BOTW: TV's pain is worse than it looks; First impressions of Scire's Capital Brief

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Welcome to Best of the Week, written and edited in beautiful Sisters Beach, Tasmania.

Apologies that this is an hour later than our usual time of 10.10am Eastern. The numbers took longer to crunch than anticipated.

Today: Wrapping up reporting season with the underlying numbers looking bad for TV; and Capital Brief hits the street.

If you haven’t booked your tickets for our retail media conference REmade, get your skates on. The earlybird discount ends next week.

Unmade members get discounts on all our events including to REmade. Subscribe today.

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The TV industry is in a world of pain, worse than it appears

Digital art: Midjourney

Tim Burrowes writes:

For the most part, the second big week of results season wasn’t quite as bad as the week before. At the very least, there was less instantaneous punishment on the stock market.

Ooh Media’s share price rose by 5.84% on Monday after reporting reasonable half year results, while Nine’s price initially rose a little when it released its full year numbers on Thursday.

The market was a little less enthusiastic about the half year numbers from ARN Media and full year numbers from IVE Group, marking them down by 8.75% and 6.63% on Thursday.

But the stock to take the biggest punishment over the last week-and-a-half has been Seven West Media, down by 25% since reporting its numbers last Tuesday.

How we wrote about Seven’s results last week:

So why has the market punished Seven so badly in the days since? Perhaps for the same reason that Nine’s share price began to fall yesterday. The more you dig, the worse the numbers look.

One of the places where it’s trickier to get to the info is the standalone numbers for the second half of the financial year - January to the end of June - on their own. While companies release standalone results halfway through the year covering July to December, the full year results don’t break out the numbers from the second half.

It’s possible to work out those numbers for yourself though, and that’s when they start looking seriously worrying for the television market.

Seven reported full year profits of $280m, on revenue of $1.487bn. The was down by 18% and 3.3% respectively. Not great, but expected.

In the numbers released earlier in the year for the first half, Seven had reported profits of $205m on revenues of $815m.

Which means we can calculate that in the second half, Seven’s profits fell to just $75m on revenues of $672m.

Compared to a year before, Seven’s revenues for the half fell by 6% and its profits fell by 41%. That’s a far worse trend than the initial headlines suggested.

The same exercise can be applied to Nine too.

Nine reported full year profits of $591m, on revenue of $2.7bn. The was down by 16% and 0.5% respectively.

In the numbers released earlier in the year for the first half, Nine had reported profits of $370m on revenues of $1.406bn.

Which means that in the second half, Nine had profits of $221m on revenues of $1.298bn. So, in the half just completed, Nine’s revenues fell by 4.4% and its profits fell by 25%. That’s far worse than most of this week’s initial headlines around Nine’s full year number.

Across the TV market, costs are rising even as revenues are falling.

Nine also splits out reporting of its numbers by its divisions, so it’s possible to drill further down into how television is performing. In Nine’s broadcasting division (which covers the transmitted versions of TV and radio), revenues for the full year were down by 1% to $1.356bn, while profits were down by 20% to $319.5m.

In the first half, Nine had reported broadcast revenues of $715m and profits for the segment of $224m.

Which suggests that for the second half, revenues for Nine’s broadcast segment fell by 7.1% to $641m. And broadcasting profits dropped to $95.5m for the half - a hectic fall of 39.6%.

So Seven’s profits for the half down by 41%; Nine’s broadcasting profits down by 39.6%. Ouch.

The problem for the TV industry is that streaming video is too small to make up the gap. BVOD - broadcast video on demand - only grew by 6.1% last year, to $391m across the free to air sector. That’s only a tenth of what was until recently a $4bn market.

The danger that TV networks face is that the loss of spend is not simply cyclical, because of the wider economy, and the government turning off the tap. What if it’s mostly structural, and won’t come back on the next upturn? Advertisers have noticed that broadcast audiences have fallen and have started to shift their budgets elsewhere.

Suddenly the big two networks of Seven and Nine are faced with huge, and growing, long term sporting rights cost and uncertainty about making them pay via digital streaming. No wonder, the market is showing doubts.

Wrapping up the season

Part of the results season routine is for CEOs to do the rounds of analysts and media writers. For the most part, Unmade gets time with every CEO we ask for (with the exception of Seven West Media’s James Warburton).

After the busy fortnight, here’s some further thoughts on the results…

1. Ooh Media may be through the worst

Having been punished by the market for a mid year profit warning, outdoor company Ooh Media seems to be back in gear. Revenue for the half was up 7.4% to $297m and underlying profits were down only 4% to $50m. CEO Cathy O’Connor signalled that she expects to take share from television.

2. The market still doesn’t like ARN’s SCA share raid

Analysts are too polite to express criticism in their results calls, but they do ask pointed questions. ARN Media’s Ciaran Davis copped some of that around his $38.3m share raid on Southern Cross Austereo back in June. If it hadn’t been for that purchase, the company would have cleared most of its net debt which instead sits at $52m.

3. ARN Media is about to have an expensive year

ARN is leaving Macquarie Park to move more expensive new headquarters in North Sydney (suddenly last month’s “Kiis is KJ” skywriting stunt over North Sydney makes a bit more sense). The fitout, which will include new studios, will be more than $12m. the company is also budgeting $8m+ per year on refurbishing its regional outposts, following the Grant Broadcasters acquisition. Davis was asked about efforts to renew Kyle Sandilands and Jackie Henderson’s contracts which expire at the end of next year. He straight batted it, saying the network talks to talent all the time.

