Welcome to the first Saturday morning edition of Unmade, timed at 10.10 am, just for old time’s sake. I’m still experimenting with the routine, so I can’t promise this will be the habit just yet.

Happy Newspaper Carrier Day. Deliverers of real estate advertising, pizza vouchers and occasionally news, I salute you.

There are now 924 of us. Thanks for the support. A shoutout to the crew at Quantcast who I notice signed up to Unmade en masse this week. Like Team Quantcast, please do forward this email to colleagues you think might find it interesting.

Today’s writing soundtrack: Lockdown Mix - July 2021 from Sudeep Gohil (strategist by day, dance DJ by night…) Thanks for the continuing lockdown tips - please do drop me a line with them at letters@unmade.media.

It’s been another week of behind-the-scenes admin. I started Unmade Pty Ltd, and applied for a business bank account. It was the week I learned the difference between an ACN (Australian Company Number) and ABN (Australian Business Number). Now I have my trademark application and my ACN, all I have to do is apply for the ABN, and I’ll have fully started a business without using accounts or lawyers. Fingers crossed I haven’t messed it up.

Speaking of businesses, this week saw the tail end of earnings season - the hectic three weeks when most ASX listed companies reveal their annual financial results.

For the media and marketing industry, it’s not what it once. Thanks to mergers, takeovers and failures, there are fewer on the ASX than once was the case.

I used to have 18 media and marketing companies highlighted on my ASX app. Now there are just 11 left. And one of those will disappear in the next few days - but we’ll come to that.

Incidentally, it’s disappointing how mediocre the ASX’s app is. As an organisation, the ASX itself seems to be hopeless at technology. Its move to a new website last year was a debacle, with the failure to migrate historic filings for several weeks. Which was memorable for me I was trying to write a book about Australia’s media over the last decade. And that’s before we talk about its recent trading system crashes.

One thing to bear in mind about this year’s results is that Covid has made the comparison of most companies’ revenues compared to previous years all but irrelevant. It’s been a free pass for badly performing CEOs of companies big and small, who’ve had a useful smokescreen. So I won’t be big on comparisons this time round.

So let’s start with the broadcast sector.

Mike Sneesby’s Nine

• Turnover: $2.3bn

• Profit: $565m

• Market capitalisation: $4.78bn

• Net debt: $249.9m

• CEO remuneration: $869,775 (Mike Sneesby) / $4,134,802 (Hugh Marks)

Assuming we treat News Corp as an offshore company (and maybe even if we don’t), The biggest local traditional media player now is Nine. Broadcast TV is still its biggest profit driver, while its publishing arm, including the SMH, The Age and the AFR, also had a good year. Stan is an important part of the investor story because it’s in the growth medium of subscription streaming, and is a hedge against a TV business reliant on advertising revenue. And the majority stake in real estate company Domain, I’ll come to later.

With a turnover of $2.3bn in the financial year that ended on June 30, Nine reported an EBITDA profit number of $565m.

There are plenty of different types of profit, but for the purposes of this piece, I’ll examine each of the companies’ EBITDA (earnings before interest, taxation, depreciation and amortisation). The way I think of EBITDA is the profit before the taxman and accountants get hold of it.

I examined Nine’s numbers in some detail a week ago, so I won’t go over the same ground. But the main thing to note is that the share price has not recovered much since falling 10 per cent on the day that CEO Mike Sneesby released the numbers. The problem still seems to be the lack of a picture on how streaming service Stan will grow its profits as it invests in keeping and growing subscribers.

At close on Friday, Nine’s market capitalisation was $4.78bn.

Along with turnover, profits, and market cap, another important metric for any media company - particular with another round of mergers and acquisition in the offing - is debt. Nine’s net debt was $249.9m

That’s a lot of money, but Nine also delivers a lot of annual profit. In my mind so long as a company’s EBITDA is higher than its net debt, the banks aren’t going to sweat too much on ability to repay.

For what it’s worth, I’ll also pull out each CEO’s remuneration. That included the reward they received for delivering on short and long term incentives as well as their basic remuneration.

