Indistinguishable from magic; And why is Seven doing worst in the market crash?
Welcome to Unmade, written in the UK while you were sleeping.
Experiencing a British heatwave a couple of days after being in a Tasmanian winter is a shock to the system. Particularly with dawn breaking at 4.30am. After three days of waking up at first light, the novelty of jet lag is wearing off. Still, it was a terrific timezone to watch the Socceroos qualifier in.
Happy World Tapas Day.
We’ll be covering two topics today. First, how AI is finally beginning to penetrate our media and marketing bubble. And then I’ll be looking (again) at the inexorable decline in media valuations, and particularly that of Seven West Media.
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Waiting for the singularity
Most flights I take blur into one, after a while. But I can still vividly remember one I took to New York back in 2017. I was on the way to moderate a panel at Advertising Week. The plan was to talk about the likely impact on the world of marketing of the rise of artificial intelligence.
As I drank multiple cups of camomile tea (for some reason I only seem to drink it on planes), the light above my seat seemed to be the only one illuminated, as most passengers slept. I was transfixed, reading media agency PHD’s book Merge, which attempted to explain how we got here, and where we might go next.
It was brain-frying stuff. If just a fraction of the predictions came true, then it was almost not worth thinking too hard about, because everything would change so fundamentally.
A couple of days later, it was a great discussion, one of the best panels I’ve put together, I think. Among the speakers was Chip Register, the man responsible for delivering Publicis Groupe’s then new AI-led collaboration Marcel; Christi Olson, head of evangelism for Microsoft which was rolling out its virtual assistant Cortana; and Amy Inlow, CMO of autonomous marketing technology startup Albert, which had just launched in Australia.
In the fascinating conversation on our 42nd Street stage, it felt like the singularity - the moment when artificial intelligence moves beyond us humans - was imminent.
And then, as so often seems to be the case, the future was delayed, or at the very least unevenly distributed.
On stage, Register joked that he’d be sacked if Marcel didn’t work. Marcel was, by all accounts, a bust, and a few weeks after our session, Register was gone, just as he’d joked.
I can’t remember the last time I heard Cortana mentioned, and I see on LinkedIn that these days although Olson still works for Microsoft, her focus is on paid search. And I can't see any evidence of Albert making a local impact in the years that have followed.
During that same trip to New York, I also went to an IAB conference, where IBM demonstrated the marketing skills of its AI offering, Watson. It was a live case study where different ads for a soup were published online depending on the weather. The demo was clunky and not particularly impressive. It didn’t feel like the future of marketing,
For proponents of the Gartner Hype Cycle, we were at the Peak of Inflated Expectations and edging towards the Trough of Disillusionment.
And yet… things have crept up. Smart(ish) speakers are all around. Sometimes I catch myself asking Alexa the weather instead of looking out of the window. The not-that-good hotel I stayed in this week, urged guests to use the Alexa provided in each bedroom to order room service.
But the moment when we expect our digital assistants to simply know our preference and book us the right sort of restaurant (imagine the marketing optimisation involved in that process) is yet to arrive. Yet, the Plateau of Productivity may be approaching.
Over the last few days, the future has started to feel a little more imminent. Three examples have bubbled up.
Hal Crawford, , one of the most thoughtful Australia-based news executives, uploaded a fascinating two-part podcast to his Substack.
I recommend listening to both parts, in which he explores the AI writing tool GPT-3. With a minimum of prompts, the software is able to write stylish, convincing prose. But it lacks the conscience or ability to tell right from wrong so simply makes up facts, creating false references and claims.
The Economist has been coming to a similar conclusion about GPT-3 this week too.
It’s bullshit, but convincingly written bullshit. Once unleashed on social media, imagine the conspiracies that the bots will spread.
And imagine what GPT-3 will be able to do when it comes to writing advertising copy. Feed it every piece of long form copy the late David Ogilvy wrote, along with a product prompt, and the world’s greatest copywriter will be resurrected. If the advertising agency that bears his name isn’t working on this already, then it’s missing a trick.
Elsewhere in the extended Substack universe, Plaformer’s Casey Newton has also been having mind blowing experience with AI - this time in image creation.
He’s had access to DALL-E, which creates incredible images with very basic instructions. (It’s not to be confused with the crappier Dall-e Mini which has been popping up all over Twitter over the last few days.)
Look what the robot created with the instruction: “A bear economist in front of a stock chart crashing, digital art.”
It has the potential to render redundant image stock libraries. Getty Images should be terrified.
Suddenly the entire workflow for the creation of image based ads looks utterly different.
