This month, the biggest job in Australian media changed hands. Mike Sneesby was named the new CEO of Nine Entertainment Co, (NEC), the listed company controlled until 2006 by the Packer family whose Channel Nine had been the country’s first TV network 65 years ago.
Sneesby succeeds Hugh Marks who, in just five years, has transformed NEC from a legacy free-to-air television network into arguably the most diversified media company in a major economy. A real 21st century case study.
Whereas the Murdoch family’s News Corp once set the yardstick for Australian media, now it’s the A$5bn NEC which dominates TV, radio, streaming, newspapers, and digital.
In television, NEC vies with SevenWest Media for TV market leadership. In recent years, its Channel Nine has generally led the advertising-friendly audiences of 16-39 and 25-54 year olds, while Seven (skewing slightly older) typically scraped a win in total-people viewing. The third commercial network, the ViacomCBS-owned Network Ten, rarely challenges the big two.
The free to air television advertising market is worth some A$3bn per year. Nine and Seven generally share just under 40% each. Ten gets the rest.
Australia is sports-mad, which is the key to TV ratings consistency. Nine owns the rights to the East Coast’s favourite sport, National Rugby League, the code of choice for viewers in Sydney and Brisbane. Seven owns AFL (Aussie Rules football), watched mainly by viewers in Melbourne, Perth and Adelaide. And, to see the networks through the summer when viewing dips (as Australians take their Christmas break), Nine airs the Australian Open grand slam tennis tournament. Seven owns the main rights to cricket, the country’s largest sport. The switch in TV rights under Marks’ leadership came after decades of cricket on Nine and tennis on Seven.
As CEO, Hugh Marks consistently refused to accept that television was in its sunset years, even as audiences were moving away from free-to-air. The future would also be about subscription and ads-supported streamed television which are both in strong growth. But Marks said the successful media group could have it all – and the financials have proved his point.
Last month, NEC’s financial results for the second half of 2020 showed EBITDA growth from A$250.8m to A$355.4m. It was a result achieved, in large part, through cost-cutting and sports rights renegotiations during Covid; NEC had a good pandemic. Broadcast TV made the biggest contribution to the company’s profit growth with EBITDA improving by A$60.7m. But, more significantly, the subscription streaming service Stan finally turned profitable (EBITDA of A$50m) after launching in 2015 with a million dollar monthly cash burn.
And Stan – led by Mike Sneesby – has been one of the keys to the remaking of Australian media over the last three years. Originally, it had been a joint venture between NEC and one of Australia’s most venerable media companies, Fairfax. Stan’s successful launch in the face of Netflix’s arrival in Australia had created a hugely valuable asset for both companies. It’s now worth more than A$1bn and has some 3-4m subscribers. Stan may be a model worthy of study – or even collaborative investment – by domestic broadcasters elsewhere (ITV in the UK, for example). Perhaps it could even become a multinational franchise to help the push back against Netflix, Disney and Amazon…
But the unlikely streaming success has only been one part of the NEC multimedia story; legislation was even more important.
Changes to the Aussie media ownership laws in 2017 removed the “two out of three” rule which had prevented media companies from owning radio stations, TV networks, and newspapers in the same market – they had to pick two. The radical change, after decades of lobbying by media groups, opened up the market to foreign operators and allowed Nine and Fairfax to merge in 2018 in a deal masterminded by Hugh Marks. It brought into NEC the Fairfax newspapers, including The Sydney Morning Herald, The Age and The Australian Financial Review, and also control of a major radio network, the Domain property digital, and the Stan streaming channel. The company on-sold its local newspapers Australian Community Media to entrepreneur Antony Catalano, creating a major new player in regional media.
After years when the closure of daily newspapers had seemed all too imminent, the management at Fairfax and then NEC have re-made the business model. The company no longer owns any printing presses, instead outsourcing its biggest fixed cost to others – and to its main rival News Corp. Nine’s digital sites (including those of the former Fairfax newspapers) have 13.8m monthly uniques – 70% of the adult population. And, after years of decline, the news brands have benefitted from surprising tailwinds.
Australia’s news publishers have recently seen their prospects transformed by the government’s controversial News Media Bargaining Code which forced Google and Facebook effectively to subsidise them and, arguably, has inspired governments around the world to consider getting tough too. It’s another win for NEC which is reported to have negotiated an annual fee of A$30m from Google which – even without anything from Facebook – would represent a 30% increase in its profit from publishing and digital.
Rupert Murdoch’s News Corp remains the country’s most influential political voice, with a tabloid daily in every state capital, and The Australian as the only national newspaper. Now that more of its revenue comes from paywall subscribers than from advertising, the newspapers have, arguably, moved further to the right politically: the secret to driving subs may be polarising content that appeals to a particular segment of the population, rather than attempting to please everybody in pursuit of the broadest, biggest advertiser-friendly audience. The same may go for the company’s news channel Sky News Australia, which – after 5pm each day – increasingly looks like its US cousin Fox News in its opinionated right-wing output.
News Corp also has a foot in the mainstream Australian television market through its 50% ownership of pay TV company Foxtel. The company’s first attempt at launching a standalone subscription streaming service ended in failure with Presto – its joint venture with SevenWest Media – launching with weak technology and poor marketing, and then quickly closing. Its sports streamer Kayo and entertainment service Binge have been more successful.
Radio is another sector where NEC is now market leader. The merger with Fairfax gave Nine a network then known as Macquarie Media and now branded as Nine Radio. The portfolio includes AM talk radio stations 2GB and 3AW, which are the most listened to radio stations respectively in Sydney and Melbourne.
