Streaming is the real reason ARN Media is plotting a breakup of Southern Cross Austereo
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Streaming is the real reason ARN Media is plotting a breakup of Southern Cross Austereo
Welcome to a midweek update from Unmade. Today: Big moves in audio with ARN Media involved in a bid for Southern Cross Austereo.
We spend all our time thinking about stuff like the mechanisms of media ownership so that on days like this we can explain what’s going on. If you’d like to support thoughtful analytical journalism, please upgrade to a paying membership of Unmade.
The real prize in ARN’s plan for SCA is streaming, not radio
Tim Burrowes writes:
The Australian Financial Review published a decent scoop last night: ARN Media has teamed up with Anchorage Capital Partners to bid for Southern Cross Austereo.
Before I get into that, this is a story that requires a more prominent than usual declaration of interest: Through my self managed super fund, I own about $17,000 worth of shares in ARN, and just under $10,000 in SCA. I’ve been buying both over the last six months because I felt the audio market was undervalued. We’ll come on to that.
ARN’s market cap is currently just over $260m. SCA’s is just over $170m.
Private equity firm Anchorage Capital Partners will bankroll the takeover bid.
A few minutes before this post was published, ARN released a statement to the ASX. The non-binding bid from SCA and Anchorage would be the equivalent of buying SCA shares at 94c, which is a premium of about 29 per cent on their current 73c.
It will be complicated. The Australian Communications and Media Authority will potentially be involved because of the media laws around the number of broadcast licences a company can hold in any given market. And the Australian Competition and Consumer Commission will need to assess whether any deal distorts competition in the market.
After any deal, there would still be two media companies.
There would be a beefed up ARN Media, with an expanded regional network taken from the SCA portfolio. ARN wants to boost Kiis, and turn SCAs Triple M into its second network.
The second company would presumably contain the other radio assets including ARN’s Gold network and SCA’s Hit network.
A siren just sounded in every radio station in the country. If this deal doesn’t proceed, Gold staff now know their management is willing to cut them loose.
It might also be the moment when Paramount steps in and buys (most likely, cheaply) SCA’s regional TV licences. Most of them are on affiliate deals with Paramount’s Ten. Back in June that arrangement was extended until the end of this year.
This deal would manage the media ownership rules. Nobody is allowed to control more than two broadcast radio licences in any market. Ownership of anything over 15% comes under those rules. Earlier this year, ARN Media bought a 14.8% stake in SCA. Effectively that ensures that ARN will be able to influence the outcome of any bid for SCA.
But that’s old media. Where this becomes interesting is streaming. There are no media ownership rules when it comes to audio streaming.
The obvious play would be to merge SCA’s Listnr and ARN’s iHeart into a single streaming app. That would create one dominant player in the ad-supported local audio streaming market.
Listnr currently reaches about 7.7m monthly listeners and delivers 28.1m downloads. ARN reaches 6.8m monthly listeners and delivers 26.6m downloads.
The deal would give ARN Media the chance to own the technology behind Listnr which was developed in-house at SCA. ARN licences its iHeart platform from the US. That arrangement is a historical one from when ARN was half owned by Clear Channel, which has since rebranded as iHeart.
Staff at both organisations would be justifiably nervous about the private equity partner Anchorage in this deal. There’s a reason why the classic book about private equity was called Barbarians at the Gate.
Anchorage bought Dick Smith electronics back in 2012 and profitably floated it a year later. Within three years Dick Smith collapsed into administration leaving many creditors out of pocket. More recently Anchorage tried to turn around distribution company Scott’s Refrigerated Logistics. That failed, with 1500 workers losing their jobs earlier this year.
Anchorage is also the current owner of David Jones.
An intriguing thing about the move is the galvanising effect it could have on deals in the wider media market which have been stalled since before Covid. Take a look at the market capitalisations of all the media companies in The Unmade Index below. Most of them have never been cheaper. That’s stalled a lot of deals because every management thinks they are worth more than the market currently gives them credit for.
If one of the outdoor players (and I’m particularly thinking of QMS’s private equity owner Quadrant) wants a tie in with radio, they will have to move now.
There’s also a pointer towards the future of television in this potential deal. Over the last three years, I’ve heard more than one executive speculate that one of the three TV networks of Seven, Nine and Ten could be bought by another. Previously that seemed impractical because of the ownership rules. But like audio, TV streaming would not be covered.
If ARN successfully navigates a deal, then it will show TV the way too.
Don’t forget though that this is far, far from being a done deal. SCA’s management - having been through the pain of taking Listnr to break even which is likely to occur before the end of this financial year - will have their own path in mind for the year ahead. Even with ARN Media voting its 14.8% stake, it would probably take a bigger premium than the current offer for SCA’s shareholders to go along with the deal.
SCA will now be at battle stations.
The barbarians are at the gate.
Unmade Index creeps up
Seja Al Zaidi writes:
The Unmade Index improved by 0.46% yesterday to land at 614.5 points.
Ooh Media saw the biggest rise of 1.76%, while IVE Group followed with a boost of 1.68%.
Domain lifted 1.60%, and Enero Group 1.19% Nine rose 0.25%.
Aspermont Limited had the most significant fall of 10%, while Pureprofile dropped 7.14%.
Seven had a 1.67% drop and Southern Cross Austereo 0.68%.
Time to leave you to your Wednesday.
The Unmade team is at South by Southwest in Sydney this week, including at Seven’s Upfronts this afternoon.
Tomorrow, you can catch me at 2pm on the Novotel Darling Square Stage (catchy name, I know) moderating a panel on retail media.
You’ll find Unmade’s curator Cat McGinn discussing AI at The Learning Centre at the Powerhouse at 3.30pm today, and at the same time and place on Thursday discussing (dis)trust and influence in media.
We’ll be back with an audio-led edition tomorrow, featuring the leaders panel from last week’s REmade retail media conference. It was a good one.
Have a great day.
Toodlepip…
Tim Burrowes
Publisher - Unmade
tim@unmade.media
Streaming is the real reason ARN Media is plotting a breakup of Southern Cross Austereo
Yes, the effective (though not ACMA-illegal) merger of SCA and ARN will help them compete with Spotify in the future. That makes more sense than this proposal being predominantly about ARN picking up Triple M (and the regional Hits) and jettisoning Gold. The two post-merger legal entities will likely be fairly evenly weighted.
And also yes, if ACMA and the ACCC approve this, Seven West and Nine will attempt to be next for very similar reasons.
While it would make a lot of sense for Paramount to buy SCA's TV assets (particularly the Ten affiliates), I wouldn't rule out a bid from ACM. If Seven West and Nine do functionally merge, the compatible ARN+SCA and ACM would both benefit from closer ties.
Great analysis, thanks Tim.