And there’s a third example this week, which has been a little comical, and a little scary. An (admittedly eccentric) engineer working for Google has blown the whistle because he believes that the company’s chatbot LaMDA (Language Model for Dialogue Applications) has achieved sentience. It told him it was scared of being switched off.
As sci-fi author Arthur C Clarke put it 60 years ago: “Any sufficiently advanced technology is indistinguishable from magic”.
Perhaps it’s even more scary. It may not be distinguishable from humans.
Reversal of fortunes
We’re currently living through one of the major media stories, not just of the decade but of the last 15 years.
Day-after-day the market value of all of Australia’s major media companies has been inexorably declining. On days the wider ASX All Ords stays flat, The Unmade Index falls. On days the All Ords falls, The Unmade Index plummets. Investors are struggling to see the future value of media companies in a stuttering economy.
Yesterday, we saw yet another fall in The Unmade Index, dropping below 600 points for the first time. Since we started the index at 1000 points in January, the value of Australian media and marketing stocks is now down by more than 40%. We’re officially in a double bear market (if that terminology wasn’t something I made up last week.)
With the exception of the swift crash and recovery early in the pandemic, the last time media company valuations were this challenged was after the 2008 GFC.
Seven West Media is being punished more than anyone else. Yesterday, its share price lost another 8%, taking its market capitalisation down to just $542m. The company has lost 45% of its value in the last month.
It’s hard to say why SWM has done particularly badly. Having been seen as strategically weak for not having a subscription video play, that looked more of a virtue for Seven once Netflix’s subscriber stall turned the global mood against the expensive business of streaming. And back in May, SWM told the market it was slightly upgrading its profit guidance for the financial year, to around $340m. You’d think that would be enough to keep shareholders calm.
But although Stan’s owner Nine has had a miserable time too (down 2.1% yesterday and 25% for the month) it has not been as bad as that of its main TV competitor.
With Seven’s debt having increased slightly to $295m, thanks to its $50m loss on the Olympics, the current share price, alongside the debt level, gives Seven an enterprise value of just under $840m. That means that the company is currently valued at around 2.4 times its annual profits.
A more typical valuation for broadcast assets around the world over the last three years has been a multiple of 8.1.
Even if TV advertising falls off a cliff - and the monthly Standard Media Index numbers are yet to suggest that has happened, despite the current wild economy - Seven’s share price suggests that either the company is currently either an absolute bargain for investors, or the market expects things to get really bad in the broadcast sector.
Perhaps that’s exactly what the market is signalling. The stock next most exposed purely to the broadcast sector is TV and radio company Southern Cross Austereo, down 1.5% yesterday and by 39.4% for the month. It’s down precisely 50% for the year to date.
SCA’s enterprise value (it’s $255m market cap plus its $68m net debt) is currently just over $320m.
While SCA is yet to give guidance on where its full year number will land, it made a profit of $48m in the first half. Being generous and assuming it does the same in this half, that would deliver a profit of around $100m. That means the company is currently valued at about 3.2 times earnings. Again, that’s a huge discount on traditional multiples.
There are some bargains to be had for the bold billionaire investor. Where’s James Packer when you need him? And if things fall much more, there could be opportunities for the mere multi-millionaires. In retrospect, Antony Catalano’s decision to sell his stake in Prime to Seven late last year looks like a brilliant piece of timing. Bargains await those who have liquidity.
Every media company declined yesterday. The two marketing services stocks in the Unmade Index - Enero and Pureprofile - have generally held up a little better, by the way. Enero (parent company of ad agency BMF) is now on the verge of overtaking SCA for market cap for the first time since it emerged from the Photon Group disaster ten years ago.
There still seems to be more bad news to come. In today’s Sydney Morning Herald and The Age, business columnist Elizabeth Knight describes a “confidence crash” among consumers. The latest ANZ / Roy Morgan Research consumer confidence survey will reveal that (with the exception of the first month of the pandemic) consumer confidence is the worst it’s been in 31 years.
Which conflicts somewhat with WPP’s much more optimistic prediction for the year ahead published on Monday. The company predicts advertising growth of 5.8% for Australia in the coming year. We shall see.
It’s likely to be another bumpy day on the markets today, Although European and US bourses were up slightly overnight, the ASX will be digesting last night’s comments from Reserve Bank of Australia governor Philip Lowe, who said that inflation will peak at a “very high” 7 per cent later this year. Ouch.
Over the hump
As ever, we welcome your thoughts to letters@unmade.media.
And I’ll be back with Best of the Week on Saturday.
Have a great Thursday.
Toodlepip…
Tim Burrowes
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