In the more competitive FM battleground, three companies, which each own two licences in Australia’s five capital cities, fight it out. Australian Radio Network, owned by HT&E, owns the Kiis and Gold networks. Southern Cross Austero owns the Hit Network and Triple M, and Lachlan Murdoch’s privately-owned Nova Entertainment owns Smooth FM and Nova. The single most successful show in Australian radio is the edgy Kyle & Jackie O Show, presented by Kyle Sandilands and Jackie Henderson. The show airs live as a breakfast show on Kiis in Sydney and is networked nationally.
Meanwhile, Australia’s magazine industry is a shadow of what it once was. Australian magazines have gone from being the best-selling per capita globally to being among the most challenged. The legendary Australian Women’s Weekly was once read by more than 50% of the country’s women. For decades, it was the flagship of the market-leading ACP Magazines which formerly shared Packer family ownership with Channel Nine TV. The PBL Media parent was sold expensively to CVC private equity in 2006 and ACP Magazines was re-sold before CVC lost control of Channel Nine itself. That was just the start of the mayhem for the country’s largest magazine publisher.
Bauer Media bought ACP in its usual way with sketchy due diligence and a dreamy plan to become a major force in Australian media. But, over the decade, the family-owned company (which has a major radio network in the UK and is now Europe’s largest broadcaster) was rebuffed in attempts to buy into Australian radio, and also repeatedly outbid when digital media came up for sale. Meanwhile, it seriously misjudged the commercial dynamic of the Australian magazine market which is skewed towards advertising rather than copy sales. But that was only part of its clumsy dealings in the AsiaPacific. Bauer struggled to manage the company from a distance with successive CEOs, including one hapless part-timer who divided his time between London and Sydney.
For much of the decade, the Aussie magazine industry was a three-way battle between Bauer, the SevenWest-owned Pacific Magazines, and News Corp’s NewsLifeMedia. In 2019, James Warburton was appointed CEO of Seven West Media and inherited a A683m debt burden which prompted the sale of Pacific Magazines to Bauer for $40m, subject to approval from the Australian Competition & Consumer Commission (ACCC).
Initially the regulator raised competition concerns and, while it deliberated further, Covid swept in. With the value of Pacific Magazines drastically reduced, Bauer appeared to change its mind about the purchase, trying vainly to re-negotiate a signed contract. When the ACCC approved the deal in March 2020, SevenWest Media went to court to press its rights, and the sale was eventually completed in May last year. It created a single magazine powerhouse, albeit in a market where the pandemic had drastically reduced advertising spend and caused the closure of many major famous brands including Cosmopolitan, Cleo, and Elle.
By then the Bauer family was desperate to get out of Australia, and agreed to sell to private equity firm Mercury Capital for even less than the price it had paid just for Pacific Magazines. In September, Australia’s new magazines leader – rebranded as Are Media – was born with an estimated market share of more than 70%, under CEO Brendon Hill. Can the magazine market leader and its industry be revived?
The Australian advertising market now appears to be over the worst of Covid. The countrys’s approach to the health emergency was to enforce a series of lockdowns and border closures during 2020, which reduced community transmission almost to zero. Like an economy that had out-performed most others in the last two decades, Australia looks like winner again.
Unsurprisingly, given that nobody could go to the movies, the relatively small sector of cinema advertising was among the worst affected with an annual drop of 67.9 per cent, according to Standard Media Index – which tracks media agency spend. The drop in commuting badly hit radio (down 22.7%) and outdoor advertising (down 38.4%). And magazine suspensions saw the sector’s ad spend by agencies drop by 42.4%. Newspapers were down by 26.4%. Television dropped by 12%.
Across the media markets, 2020 saw a reduction of 15% in advertising agency media spend. But December finally saw the sector return to growth – up by 2% on December 2019. The ‘Lucky Country’ had done it again.
For all the unprecedented concentration (in global terms) of media ownership in Australia, there may still be more to come.
SevenWest’s debt levels, although reduced since 2019, remain high. And the company will have a big bill for sports rights if the Olympics proceed in July this year. Seven also looks increasingly stuck with sunset assets. Unlike Nine with Stan and Ten (with the forthcoming Paramount Plus) Seven West Media has no investment in subscription streaming or pay TV.
News Corp appears to be treading water, with some expecting the company to tie up with SevenWest’s West Australian newspaper portfolio. Its investment in Foxtel is unlikely to remain profitable, as high-value subscribers to its broadcast service switch to the lower-cost streaming platforms.
HT&E radio (in which News Corp has a minority stake) is something of an orphan. Other orphans include the publicly-listed regional TV operator Prime, which rebroadcasts the Seven signal across the country. A merger with Seven was blocked last year. And regional affiliate WIN Corporation (owned by veteran TV tycoon Bruce Gordon) has switched back to Channel Nine from Channel Ten.
Australia may have de-regulated media to an extent not seen in any other major economy (will the UK follow?), but the politics are never far away. Former prime ministers in parliament have this month been attacking the apparent political influence of News Corp (and specifically, the Murdoch family). And the boardroom at NEC has been hot with the personal life which prompted Hugh Marks’ surprising resignation, and reported disagreement over the choice of his successor.
Further consolidation could yet create a third force in the market now dominated so comprehensively by NEC and News Corp. But the deregulation euphoria cannot disguise the threat ultimately posed by the streamers Netflix, Disney, and Amazon – global TV networks operating in a world of their own. Everyone’s watching.
Tim Burrowes is the founder and editor-at-large of Mumbrella, the Australian media-marketing website which was acquired in 2017 by Diversified Communications, of the US. He is the author of the forthcoming “Media Unmade”, due to be published in July.