What was more of a surprise though – and would have been unthinkable in the not too distant past – was the revelation that the shining star in Nine’s result this year was the performance of its newspapers, websites and streaming services, rather than television.
“The death of newspapers was called far too early,” Marks said, days after the one year anniversary of his $4 billion merger deal with Fairfax Media. Nine is the owner of Herald and The Age.
Being less reliant on the television market since the historic deal helped the broadcaster post a 10 per cent rise in earnings. Now, just over half of its revenue comes from broadcasting television. This compares to more than 70 per cent at Seven.
Revenue in Nine’s publishing and digital business, which includes its newspapers and 9Now online catch up service, was up 3 per cent, while earnings (before interest, tax, depreciation and amortisation) were up 56 per cent to $130 million. Meanwhile, subscription-based streaming service Stan turned profitable in the second half of the financial year.
Regardless, no broadcaster has been able to weather the advertising downturn unscathed. The TV ad market shrank 4.7 per cent last financial year, Standard Media Index figures show.
Regional TV companies Southern Cross Austereo and Prime Media both also posted results that were heavily affected by the soft advertising market over the year and, along with Seven, suffered write-downs of their television licenses.
The problem for Seven, Nine and most likely Network Ten – which does not have to report results to the stock exchange as it is owned by US entertainment giant CBS – is not apparent for those watching from in front of a television screen.
There are now more shows and movies available than ever before, through platforms like global giant Netflix, Nine-owned Stan, Amazon and soon, it was confirmed this week, entertainment behemoth Disney.
Every hour spent watching a streaming platform is time not watching traditional television, reducing the size of audiences networks can sell to advertisers.
But could embracing the shift to streaming actually save the television star? Nine certainly has positioned itself for that with Stan. Seven under Warburton now appears to be moving in a similar direction.
Finding a streaming partner has clearly been placed at the top of Warburton’s wishlist. He has already written to several possible partners for a deal and is positioning Seven as a “hunter” seeking out major deals.
“We’re clean, we have huge assets,” he says, adding the networks’ news shows, sports programming and promotion make it a potential partner for an overseas entertainment company.
Catch-up apps like 7plus, 9now and 10play have seen double-digit growth in users off a relatively small base.
“There’s potentially going to be nine [streaming services] in the market – they won’t all survive,” Warburton says. “There’s established players in the market and so for us, there’s an enormous opportunity to use our assets and create power.”
His comments came hours after The Walt Disney Company revealed that its own streaming service Disney+ would be available in Australia from November. It joins an increasingly crowded market which also includes players such as News Corp’s Foxtel and its recently launched Kayo Sports.
Ten CEO Paul Anderson said he agreed streaming was a big part of any TV company’s future. But he said new streaming platforms couldn’t be made “overnight” and most of the success was in currently existing broadcast catch-up apps, with big growth figures across the broadcasters.
Nine, in particular, has been at the centre of months of speculation about whether a deal with Disney involving Stan could be imminent, potentially making it a local partner to the US giant. It had made it repeatedly clear it was interested in a close tie-up. It’s now unclear whether a deal could go ahead, or if involvement with Nine and another Disney owned catch up service that operates in the US, Hulu, is more likely.
Marks says there is no “fixed agenda” in terms of the future ownership of Stan, which is considered a growth engine for the broadcaster having broken even in the second half after record subscriber numbers and a short-term content deal with Disney.
“We’re not trying to sell the business, we want to participate from its growth . . . we know we can contribute to it,” Marks says.
“We’ll talk to anyone who we think brings great long-term value but it’s not something we’re looking at actively to do … Would there be long-term partnerships that might make sense on an equity basis for the business? Potentially.”
Even so, he said he “doesn’t know where [Warburton] gets nine – I get four” and believed four major players in streaming could co-exist.
The year ahead
Major mergers, acquisitions and deals with streaming players may be possible in the next few years but for all broadcasters reliant on advertising a more immediate concern is how to handle another 12 months of an undesirable ad market.
Southern Cross Austereo chief executive Grant Blackley has tipped a return to growth from October after “flattening out” in September following a year-long decline in the company’s television arm of about 5 per cent. Television makes up about 15 per cent of the largely-radio focused company’s earnings.
Macquarie Wealth Management analysts said in a note that the television advertising market was down 5 per cent, and expected 2020 would be another “challenging year” for Seven. The television ad market is expected to decline by around 2 per cent, which affects all broadcasters.
“Against the operating outlook, the market will closely monitor scope for merger and acquisition activity and restructuring under a new CEO,” the analysts said, pointing to Warburton’s comments about a potential deal.
Seven West is expecting earnings (before interest and tax) to be in the $190 million to $200 million range, down from $212.1 million in 2019.
Prime is forecasting 2020 earnings (before interest, tax, depreciation and amortisation) to be in the $23 million to $25 million range, compared to $38.5 million in 2019. Nine is expecting earnings growth of 10 per cent.
Prime’s expected year-on-year earnings decline saw Morgan Stanley analyst Andrew McLeod remain underweight on the business. McLeod took the same position for Southern Cross, point out the mid-single digit advertising declines in July and August despite outperforming “most media peers” like Prime, Seven and HT&E.
A downside risk for all ad-reliant businesses, McLeod said in his note, was a potential recession that could see the ad market deteriorate even more.
TV broadcasters typically try to compete for market share to grow their revenue, but Warburton said his focus was now on growing the advertising market across the free-to-air segment overall.
“Yes, we’ll compete, [we’ll] win, lose or draw based on how good we are at what we do. But growing the pie for the industry and refusing to accept that traditional media is less exciting for marketers is something that is a huge focus of mine,” he said.
Marks says the dynamics of competition in free-to-air are going through a permanent shift.
“There’s just a bit of a breakdown happening between what those traditional share dynamics and how they operate,” he says.
“Long term you’ll see the stronger players continue to benefit and any weakness or weak player really suffering through that period. It won’t be that the market impacts all broadcasters equally, it will impact one more than the other two.”
In the last 12 months, he says, Ten has been the most affected.
“They’ve really suffered on a revenue basis. They’ve got a challenge to re-build their relationship with their audience and if they can then they can potentially stand to benefit from revenue but their challenge is they don’t have sport, they don’t have news and current affairs franchises of a huge degree and so they’re reliant on their entertainment schedule, which puts them in a difficult position.”
For his part, Ten’s Anderson sees things differently. He concedes the first half of the calendar year had been weaker in terms of revenue “The first half of this year had an election, there’s been uncertainty and a benign economy. All these factors added up … it’s no surprise this had an effect on spend,” he said.
But “the second half is the biggest we’ve ever had,” he said.
Marks believes the Australian market can still sustain three broadcasters: “I think there’s absolutely room for three broadcasters and we want everyone to be successful because the competitive landscape is different now.
“It’s now how do we participate in what the digital video market is, it’s how do we grow our share there rather than necessarily fighting over whether we can get an extra point or half a point off Seven or Ten.”
Anderson broadly concurs. “There’s a $3 billion ad market out there and the way broadcasters monetise this content is changing over time.”
Seven Group Holdings chief executive Ryan Stokes issued his own rallying cry for the broadcaster.
“We don’t subscribe to the theory that the revenue is not influence-able,” he says. “We think the sector can fight for more and that is going to be a trial focus of the team.”
With Ben Weir
Jennifer Duke is a media and telecommunications journalist for The Sydney Morning Herald and The Age.