The $870,000 number for Sneesby is not particularly meaningful because he was only CEO for three months of the financial year. His base package is $1.4m, with up to another $1.75m if he delivers.

Hugh Marks’ big number was justified as much as anything by the fact that Nine - a winner in the last round of consolidation - had grown to be a $5bn company by the time he departed.

James Warburton’s Seven West Media

• Turnover: $1.3bn

• Profit: $253m

• Market capitalisation: $700m

• Net debt: $240m

• CEO remuneration: $7,623,157

It‘s been two years and a few days since proprietor Kerry Stokes decided that it was time for Tim Worner to leave Seven West Media, bringing home James Warburton as CEO. It seems like much longer. As well as the pandemic, Warburton juggled the sale of Pacific Magazines, the delayed Olympics, and a round of cost cuts that would have come with or without Covid.

The company is now in a better shape than it was when Warburton took it on. His big remuneration package comes mainly thanks to the recovery in the share price and his incentives being reset when the share price was close to an all time low.

He inherited two major problems - first was a big debt and a looming deadline to repay it. The second was the lack of a paid subscription streaming play.

He won breathing space on the first challenge but, thanks to the 2016 failure of the Presto joint venture with News Corp’s Foxtel, SWM still has no Stan equivalent.

Warburton worked to remove risk by rebooting a series of old franchises including Big Brother, Farmer Wants A Wife, and The Voice. Meanwhile Sunrise and The Morning Show continued to dominate in the mornings and AFL continued to rate even with the interruptions of the pandemic. It all helped consolidate Seven in the key 25-54 audience battleground.

In the debt chase he sold off some of the family silver including PacMags and the company’s stake in Airtasker. He also made the most of the Covid crisis to cut costs and get concessions out of the sporting codes including AFL and Cricket Australia.

But what I am not sure of is whether the company has genuinely turned the corner on its debt, or just won more breathing space.

The delay to the Olympics pushed the costs of the event out of the last financial year and into the current one. Even in a good year, it’s hard for a TV network to make a profit from airing Olympics. It rates well but the rights are astronomically expensive. Instead it’s justified as a launch platform for other shows. But pandemic uncertainties meant that chief revenue officer Kurt Burnette did not stand a chance of getting enough sponsors over the line. As a result, the market is likely to see a $50m loss on the Olympics in Seven‘s next set of numbers.

One of Warburton’s wins a year ago was to negotiate the company’s $750m bank facilities out from this year to the second half of next year. If the banks call the debt in at that point, SWM would struggle to pay, but the name of game is giving them the confidence to roll over at least some of the debt once more. There is a good chance of that.

But Seven needs to keep spending. It’s multidimensional chess. Soon the company will need to decide whether to pull the trigger on its first option on the 2024 Paris Olympics. It’s a rotten timezone for ratings, and so is the 2028 Los Angeles Olympics. But being host broadcaster for Brisbane in 2032 is a huge prize. Taking the Paris and the LA rights may be the price of winning Brisbane.

Warburton is an adept salesman, so he has continued to talk, almost convincingly, about Seven being a positive player in the next round of media consolidation. Yet on paper, the company still looks more like prey than predator. How that plays out will depend in large part on how much other potential partners value Seven’s free to air assets and the privileges that come with them.

On the strategic to-do list in the annual report was “Explore a meaningful subscription partnership play.” The logical assumption has been that could mean NBC Universal, which is late to launch Peacock in this market.

But the bigger play would be to combine Foxtel, majority owned by News Corp, with SWM’s TV business for an offering that would cover traditional and digital, and be a fearsome challenger for Stan on the subscription front.

While Foxtel’s traditional business has been fading, its sports streaming service Kayo and entertainment offering Binge have been coming good.

Perhaps there’s even a parallel deal to be done with News Corp over the future of SWM’s The West Australian newspaper, which is a sentimental asset for the Perth-made Stokes.

Incidentally, although News Corp is dual listed on the ASX, it follows the New York financial calendar, so I won’t focus on the company today.

