Nine is opting to pursue earnings from its digital assets over free-to-air revenue, aiming to source at least 60 per cent of its Group EBITDA from digital sources, including Stan, 9Now, as well as the digital components of Domain and publishing.
In a company and trading update delivered at Nine’s AGM Thursday morning, Nine revealed an upgraded profits guidance, as well as its plan looking to the rest of the financial year.
During its August results, Nine expected Q1 free-to-air revenue to be down 15 per cent, which proved to be broadly correct.
However, since the end of September, the FTA advertising market and Nine’s share of that market, have both improved off the back of State of Origin and NRL Finals. As such, Nine’s December quarter is now expected to show growth in Metro FTA advertising revenue of around 15 per cent.
Nine now expects metro TV ad revenues in the December half to be broadly flat on the prior period, and 9Now revenues in the December half to be up around 25 per cent on the prior period.
It also expects to be up 30 per cent in first half earnings before interest, tax, depreciation and amortisation pre specific items.
This is in comparison to $251 million in the previous corresponding period. As a result of the announcement, early trading shares Thursday morning rose by as much as 8.5 per cent to $2.56. CEO Hugh Marks said despite a challenging year, Nine has weathered the storm, conceding some areas of the business faired better than others.
“What you will see is that some businesses have thrived through the COVID period, particularly our subscription-based businesses, whilst others were negatively impacted by the short-term weakness in the ad market.
“Reflecting these different business dynamics, whilst we have cut significant costs from our business overall, we have continued to invest in those areas that are in structural growth. Specifically in Stan and 9Now, where revenue growth has continued throughout this period, and for which we see significant future potential.”
Looking to the rest of the year, Marks said: “What we have now should not be under-estimated. Our television business spans both free – through the Nine Network and broadcast video on demand through 9Now – and subscription through Stan.
“Not only does this mean that we have multiple routes to video audiences, but it also enables us to think differently about the content we pursue. We can now focus on making content decisions for the benefit of all of our television platforms, and optimising the value of that audience to the most desirable platform. A significant shift in how we assess our content investments.
“This enables Nine to benefit from both continued growth in television consumption as well as the shifts in viewer behavior.”Marks added the network expects Stan Sport to be a valuable addition to Nine’s broader TV business as it continues to evolve into the future.”
He said: “Our opportunities in the short term are primarily operational – optimization of the unique suite of assets we have pulled together and exploitation of our strong market positions.”However, he conceded there is more progress to be made and noted Nine will aim to reduce the cost base of its broadcast and publishing assets by around $230m.
“We now have a detailed blue-print to reach this target by 2024. Already, we have initiatives in place that will deliver around 80% of this cost target.”
He also said Nine aims to sources at least 60 per cent of its Group EBITDA from digital sources (Stan, 9Now, as well as the digital components of Domain and publishing).
“With the recovery in Free to Air markets occurring more quickly and steeply than we previously expected, it is possible this will retrace somewhat in the current year from the near 50% we reported in FY20,” he said.
Nine also expects more than 35 per cent of its collective revenue to come from subscription (Stan, and parts of Domain and publishing), which Marks said will reduce its exposure to advertising markets.Lastly, Nine is targeting around 30 per cent of Group revenues from VOD, that is, SVOD through Stan, and BVOD through 9Now.
Nine chairman Peter Costello echoed Marks and said: “2020 was an extremely difficult year for Australian business. We will long remember the COVID-19 pandemic of 2020, its impact on our way of life, and the downturn in the economy it caused.
“This severe downturn dramatically affected advertising revenue. Whilst Nine has growing subscription businesses in Stan and Publishing, the majority of our revenue still comes from advertising through Free to Air television, broadcast video-on- demand and publishing.
“In 2020, our ratings and audiences were up across all our platforms, but overall advertising dollars were down as companies cut their advertising budgets in response to the downturn.Costello added that given the circumstances, the outcome for the year was pleasing and compared “extremely will with [its] domestic competitors”.
He said this period has demonstrated the benefit of diversity, noting its publishing arms and SVOD platform Stan.
“Our growing subscription-based business helped us, and together with advertising on platforms that are structurally in growth, we weathered the storm,” Costello said.
“As a result, we are now exceptionally well-placed as we emerge from this period a stronger and more-focused company. We will continue to shift more of our business to a digital platform. At the same time, we have been improving the relative operating performance of our traditional media segments.
“Across almost all our operating platforms, we have gained audience and revenue share. And we have been able to bring forward years of planned cost reduction.”
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