Company Interview / Nine Entertainment to focus on streaming after profit plunge

Key points:

Nine Entertainment sees a 22% profit drop amid weak TV ad revenue.Strong results in digital and subscription revenue.Emphasis on technology, content investment, and balanced regulation.

Mike Sneesby of Nine Entertainment (ASX: NEC) comments on the company's 22% drop in profit to $216.4 million due to weak TV advertising revenue. Despite this, Nine reports resilience through its diverse revenue streams and substantial cost reduction efforts.

Mike highlights Nine’s investments directed towards technology, content, and journalism, emphasising their significance in driving future growth. Additionally, the company's subscription and digital revenues show promising growth potential.

Mike discusses the structural changes in the media landscape, noting stabilisation in free-to-air TV audiences and strong growth in streaming services. He calls for balanced gambling advertising regulations and urges government action against the dominance of global tech companies.

Full unedited transcript below:

0:00

Let's get back into some of those results. Nine entertainment reporting a 22% drop in profit to $216.4 million for the full year, which it's attributed to weak TV advertising revenue. Revenue coming in at 2.6 billion. That's down 3%. And the media company will pay a final dividend of four and a half cents a share, taking the total dividend there for the year at eight and a half cents. Nine said that the year has begun on a positive note. That's the new financial year with a stronger performance driven by its coverage of the Paris Olympic Games. It expects the total TV market to decline by low mid-single digits in the first quarter of FY 25.

0:41

Well, to unpack those results, I caught up earlier with Nine's chief executive, Mike Sneesby.

0:48

Yeah, look, as you say, it has been a been a tough year, particularly in the advertising market. But, uh, Nine's earnings, I think given our diversification of revenues, um into combination of digital and subscription revenues has meant that our earnings has been. Earnings have been quite resilient, not notwithstanding a very tough market. Um, I think also underlying the result that we've seen this year, there's been some really strong positives, um, particularly again in the, the growth of our subs businesses. Um, and the inflection points that we've been talking about in the commentary today. Um, long term earnings potential for our publishing business and the expected revenue inflection point across our total television business, and of course, a lot of work done in financial year 24 on our cost base. Uh, as you'll see from the commentary, uh, $65 million of cost out of the business this year, with almost $50 million of that expected to be underlying

1:47

recurring cost out. So we certainly have had to focus on reshaping the cost base of the business and, and in some cases, reinvesting into the important parts of the business that are going to give us continued growth into the future,

2:01

That crossed out phase has been underway for a number of years now. Can you see any further potential savings in the business?

2:11

Uh, yeah. Look, we've, uh, this year we've committed to, uh, a further cost out of of around $50 million across FY 24. So that'll be a total of $100 million of cost out across FY 24 and FY 25. I think it is it's really important to to note that these aren't, uh, you know, uh, cost outs, the cost out that we are taking without, uh, the view to the long term growth in the business. So whilst we are taking cost out within that envelope, you'll see in our result today, we've also invested more into the things that drive the business, like technology and technology development, um, which we, uh, implemented ahead of the the Paris Games this year and will continue to focus on into FY 25, um, content investments as well as, um, investment in the the right products and journalism as we focus on driving the profile of our publishing business.

3:05

And when you talk about those investments and the costs involved, is that going to come at further cost, particularly in terms of the headcount? You've already announced a number of job cuts. You anticipating more in that regard?

3:19

Look, we think we've got the, uh, the cost base set, right. As I said, there's more costs that are coming out, uh, in FY 25. But but a lot of the, the work behind that has already been completed and that will flow through, obviously into our FY 25 numbers. We're keeping a very close eye on the advertising market. Um, in our commentary today, we spoke about the expectation of more positive markets momentum into the second half of the financial year. But of course, we'll be tracking that very closely as we travel through the first half of the year.

3:52

Mike, when do you see an end to the structural decline that's taking place in media at the moment in particular Television.

4:03

I think two really important points. Again, to reiterate out of our results today, we gave guidance that we expect to see total television revenue, um, slightly up over the full year notwithstanding, uh, uh, Olympics revenue being on top of that. So that is a combination of our free to air revenue, which is the part of the revenue that's structurally declining with the growth of our revenue, which is driven by the same live and linear content that we see on free to air television. So you really have to look at television today in the combination of both of those revenue streams, because they are a single business with a singular cost base and two different revenue streams. So we believe that through the cycle, we've reached an inflection point on revenue for our broadcast linear business, which is a really positive sign. Uh, and in addition to that, uh, the commentary today around our publishing business, we've spoken previously about the fact that the publishing business, uh, has obviously got inflationary pressures over the long

5:03

term in terms of cost, of cost of staff, cost of paper and distribution for our print newspapers. Um, we now believe that we have the opportunity, particularly with the success we've had in growing our subscription revenue. There's an opportunity for us to grow earnings over the long term in that business. So we believe two of our most substantial businesses have reached some really important inflection points and give us the opportunity to to think about the long term structure of our business today. We spoke quite a bit about our integrated audience platform strategy, and that's really how we bring audiences together across our digital platforms, provide us the advertising and commercial opportunities to our partners and maximise returns right across our platforms. And we've had really good progress with that strategy this year. So we're seeing, you know, across the board, not just your company, but media organisations in general. Free to air broadcast television audiences are continuing to A decline. How's your

6:03

string business? Uh, in comparison, is that where your strength lies in the future?