Also on that SWM strategy list in the annual report is “explore M&A opportunities”.

And there’s more: “Several M&A opportunities have been assessed,” reveals the report. And then: “Actively pursuing consolidation the sector.”

Deals are in the air, or at least SWM would like them to be. It’s sending all the signals.

Ian Audsley’s Prime Media Group

• Turnover: $179m

• Profit: $37m

• Market capitalisation: $88m

• Net cash: $41m

• CEO remuneration: $1,109,569

Prime, whose main business is being Seven’s regional affiliate, is one of those media companies that, based on its relatively small size, struggles to justify being listed on the ASX. There are some media orphans and Prime is one of them.

Shareholders Antony Catalano and Bruce Gordon blocked Prime from being absorbed into Seven late in 2019, and since then the Cat (and business partner Alex Waislitz) has increased his holding up to about 20 per cent making him the biggest shareholder.

At the time the deal fell over, outgoing chairman John Hartigan complained that Prime had become a “plaything” of billionaires.

Back then, the affiliation deal with Seven seemed to have forever to run, but now we’re in the final two years. And what makes that more interesting is that Ten and Southern Cross Austereo only signed a two year affiliate deal when they were thrust together back in June, after the decision of WIN to get back with Nine.

That deadline creates intriguing permutations.

For Prime boss Ian Audsley, the immediate challenge is the NSW and Victorian lockdowns will likely be disproportionately depressing for the regional advertising market.

And the longer term challenge will be how to make the most of the company’s good cash position.

The hint came in Prime’s investor notes around its results: “The company continues to actively review revenue diversification opportunities, including options for inorganic growth and will focus on maintaining adequate cash reserves with a view to funding such opportunities.”

I take “inorganic growth” as a suggestion that the company is itching to buy something.

But when it comes to deal making, some of it may be out of Audsley’s hands. Catalano, who is also proprietor of Australian Community Media, upped his stake to give him a seat at the table in the coming negotiations. Seven West Media also holds about 15 per cent, as does Bruce Gordon. But nothing can happen to Prime without the Cat’s say so.

Grant Blackley’s Southern Cross Austereo

• Turnover: $529m

• Profit: $125.9m

• Market capitalisation: $571m

• Net debt: $52.6m

• CEO remuneration: $1,600,766

If Grant Blackley gets his way, SCA will not be in the TV business for much longer.

The way the company described itself to investors in its update was “The principal activities of the group during the course of the financial year were the creation of audio content for distribution on broadcast (AM, FM and DAB radio) and digital networks.”

Almost as an afterthought it added: “The group also broadcasts free to air television content in regional markets”. It ca’t be very inspiring for those working in the TV operation.

I had been surprised when SCA and Ten signed only a two-year affiliation deal back in June. For Ten it looks like a risky arrangement.

SCA (or whoever owns its regional TV stations by then) will be keen to switch across to the better-rating Seven. And Seven’s management, perhaps bearing a grudge about Catalano blocking the Prime takeover, might well welcome it.

I’d be surprised if there haven’t already been hypothetical conversations about what a deal looks like that puts SCA’s TV stations inside Seven West Media.

On the audio side, this was the year that SCA, ahead of the others, began to get serious about digital audio, particularly with its Listnr app.

Mind you, I’m still grieving the inexplicable removal of Triple M Classic Rock from the list of 36 Triple M stations the company makes available via smart speaker. (You might notice Classic Rock no longer appears in my writing soundtrack mentions. That’s the reason.)

Also noticeable from the update is that the company has shifted the emphasis of how it describes its two radio networks. The sport and rock heavy Triple M has always been male-focused. But now it describes the Hit Network - which includes the likes of Fox in Melbourne and 2DayFM in Sydney as “targeted towards females in the 30 to 54 age bracket”.

That’s a shift and perhaps yet another sign that it still can’t figure out what to do with the misfiring 2DayFM.

The company also unveiled a new mission “To entertain, inform and inspire Australians. Anytime. Anywhere.”

