Aussie media companies ‘strongly positioned’ to weather advertising slowdown
An advertising slowdown has hit the market value of various Australian media companies over the past twelve months – but smart cost-cutting and strategic diversity plays will see the industry weather the storm, stock market experts believe.
A note from Morningstar analysts Peter Warnes, Adrian Atkins and Ether Holloway notes that a slowdown in advertising has led the Australian media companies to tighten their belts.
Despite media stocks being highly volatile during the year — Seven West Media has fallen by 35.75% this year; ARN down 7.9%; SCA is down a more modest 2.8%; while Nine is up 7% — the moves these companies have made to diversify their offerings, such as Seven recently taking a 20% stake in ARN, who previously acquired a 14.8% interest in main competitor Southern Cross Austereo — puts them in a strong position.
“Balance sheets are solid and there are strategic benefits to consolidation, as media companies seek to leverage content across multiple channels,” Morningstar wrote in a note.
“Unlike the last downturn in 2020, media company balance sheets are strongly positioned to weather the malaise in advertising and consumer spending. Cash flows are positive across the board.”
Morningstar notes that diversity is key to the continued success of the media companies, pointing to Nine’s move away from reliance on both print and free-to-air.
“The publishing unit has transformed to become a digital-first news provider, decreasing exposure to traditional print media,” said Morningstar. “This business diversification and a solid balance sheet positions Nine to weather the current downturn in advertising markets.”
As consumers and marketers alike tighten their budgets, free-to-air advertising revenue continues to decline. During the September quarter, free-to-air advertising revenue in the metro markets dropped by 12%, although a bright spot can be seen in the 13% uptick in BVOD advertising. Given that broadcast video-on-demand advertising is still in its nascent stages, this increase is a positive sign, and signals that the networks are heading in the right direction – but at the moment, it’s not quite enough to stem the bleed.
The free-to-air networks have become smarter with their acquisitions, Morningstar notes, “insisting on digital and streaming rights when negotiating for programming” as well as “assessing talent and staff costs more stringently.”
Morningstar senior equity analyst Brian Han says the TV networks are controlling whatever costs they can.
“Faced with this headwind, TV operators are zeroing in on expenses,” Han said.
“These companies are hostage to advertising spending in an uncertain economy and that is something they are not able to do anything about. What they can do is take cost control to another level and we have seen Seven West recently cut costs.”
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Nathan Jolly is the Deputy Editor of Mumbrella. He joined the team in July, 2023.
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