventory, Tubi is generating approximately 1.4% of total TV ad revenue in the United States.”
Although Tubi is already available with a limited library in Australia (and repped by Foxtel Media) it deserves more attention, both internally and externally.
The big sports move
Speaking of the US, there was also a huge move in sports streaming this week. Three of the biggest players - Disney, Fox and Warner Bros Discovery - surprised the industry by announcing a joint venture offering all their sports channels as a subscription streaming service.
The immediate ramifications for Australia are limited - the US ecosystem of cable TV is very different - but one theme is worth watching. The move could be seen as the traditional TV players unifying against their streaming-only rivals.
Yep, 2023 really did suck for TV
Among the wall of data released this week was Guideline SMI’s wrapup on the 2023 calendar year.
The final number for advertising spend via the media agencies was indeed a backwards year, with an overall revenue fall of 2.7% while media owners also faced inflated costs.
The worst performer was newspapers, down 17.3% for the year. TV did almost as badly, losing 13.9% of media agency revenue for the year. Much of that leaked into the wider video ecosystem, which grew by 30%.
Meanwhile, outdoor got its mojo back, growing by 15.1% for the year. And perhaps 2023 was the year magazines finally hit bottom, losing just 0.1%.
It was, however, a rotten December for everyone, with the market down 9.1% year-on-year.
Three is not TV’s magic number
Meanwhile, the TV networks released their annual update on revenues into Seven, Nine and Ten, via industry body Think TV.
Including regional and metro markets, across free to air and streaming, revenue to the three networks amounted to a shade under $3.4bn. That’s a fall of more than 10% for the year.
For as long as I can remember, the mental shorthand was the local TV industry being worth $4bn in advertising. Last year (when Foxtel was still a member) Think TV released a number of $4.1bn.
That mental number is now trending downwards towards 3.
Jase and Lauren ride again
Nova Entertainment announced an extremely interesting move yesterday. They signed Jase Hawkins and Lauren Phillips for breakfast on Nova Melbourne
The pair were axed late last year by Kiis to make way for the semi-national broadcast of The Kyle & Jackie O Show.
It sets up a fascinating battle of local versus star power.
In their final set of ratings for Kiis, the Jase & Lauren show delivered a 9.1% share.
The slot they will inherit at Nova last saw a 5% share for Ben Harvey, Liam Stapleton and Belle Jackson, who will move into a new 6-8pm national slot. (It sounds like the sort of slot you create when you already have stars contracted and you need somewhere to move them.)
It will be a while until we get a clear picture on hos the shows are performing. The first rating survey of the year is already in market, covering January 14 to February 24. Survey two covers February 4 to March 30.
We’ll only get the full picture in time for survey three, if both shows go to air within the next fortnight. Survey three covers February 25 to May 18, and won’t be released until the start of June.
Nova and Kiis have both been keeping quiet about start dates for their new Melbourne breakfast shows. I wonder whether one will try to steel the momentum and launch this Monday.
Unmade Index hits 2024 high point
The Unmade Index closed at its highest point in 2024 last night, after gaining 1.64% on Friday, its second best performance of the year to date
The bounce outperformed the wider ASX, which was almost flat
The best performing stock of the day was the dual-listed News Corp.
The positive sentiment carried across to the media sector in Australia. Seven West Media rose 1.89%, taking its market capitalisation to $415m, while Nine was close behind with a jump of 1.55% to $3.2bn.
COTW: Find Your Drive
In each edition of BOTW, our friends at Little Black Book Online highlight their Campaign of the Week.
LBB’s ANZ reporter Casey Martin writes:
As a fellow non-driver, it was compelling to see a campaign tacking the reasons why 1.5 million Australian adults don't drive, with such grace and dignity as Hero did for Toyota in 'Find Your Drive."
The campaign is heartwarming and showcases the values of Toyota's message in a way that is engaging.
Time to leave you to your Saturday, and for me to abandon that sofa.
Abe Udy and I will be back on Monday with Start the Week.
Have a great weekend
Publisher - Unmade