Management teams spend a long time working on mission statements, and every word is carefully weighted. The “anytime, anywhere” line clearly looks to digital audio on demand.

I wonder whether the use of the word “inform” is a suggestion that the company needs to boost its journalistic credentials, particularly if it wants to play seriously in the podcasting space beyond repackaging of its radio content.

Assuming SCA does eventually offload its TV stations, I wonder whether its final form will be as an audio company though. I’m not arguing against the strategy, but at a time when most players seem to be moving towards multi-medium consolidation (look at Nine with TV, newspapers and radio, and News Corp with the same, if you include Lachlan Murdoch’s Nova Entertainment.)

Ciaran Davis’ HT&E

• Turnover: $109m (half year)

• Profit: $30.4m (half year)

• Market capitalisation: $482m

• Net cash: $122m

• CEO remuneration: $1,197,108 (2020)

Although HT&E updated the market during results season, it was only for half a year of numbers because it follows a calendar financial year.

It’s a historical hangover from the days when the company was APN News & Media. These days HT&E is predominantly a radio company, owning the market leading Kiis and Gold networks.

And one of the biggest factors that will decide the future direction of the company is also historical.

The reason HT&E is sitting on such a big pile of cash is because it is in a giant fight with the Australian Tax Office over accounting treatment for its previous NZ newspaper interests including the New Zealand Herald. The ATO is disputing the company’s tax returns from 2009 through to 2016.

At stake is about $150m. The two sides could yet go to court, and see HT&E stung with the whole bill, or none of it. Or they could yet negotiate a settlement.

Until they get a resolution, HT&E may be nudged onto the consolidation sidelines. It doesn’t know how much it has in the war chest for big acquisitions, or whether the tax man will get it. And potential buyers don’t know what they’re getting.

As an added complexity, News Corp owns 14.8 per cent of HT&E. And it turn, HT&E owns about 4% of outdoor company Ooh Media.

Which brings me on to Ooh Media…

Cathy O’Connor’s Ooh Media

• Turnover: $250m (half year)

• Profit: $113m (half year)

• Market capitalisation: $1.1bn

• Net debt: $94m

• CEO remuneration: $3,004,857 (Brendon Cook, 2020)

This results announcement was the first half with Cathy O’Connor in charge. She took over from founder Brendon Cook at the beginning of 2021.

Under her predecessor, the company flirted with diversification away from out of home media. It bought youth publisher Junkee Media. O’Connor is selling it.

Not for O’Connor the inorganic growth Prime speaks of. All the signals she has sent to the market is that she thinks she can squeeze more profit out of the company’s existing outdoor assets, as it continues to digitise its billboards and the outdoor market recovers. Ooh Media is more exposed than most in the airport advertising sector, so it is still facing a slog.

The stock market does not yet seemed to have formed a view on Ooh. The share price is pretty much were it was when O’Connor started. And it certainly hasn’t recovered from the steep fall it suffered at the start of the pandemic when its raised emergency capital by issuing new shares.

I’d be surprised to see Ooh Media a big player in the coming consolidation.

Jason Pellegrino’s Domain

• Turnover: $289.6m

• Profit: $100.6m

• Market capitalisation: $3.2bn

• Net debt: $79m

• CEO remuneration: $2,740,704

The performance of Domain on the ASX underpins the valuation of Nine, which owns 59 per cent.

My former Mumbrella colleague Damian Francis wrote in detail about Domain’s performance in his Best of the Week email a fortnight ago, and I can’t top that analysis.

Boss Jason Pellegrino managed the company well through the pandemic, but if there’s one overwhelming impression I’m left of Domain is that the plan for the company is not particularly ambitious - more of the same, done slightly better.

Owen Wilson’s REA Group

• Turnover: $928m

• Profit: $556m

• Market capitalisation: $20.6bn

• Net debt: $414m

• CEO remuneration: $4,363,108m

I said at the start of this email that I have just 11 companies listed on my ASX app. Actually, it’s now 12. In writing this, the penny dropped that I haven’t been tracking REA Group - the largest locally based media company of them all - in my crappy ASX app.

