The staff, cultural and remuneration controversies at Nine Entertainment, along with the sharp fall in the share price, are symptoms the so-called “merger” with Fairfax has not worked as its promoters expected.
Investment bankers are putting out feelers to the capital community seeking people prepared to break up the group, but at this stage there are no takers.
The first problem in Nine/Fairfax was it did not turn out to be a merger. Nine acquired Fairfax.
In the 20th century and at the beginning of the 21st century, both companies were huge cash flow generators. During the long boom, executives and directors of both companies did not realise the internet would require drastic reductions in costs and a different way of operating.
In 2018, Nine acquired Fairfax, which had been through a tortuous and difficult decade as it adapted to the new environment. Fairfax had come through with its two flagship newspapers, The Melbourne Age and the Sydney Morning Herald, with print editions read by the wealthiest part of the community (often aged in their 60s and over) who had money to spend so were attractive to travel, appliance and food retailers. The next age level of community was prepared to pay for online quality content.
The company had borne the severe pain of adapting.
The Australian Financial Review had also come through the internet revolution in good shape. (I should add News Corp, publisher of The Australian, went through a similar restructure and achieved a similar outcome).
The newspapers now face a new challenge with the withdrawal of the social media internationals from buying the newspapers' news services
For some seven decades, Nine television had enjoyed the free to air television “rivers of gold” and gave generous rewards to those at the top. Soon after the 2018 merger, the Covid-19 downturn hit all media assets, but as the nation moved out of Covid-19, Nine’s television revenue did not respond in the traditional way.
A number of outsiders realised the internet revolution which has ravaged traditional newspapers was finally catching up with free to air television. My May 4, 2021 commentary went under the heading, “Connected TV, a new challenge to free-to-air television”.
Instead of understanding they were experiencing the early stages of a structural tsunami, Nine incorrectly concluded this was merely a recovery delay, although they did establish the Stan streaming service.
In the Fairfax takeover, Nine had diversified into a newspaper/radio-based business, where its executives were not familiar to what was a very different operation. Co-ordination was not easy.
More seriously, back in 2018 Nine did not know six years after the takeover the internet tsunami which forced a revolution upon Fairfax would be coming to hit Nine with even greater force.
We will never know, but perhaps Fairfax people may have detected the looming TV blows much earlier because of their experiences. But, by 2021, when those early signs appeared, most had gone elsewhere.
By 2021, the vast majority of television sets could be connected to the internet and around 80 per cent of Australians used internet TV. The market was dominated by groups like Netflix and Nine’s Stan where viewers paid a subscription. But, many more streaming players would develop to take the market away from free to air, including the most dangerous of all, Amazon Prime.
These challengers were the emerging television equivalents of REA, Seek and carsales which have taken huge slices of the print classified advertisements market.
In addition, also challenging traditional free to air was a network of about 25 free internet channels.
The major channels in this network were the secondary channels of Nine, Seven, Ten and SBS. Advertising on these channels was rising rapidly, but the rates they charged were much lower than free to air television.
The great advantage of the internet-based challengers was the fact they had data on who was watching at any point in time. Advertisers suddenly could target markets in a way not available in free to air television.
And as we have seen overseas the free internet TV channels, where Nine, Seven and Ten were players, would be swamped by the streaming services. While Nine had established the Stan network, its challengers would include YouTube, Netflix, Disney, Amazon Prime and Paramount Plus.
Most have begun selling advertising on their sites and sometimes reducing subscription prices to viewers who accept advertisements. In the next few years, they will transform advertising.
The most feared of all is Amazon, whose retail based Amazon Prime network covers 4.5 million Australians. When it enters the advertising market at full stretch, it will make life very difficult for all networks, including free to air.
In the US, Amazon is offering huge amounts of the capture sport, and it will want to play the same game in Australia. At the moment, the key asset of the free to air television networks is their government decreed rights over Australian sport.
The big sporting codes realise the large money now comes from the streaming services, led by Amazon.
Australia’s big sporting codes will come to a similar conclusion and will find a way to tap this money.
The great weakness in the free to air television is the identity of the viewer is not known. That’s fine for large enterprises like Toyota and Bunnings, but increasingly advertising is switching to target specific areas of markets. Streaming and other internet services can provide the data to achieve those objectives.
In this environment, what is required is a very tight operation which works on strengths. Getting to this situation is not a pleasant experience, as the newspapers found.
More Coverage
US backs Novonix in global battle for graphite
The US will back Brisbane-based battery materials firm Novonix with up to $1.2bn in financing to help reduce China’s grip on the global supply of graphite.
WiseTech’s Richard White delivers $442m gift to himself
Tech billionaire Richard White has given himself a nice little Christmas present after a tough year by offloading a stake in his flagship WiseTech Global.