Streaming, advertising issues fast approaching for Nine’s boss Mike Sneesby

The Olympics gave Nine a super sugar hit, but three major problems are looming as CEO Mike Sneesby needs to quickly grapple with a changing TV landscape.

Nine Entertainment Mike Sneesby has seen television earnings come under structural pressures. Picture: NewsWire/ Martin Ollman

Paris gave Olympic broadcaster Nine Entertainment a much-needed sugar hit after a tough year for television. The question is whether chief executive Mike Sneesby can hold onto his Olympics glow.

Australia’s winning efforts gave plenty of momentum for the Nine boss, who was on the ground in Paris, and bagged $160m in advertising and subscriptions across the two-week event. Although the cost of the exercise is estimated to be around $100m, which leaves little room for error in the next round of games.

Back home, Sneesby’s media business is grappling with three big issues, the biggest of them has to do with Nine’s flagship television arm. The others are Stan streaming and Nine’s 60 per cent-owned Domain real estate listings business.

The structural hits to broadcasting have come much later than publishing, but they are here now and taking hold fast. All free-to-air operators, including Seven and Channel 10 owner Paramount, are grappling with their moment of decline.

The Olympics delivered Nine around $160m in advertising and subscription revenue. Picture: Getty Images

Free to air

The rise of streaming and digital channels has given audiences near-unlimited options. All this is dragging viewers and importantly advertisers away from free-to-air. Increasingly, tech companies such as Amazon and Apple are snapping up valuable sports rights, despite free-to-air TV having some protections around sport.

Nine’s latest full-year accounts revealed a collapse in the profit margins of its flagship television business.

At a little more than 18 per cent, Nine’s TV profit margins are at the lowest level since the advertising strike during the depths of the Covid-19 pandemic. In recent years the broadcaster is more used to delivering profit margins in the high 20s or even 30s.

In a twist, Nine’s publishing business, based around The Sydney Morning Herald and The Age, is now outperforming television with margins in the high 20s, and in some parts pushing past the 30s. Newspapers, including this masthead, have been battling the digital disruption for nearly two decades and have long since reinvented their businesses around digital subscriptions and data for advertisers.

Reinvention is harder for the old world of television, which is an exceptionally high-cost game and built around advertising rather than subscriptions.

Here, Sneesby needs to shift TV’s advertising spend to his on-demand platforms, such as NineNow, while keeping a lid on costs. This is happening, with digital today making up 20 per cent of total television revenue, however, not at the pace needed to keep ahead of the free-to-air pressures.

Global streaming players such as Netflix are still spending heavy to grab marketshare. Picture: AFP

Sneesby has already pulled $50m out of the entire Nine business and has promised another $50m this coming year. However, any gains are being eroded by sports rights costs, technology and ongoing wage rises.

This means costs still need to be tackled while locking in content, particularly sport. Deeper cuts for television are coming.

Nine’s television business saw earnings collapse 32 per cent over the past year to just over $208m. This prompted a 12 per cent drop in group earnings.

Stan and streaming shifts

The answer to the longer-term decline of television was meant to be streaming. And it has been high growth for a time. Sneesby ran Nine’s Stan streaming arm before becoming chief executive and knows it well. Stan’s revenue growth has plateaued as price rises have been pushed through. Stan now has 2.3 million subscribers at the end of August, which includes a 100,000 boost from the Olympics.

Stan has been profitable for several years bit it needs to keep spending up big as it battles it out in an ever-multiplying Australian streaming market. And now the streaming world is facing its own disruption.

There are global players such as Netflix, with its ruthless algorithm, and Disney and Amazon Prime investing in content. So too new players are circling or existing majors including Warner Bros Discovery, which are bundling content. Stan, too, is battling Foxtel’s Kayo and Binge.

Stan’s margins remain skinny at around 10 per cent as it spends on content and sport and this will need to continue as Sneesby gets a sense of where the field will settle in Australia.

Domain

Finally, the real-estate listing business remains a laggard behind News Corp-backed REA Group. It’s delivering double-digit revenue and earnings growth, although its shares trade at a widening discount to the international-focused REA, the owner of realestate.com.

This has been a source of deep frustration in the Nine boardroom.

Sneesby says he is confident in the improving direction of Domain, although he concedes more work is needed to close the gap.

He has ruled out a further selldown, saying the data generated by and positioning of Domain works well with Nine’s television and publishing assets.

Nine has the rights to the next two Olympics, including Brisbane in 2032, and Sneesby is confident the bottom-line investment can deliver a break-even result for the broadcaster. However, by the time Brisbane opens, television will need to be a much different business.

[e-mail]

Originally published as Streaming, advertising issues fast approaching for Nine’s boss Mike Sneesby