4. Nine is going to announce something AI-focused at the Upfronts

Although nothing appeared in the investor slide deck, Nine boss Mike Sneesby briefly alluded to a new initiative right at the end of his investor briefing: using AI to “create and distribute bespoke video advertising” on 9Now. In my call with Sneesby, he declined to elaborate, saying Nine’s sales boss Michael Stephenson will have more to say about it at next month’s Upfronts.

5. No appetite for ads on Stan, but maybe a password sharing crackdown

During my time talking to Sneesby, Stephenson and chief financial officer Matt Stanton, I asked about two potential revenue-generating moves from the Netflix playbook: launching a lower cost ad-supported tier on Stan and cracking down on password sharing beyond households.

On the ad-tier, Sneesby was sceptical it would have a material impact in Australia where consumers have proven to be less price sensitive and Nine has plenty of other inventory anyway. But he was far more interested in addressing password sharing, conforming the technology is already in place to monitor user IP addresses.

6. Nine isn’t currently talking about folding Optus Sports into Stan

I also asked about my pet theory that Optus will get out of streaming and sell Optus Sports to someone. The Nine team gave a standard response of “We talk to everyone, all the time”, before adding that they’re not currently talking to Optus. I take that as a “not now”, rather than a “no”. Unless they’re great poker players, there’s no other M&A activity going on from Nine either.

7. We know a little more about Stan subscribers

Although Nine previously released slightly vague numbers about how many people were currently subscribing to Stan, it has not previously broken out how many were paying. The number is 2.2m - slightly more than I expected.

8. Everyone’s addicted to buybacks

Most listed media companies have been doing share buybacks, where they purchase shares in the business as they come on the market. Cynics see it as a way of shoring up the share price and an unimaginative way of deploying capital. Giving the benefit of the doubt, it demonstrates a belief that the share price deserves to be higher. Every media boss you talk to currently thinks the market is undervaluing their business.

By the way, a reminder of my regular declaration of interest: Through my super fund, I own stocks in most stocks on the Unmade Index. Yesterday I bought more shares in ARN Media, as I do think that valuation looks low.

9. Everyone’s in denial about the exit of Meta from the news ecosytem

None of the publishers are yet publicly admitting that this is probably their last year of seeing the money from Meta which was extorted via the threat of the News Media Bargaining Code. That will leave a big hole in the numbers for Nine’s publishing division, Seven West Media’s The West and indeed News Corp.

When Sneesby was asked about it on the investor call, he suggested that because Meta features Nine content on its video reels across facebook and Instagram, there could be a fresh conversation around the value that creates. When it comes to Meta handing publishers money it doesn’t need to, I’d suggest that hope is not a good strategy.

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Capital Brief gets on the beat

Australia’s next big publishing venture launched this week,

Capital Brief, published by Chris Janz’s Scire, is now live.

Unlike the launch edition of a newspaper or magazine, the launch version of Capital Brief feels far from complete.

A couple of facts emerge from the launch.

The selection of email newsletters on offer does include the morning newsletter Letter of Intent. So the reports that Scire would acquire Letter of Intent, which focuses on the financial deals sector, were true.

And the annual subscription price of $348 per year (currently discounted to $229) is about half that of the Australian Financial Review.

One thing that surprised me is that this early iteration of Capital Brief has less personality than I expected. That may come through instead via the newsletters rather than the home page.

The right rail features the latest posts and commoditised news. The main element of the page so far consists of just ten articles. There’s no infinite scroll on the home page, or not yet anyway, which is perhaps a nod to the fact in a subscription-led product, creating more clicks is less of a goal.

The layout is sparse, with just a couple of the main articles visible. And there’s one gimmick noticeable so far - all the images have a mono blue tint. I dislike it as much as I dislike adland’s addiction to sending out pretentious black and white head shots.

It’s very early days, and an earlier launch than expected, so I’m reserving judgement until it hits its stride. But initially, I’m a little underwhelmed.

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Campaign of the Week: Afterpay where you wouldn’t believe

In each edition of BOTW, our friends at Little Black Book Online highlight their most interesting advertising campaign of the week.

LBB’s ANZ reporter Casey Martin writes:

This week's campaign was made for Afterpay by BMF. Showcasing the ability to use Afterpay in places you'd least expect it, BMF crafted a spot with a bridge troll accepting Afterpay as a way to pay the fee to cross. It's humorous, clever and wonderfully crafted.

Find out more at LBB Online

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Seven’s dead cat bounce on the Unmade Index

Seja Al Zaidi writes:

A mediocre week on the Unmade Index drew to a close with a fall of another 1.36% to finish off at 638.2 points.

Almost every stock that moved went into red territory - Seven was the only exception, lifting 3.33% in share price after steadily falling for several days.

ARN Media saw the biggest fall of 2.73%. Nine followed with a 2.21% drop.

Southern Cross Austereo saw a similar fall of 1.32%, while IVE Group declined 0.91%.

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In case you missed it:

On Tuesday, Seja Al Zaidi explored all the numbers behind the Matildas’ amazing World Cup:

On Wednesday, we celebrated Unmade’s second anniversary, and shared some of the inside story:

On Thursday, our HumAIn curator Cat McGinn talked to Arpit Jain, global president of Publicis Groupe’s AI engine Marcel:

And on Friday we told the extraordinary story of misdeeds in the boardroom of The Market Herald:

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Time to leave you to your Saturday. I’ll be back with Abe Udy and Seja Al Zaidi on Monday for Start the Week.

Don’t forget to check out the REmade - Retail Media Unmade program before the earlybird discount expires.

Have a great Saturday

Toodlepip…

Tim Burrowes

Publisher - Unmade

tim@unmade.media

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