6:10

Yeah, absolutely. I mean, it's, uh, what I should point out, though this year is we've seen a stabilization in the audience declines in free to air broadcast. So within our results today, what you'll see is that our main channel actually grew year on year for the first time in a long time, um, indicating a level of stabilization of the audiences on antenna connected television, whilst we also saw very strong growth on nine now and our streaming proposition. So that's where the combination of a stabilizing audience on free to air with continued strong growth in VOD used to say overall audience growth, which we expect to play through into our, uh, advertising numbers in FY 25. And, Mike, how would you describe the strength in your marketplace as businesses, particularly domain and drive?

6:58

Yeah. Look, um, domain, as you saw in the the commentary today. Um, we've never had greater conviction around the opportunity to create value by having the strength of a media company like nine with our audiences and increasingly, digital audiences, um, being delivered into a market based, business like domain and, um, coming back the other way, the scale of the audiences and data that, uh, are gathered in the domain business coming back into our integrated audience platform and delivering value in that way. So certainly the business model is, uh, is very strong, and we feel very confident about our ability to drive value in both directions. Um, you point out, uh, drive we haven't broken out drive previously in terms of, um, financial numbers. But you'll note in this, uh, this year's result we have for the first time. And the reason for that is because, like domain, we see a very strong opportunity to continue to grow both revenue and earnings in that drive business. So we want to start to give the markets and

7:58

visibility of that growth and earnings profile because quite clearly, those kinds of digital market base earnings should be, uh, should be considered a really strong driver, um, benign, uh, long term financial performance. We should also touch on your audio business. Metro linear radio overtaking market slowing as well. Where are you seeing the strength in the future there.

8:24

Again, it's all about the transition into streaming. You'll see extremely strong growth in our radio streaming business. Of course, the broadcast business itself continued to deliver really strong audience results. So, um, we certainly, uh, deliver a number one position in the, the Sydney and the and the Melbourne markets. Um, but it is the growth of streaming and our digital products. So streaming live broadcast radio combined with our podcasting business that is seeing the greatest growth again, it's off a a smaller base. But we've seen this occur in publishing as we've transitioned to digital in television, as we've transitioned into streaming. And we're seeing we're seeing the the early stages of the same transition in our radio business.

9:08

Mike, you're also facing some regulatory headwinds, in particular in gambling advertising. Obviously, that's under debate at the moment. What would you like to see happen in that space?

9:22

Yeah. Look gambling advertising it's it is a it's a complex subject. So I think it's first really important to acknowledge that, um, there is a social challenge and social issue that the government is looking to solve. And nine is extremely supportive of the need to ensure that we're looking after the interest of the Australian public in whatever, um, changes to regulation that we make. But I think it's also very important to balance, um, the potential to block gambling advertising with the implications and the flow through that, that can have on grassroots sports and on major sports in Australia, which are obviously a really important part of our cultural landscape. So we do have to be careful about the way that we implement these kinds of regulations. And of course, if there is a regulation that applies to our broadcast, um, services, which are heavily regulated services, the same kind of regulation needs to apply to digital platforms and digital advertisers who aren't typically regulated

10:22

in the same kind of way. So it's a complicated, um, topic. And certainly we are engaged very closely with the government to get the right outcomes, firstly for the Australian population, but also the right outcomes for business and for sporting bodies. And Mike, just finally, you've mentioned that dominance of global tech companies and the increasing threat they pose to these business models locally, in particular in regards to the news media bargaining code, what do you want to see on that front in particular? Uh, action from the government?

10:54

Yeah. Look, I should first reiterate that, you know, the the dominance and influence of these, uh, big tech global platforms, um, is not just something that's impacting the media landscape, it's it's impacting the Australian population. Um, it's also impacting a number of different industries. And I speak to a lot of other chief executives around the impact of, uh, that dominance and influence in their respective industries. And, and the theme is very similar in relation to, to media. Um, as you say, we have the news media bargaining code in place, and we continue to encourage the government to use that code to its full extent in order to ensure there's a level playing field for local media companies amongst, uh, big tech platforms in Australia. But we also encourage them to go further and look at further regulation to ensure that we are getting ahead of the curve and we don't have areas where we can have big tech finding their way through existing regulations. So we'd encourage the government to look

11:54

at additional measures, um, beyond that of the the news media bargaining code and measures that begin to address some of the future challenges including things like artificial intelligence.