Welcome to the second edition of Unmade, mostly written on a chilly Wednesday night at Sisters Beach, Tasmania. The cats are judgmental about my failure to light the fire for them at their preferred time.

Today’s writing soundtrack: Tame Impala, The Slow Rush. Walking on the beach on Tuesday, I discovered the Song Exploder podcast episode in which Kevin Parker deconstructs how he put together It Might Be Time. As usual, I’m more than a year behind Triple J.

Four days into the kickoff of this newsletter, and I’m starting to blow off the cobwebs. Admittedly I’m also missing the time my holiday gave me to work on the important project of watching the 21 year Survivor archive, from start to finish, on the new Paramount Plus service. I won’t share a spoiler, even of a two decade old series, but the thing that happened to contestant Mike during Survivor: The Australian Outback? Zoinks.

There are 764 of you signed up now. Thank you. The behind the scenes work on Unmade continues. Since the last newsletter dropped, I figured out how to apply for a trademark (it’s easier than you’d think), and dived into the arcane world of DNS servers (it’s exactly as hard as you’d think). It stands for Domain Name System apparently.

Since having the idea to do Unmade, I’ve been changing my mind about domains faster than Scott Morrison switches his position on lockdowns.

I couldn’t get Unmade.com - it’s used by some sort of customisable T Shirt company in the US. And Unmade.com.au is - according to the online records - owned (but not being used) by Pia Miller. Yes, the one from Home & Away. If anybody knows how I can reach her, I’d appreciate it…

Then I had the bright idea of buying a German domain. But Unma.de was already gone too.

So then I settled upon unmade.biz. But my more technologically minded friends informed me that email spam filters hate the .biz domain. Unfortunately, by then, my book Media Unmade had gone to press with the unmade.biz URL as a point of contact in the afterword. So I made the best of that by creating an ego-driven, horrifically amateur Wordpress site rounding up reviews of the book. As is my habit with websites I build myself, it’s a crime against design, in yellow.

Instead, I’ve landed on Unmade.Media as the home of this newsletter outside of Substack. I’m told the .media domain is cool. Or, to be precise, www.unmade.media. I’m yet to figure out how to make the site appear on the web without the www. But with the help of more knowledgeable friends, I’m sure I’ll nail it soon enough. It took AdNews years to figure out the same problem, so I’m sure a couple more days won’t do too much harm.

And I think I’ve managed to set up my new email address too. You should be able to email me at timb@unmade.media.

Which brings me to today’s topic - Nine’s annual results which were released to the market yesterday morning.

If you don’t count the US-headquartered News Corp (or the local operations of Google come to that), Nine is Australia’s biggest media company. In yesterday’s presentation, new CEO Mike Sneesby referred a couple of times to Nine being “Australia’s Media Company”. You could hear the capitalisation (and it appeared in their accompanying notes). It’s not a bad positioning. Certainly it differentiates the company from its less local rivals.

The stock market, however, did not seem to approve of Sneesby’s first end of year appearance. The share price fell by 9.73%, taking the company back below the $5bn market capitalisation he inherited from predecessor Hugh Marks.

Marks, incidentally, enjoyed a lucrative final year with the company, banking $4.1m, yesterday’s announcement revealed. I think he deserved it.

Presiding over a loss of half a billion dollars in market capitalisation was not the ideal way for Sneesby to begin, even if it’s not real money disappearing from the company’s bank account. It also does not necessarily mean he has the wrong strategy, but it does strongly suggest that he failed to sell it to the investors who often take an extremely short term view.

The main thing I was looking for from yesterday’s announcement was a clue from Sneesby on how he intends to move on the strategy for Nine left for him by Marks. With interests in TV (in all its formats), talk radio, news publishing and real estate, Nine is a complex company.

In a nutshell, the strategy that came across from Sneesby was mainly more of the same, with additional investment in Stan.

Stan of course is Sneesby’s baby. He took the $100m committed by Nine and Fairfax in 2014 and turned it into a streaming service that probably contributes a billion dollars to the company’s valuation. It was the achievement that got Sneesby the top job at Nine.

In those early days, he correctly concluded that the only way to find success for what was then known as StreamCo, was to go big. Potential investor Seven West Media was too timid, which was why Sneesby’s boss at the time David Gyngell ended up inviting Fairfax to become Nine’s partner in the project.

That time round he was vindicated, with Seven and Foxtel’s less well funded rival venture Presto failing miserably.

Now Sneesby wants to go again. He will be investing in both Stan Sport and in Stan Originals content. Stan Sport launched earlier this year with rugby and tennis, and now soccer with the UEFA Champions League. It was backed by an additional price tier for subscribers. It brought in new customers and persuaded some existing customers to pay more.

There were subtle signals from the analysts during yesterday’s investor call that they had their doubts. But they were indeed only subtle - I’d speed read the annual report which had arrived a few minutes before, and then watched the whole call, and didn’t foresee the share price drop that followed when the market opened a few minutes later.

There were a handful of polite questions about the cost of the investment in Stan and how it would be repaid in subscriber revenue. Sneesby made the point that thanks to the tennis on Stan Sport, average revenue per subscriber had grown by $11. But he didn’t paint a big picture.