Its $21bn market capitalisation dwarfs Nine and rival Domain, yet it’s much less talked about. CEO Owen Wilson has one of the lowest profiles of media company bosses, perhaps because he came up through the chief financial officer route.

REA Group, still majority owned by News Corp, remains one of the best investments Lachlan Murdoch made. The company’s main site realestatecom.au is the online real estate market leader.

I wouldn’t be surprised if the company breaks through a $1bn turnover during this financial year. It deserves more attention than it gets, including from me.

Brent Scrimshaw’s Enero

• Turnover: $160.6m

• Profit: $45.6m

• Market capitalisation: $283m

• Net cash: $30.6m

• CEO remuneration: $1,637,422

Enero is another one of those companies that doesn’t quite belong on the ASX. It got there when the company was known as Photon Group, before the holding group became trapped in a desperate battle for survival that saw it sell or close most of its agencies when it couldn’t service its debts after the GFC.

It’s even less of a top table player because its agencies are spread across Australia, Europe and the US.

Matt Melhuish, the M in BMF, became CEO in 2012 and spent the next eight years doggedly grinding out gradual improvements until handing over to Brent Scrimshaw a little over a year ago. At Enero’s current size, being on the ASX does not make a lot of sense, particularly now its larger rival, the local operation of WPP is no longer listed.

Along with BMF, the holding company includes tech PR agency Hotwire, corporate PR agency CPR and customer experience agency Orchard.

The tone in this year’s report has changed under Scrimshaw. He talks about strengthening the business through M&A. That’s a clear signal that the plan is to go for growth. I wonder if it will take on some debt to do so. There isn’t much corporate memory left now of what happened last time round.

It seems to me that one year in, Scrimshaw - a former long time Nike executive - is only just beginning to figure out his plans for Enero.

Isentia

At the close of trading on Thursday, media monitoring company Isentia left the ASX.

UK software company Access Intelligence bought the company after it drifted from ambitions of a billion dollar market capitalisation to barely $20m.

Disrupted by technology challenging its original business model, Isentia struggled to come up with new answers. Founder John Croll’s push into content marketing began the downward spiral when King Content proved to be the wrong purchase.

Things declined further under his successor Ed Harrison who was unable to come up with a new strategy and under communicated with the market when Isentia was hit by a crippling cyber attack.

The Access acquisition ends the agony. Without ASX scrutiny the company will be able to quietly rebuild without taking regular kickings from stock market.

Martin Filz’s Pureprofile

• Turnover: $30m

• Profit: $3.1m

• Market capitalisation: $40.6m

• Net debt: $2.3m

Which, finally, brings me to the most difficult to understand ASX company for the media and marketing world - Pureprofile.

A couple of years back the data company looked all but dead. Founder Paul Chan was out and CEO Nic Jones quickly came and went without any signs of a turnaround.

In part the problem seemed to be the company drifting away from (or being unable to execute) Chan’s original, complex vision for the organisation. He foresaw insight-driven programmatic advertising before it became a thing.

Now the company is resetting as mainly an online research and data company.

I’ve written extensively in the past about how the company’s debts threatened to overwhelm it, and the ownership shenanigans that accompanied that. A few months ago, it got through the worst of that by running a capital raising and handing its debtors a big chunk of the company to wipe the slate clean.

For the first time in many years, Pureprofile feel stable once again.

Time for me to let you go about your day. If I don’t stop writing now, I won’t have this out of the door for my planned 10.10am, and that would be a pity.

When I got up early this morning to finish this thing, it was still a perfect black, starry night. Not the skies at Sisters Beach are completely blue and the birds are chirping.

I must admit, reading all those annual reports took a bit longer than I (optimistically) expected. Still, at least now you don’t have to.

I’d love to hear from you. Please drop me a line to letters@unmade.media, or leave a comment below.

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And (please) help a colleague be better informed by telling them about Unmade.

Have a great weekend.

Toodlepip…

Tim Burrowes

Proprietor - Unmade Media