Nine Entertainment is landing a few punches in the fight to wring profits from the move to digital.
But a prolonged advertising slump has pushed profits down 9 per cent to $115 million for the December half.
CEO Hugh Marks raised the prospects of cuts to free-to-air [FTA] coverage of Test and T20 cricket as part of a $100 million, three-year cut to television costs.
Test cricket, he said, had “great ratings” but that did not produce “revenue overall”.
And T20 could cost the network $20 million a year.
Mr Marks painted an upbeat picture more broadly, claiming “vindication of the strategy behind the Fairfax merger [in late 2018]”.
“Digital subscriptions and advertising are offsetting much of the decline in print,” Mr Marks said.
Despite the overall loss for the half, the move to digital has been pronounced and remarkable.
Nine’s total digital revenues jumped 103 per cent to account for 40 per cent of the total in the six months to December 31, 2019.
It’s not all joy, though, as the revenue squeeze of recent years is still evident with the traditional businesses of free-to-air TV and print declining by $44.6 million.
However, the new digital businesses for the first time increased by more than the old businesses shrunk ($68.7 million).
That’s good news for the media industry, said Fiona Martin, associate professor of media at the University of Sydney.
“This year we’re starting to see a turnaround where those digital businesses engaging well with their audiences do well,” Dr Martin said.
There are some big growth numbers in the digital business with streaming service Stan pushing through the $100 million mark after revenues jumped 43.6 per cent.
Its viewership jumped from 1.5 million to 1.8 million in 2019 and “next year we expect it to reach 2 million,” Mr Marks said.
“Stan did very well and surprised me as Netflix has turned out not to be the giantkiller,” Dr Martin said.
The streaming space is becoming more contested with Amazon Prime, Apple TV Plus, HBO Max and Disney Plus all in or soon coming to the Australian market, joining Stan, Netflix and Foxtel Plus.
But Mr Marks said Stan’s performance was “growth that we expect to continue into the second half.”
The other big performer is 9Now, Nine’s catch-up service, or more formally, broadcast video on demand [BVOD].
Its revenues increased 42 per cent to $42 million.
There seems to be an issue, though, with harvesting all possible BVOD revenues.
As the chart below shows, the number of video streams is growing far quicker than revenues from the service.
BVOD is morphing from an FTA add-on to a universe in and of itself.
“We saw an increase in live BVOD viewing, particularly during the tennis … There is some advertising only commissioned on BVOD,” Mr Marks said.
Independent media analyst Steve Allen said although Stan and BVOD were performing well, they were growing off a low base and, given the growth rate, Stan’s margin [ratio of profits over costs] of 12 per cent was “reasonable”.
The 9Now margin of 65 per cent demonstrates that it is an add-on to the the FTA business, according to Matt Nunn, CEO of media buyers Nunn Media.
“A television station is very expensive to run with news staff, camera crews, cameras, content and so on,” Mr Nunn said.
“If you just transmit FTA on the internet there’s a lot of profit.”
The fact that advertisers were using BVOD separately to FTA was a good sign because it indicated market diversity.
“Exclusively BVOD advertising targets a younger demographic that has gone away from FTA,” Mr Nunn said.
Nine’s accounts show that the golden years of television aren’t going to return, with the margin on FTA slipping to 20.8 per cent compared to 28.6 per cent a year earlier.
“FTA margins were around 30 per cent traditionally,” Mr Allen said.
The old Fairfax newspaper business is on the decline, with print revenues falling $12.3 million to $137.7 million.
But Mr Allen said: “Newspapers have a future. We see that generally the newspaper circulations are falling in low double-digit levels but the Australian Financial Review [AFR] is growing.”
Indeed the AFR is a standout with both print and digital circulations increasing.
A recent Roy Morgan survey found the AFR readership grew 14.1 per cent in 2019.
“We have predicted early on that publications that serve a niche readership well will do well,” Ms Martin said.
The digital video market is worth several billion, growing strongly and dominated by YouTube and Facebook.
The total video market is worth $9 billion, with subscription video making $4 billion and FTA $3.6 billion, Mr Marks said.