That sort of investor call is all a bit too genteel for actual doubts to be expressed. That happens more brutally through the trading of shares on the ASX instead. The problem with that is that the doubts were so politely expressed by the five or six investor questioners that Sneesby did not really have the chance to put their minds at rest, if that was indeed what was bothering them.

This speaks to the problem that Sneesby faces. Stan is the fastest growing part of the company, up 29 per cent in revenue for the financial year, to $311.8m. That overtook the company’s majority owned real estate masthead Domain, which grew revenues by 7% to $286.6m.

By contrast, the company’s biggest segment - broadcasting - grew by 10% to $1.2bn in revenues. That includes advertising revenues from Nine’s analog TV offering and its ad supported video streaming offering. Radio is also now folded into this segment.

Meanwhile the digital and publishing arm actually saw revenues fall, to $505m.

But to look beyond the revenues to the actual profits from each segment creates a different picture. Like they say, turnover is vanity and profit is sanity.

Broadcasting delivered $333m in EBITDA profit. As a return on sale, that’s an impressive margin of 27 per cent.

And the digital and publishing arm was impressive too. Although revenues were down, profit was up 28 per cent, thanks to falling costs. The $117.2 EBITDA profit for the segment represents a healthy margin of 23 per cent Who said newspapers were dying?

Actually, the Nine mastheads, which include the Sydney Morning Herald, The Age and the AFR, have found their way into a decent place. The downward spiral of news used to be that for every dollar in print advertising, they’d bring in perhaps five cents of digital ad revenue. As News Corp has also been finding, the new virtuous circle is that each digital subscriber is more profitable than a print subscriber because you haven’t got the cost of printing and distributing the newspaper. And digital subscribers are on the up.

Given that the money from the ACCC’s News Media Bargaining Code shakedown of Google and Facebook will only start to appear in Nine’s coffers in this financial year, outgoing publishing boss Chris Janz has left Sneesby and new publishing managing director James Chessell with a lot of runway.

Domain’s profit of $101m, meanwhile, provides for a healthy margin of 35 per cent.

Which leaves Stan. Its $39.5m profit amounts to a much slimmer margin of 12.7%. That’s not bad for something still in growth mode, and at least it is profitable. But Sneesby appears to be planning for that profit number to go backwards in the current financial year. Or rather, if he seems that differently, he did not spell it out yesterday.

Yet I’m not sure what other options Sneesby has if Stan is to grow further. And Nine needs it to grow further, as Stan is the future growth story that the stock market has approved of in recent years. A big reason that the market likes Nine better than rival Seven West Media is that the latter does not have a subscription streaming play.

But less and less US studio content will be available to Stan as the other streaming players multiply. So there is no low risk status quo option available. Sneesby appears to be embarking upon another round of investment. And although the market did not seem to like it, that does not mean it is the wrong option.

The economics of Stan Originals stack up better than he explained yesterday, by the way. The $30m or $40m of cost of creating a short series stands up well against the cost of licensing somebody else’s content, and can be sold on or co-funded out of other markets.

And sports rights are expensive, but the cost of playing in the space.

Going back to Seven, we hit another milestone with yesterday’s results release from Nine.

When CEO James Warburton arrived, Seven West Media was widely acknowledged to be in quite serious trouble with its debt levels. But by cutting costs and selling off assets, Warburton began to get it under control. Earlier this month, SWM revealed an end of financial year net debt number of $240m.

Nine’s net debt revealed yesterday, meanwhile, was $249.9m.

It will be psychologically pleasing for Seven but is likely only temporary. The delayed Olympics pushed the costs of the Games into the current financial year, which probably means a $50m hit to the bottom line that’s yet to show up. I’d be surprised if we finish this financial year with Nine still the more indebted of the pair. That, of course, is if Seven even finishes the financial year still on the ASX. At some point soon all this anticipated mergers and acquisition activity may actually start rolling. Even Sneesby used the M&A buzzword “optionality” yesterday.

The ASX is a sentiment-fuelled rollercoaster anyhow. That lost half billion in value could well return in the next few days if investors conclude they’ve overreacted and the share price goes back up. The company doesn’t pay a massive dividend, but it’s better than Seven, which didn’t pay one at all.

And for now, the real profit driver for Nine remains broadcast television. Retaining chief sales officer Michael Stephenson who, like Chris Janz, missed out on the top job, is important. Stepho’s $1.5m remuneration last year might have helped with that.

The performance of Nine’s schedule for the rest of this year will be more relevant to the company’s profits than Stan’s performance. The loss of momentum of The Block against Seven’s The Voice must be a concern.

I’m not sure it’s fair to say Sneesby has been enjoying a honeymoon. His April start coincided with the cyber attack. But if he was, then the honeymoon is now, unquestionably, definitely, without doubt, over.

The first time round, Sneesby’s aggressive investment plans for Stan were vindicated. Now, with a sceptical share market watching, we’ll see if he can be vindicated twice.

Time for me to let you get on with your Thursday. 

Later today I’ll be a guest pundit on this week’s Mumbellacast, which will be uploaded this evening.

In the meantime, please do let me know what you think. If I have indeed succeeded with my crash course in domain settings, you’ll be able to email me at timb@unmade.media.

Thanks again for subscribing to Unmade. Please pass it on to a couple of colleagues.

Have a great day.

Toodlepip...

Tim Burrowes

Proprietor - Unmade