Catalano: Listing digital with traditional media means you focus on the first at the expense of the second

With reports on Monday morning in the Sydney Morning Herald that Antony Catalano and his business partner, Alex Waislitz are set to move ahead with plans to list the on the ASX, he affirms that listing the digital and traditional media businesses together is “confusing”.

Speaking to Mumbrella, the Australian Community Media owner and real estate entrepreneur said that in his experience, analysts confuse the valuation of digital businesses when alongside traditional media.

This comes after Catalano told the SMH  his plans to list on the ASX would exclude the publishing assets of the business.

Catalano pointed to the valuation confusion back when Domain and Fairfax split

“My experience at Fairfax, was that the market and particularly the analysts get confused around valuation of digital businesses that have traditional media assets attached to them,” said Catalano. “You saw that with Fairfax and Domain, when Domain’s valuation was somewhere around $2.3 billion when it was making around $120 million of EBITDA.”

“In other words, the analysts gave Domain a valuation of $2.3 billion but the Fairfax share price might trade at 90 cents, which meant that with 2.3 billion shares, the company was valued at $2.1 billion even though the sum of one of the parts was worth $2.3 billion itself.”

He said that when Domain and Fairfax eventually separated in 2017, shortly before Catalano left the business in 2018, the balance of the latter was shown to be a $600 billion spread of market cap, while Domain maintained its $2.3 billion valuation.

“So separated the two companies were worth three billion, but together they were worth less than Domain.”

Traditional media remains undervalued by analysts 

He posed that traditional media businesses in Australia still maintain “huge value”, but analysts continue to pose that these businesses are in decline.

Catalano said ACM now boasts over 115,000 subscribers

Catalano said: “It is a shame that analysts put that negative valuation on traditional media”, because he said it is interesting that the best of the digital businesses in Australia, of which he includes REA, Domain, Seek, and Carsales, are currently or at some point in the past, have been owned by traditional media companies that helped grow those brands.

He denied any suggestion that he favours either or any side of the business, and that despite any gap in value or profits, one helps the growth and expansion of the other.

Catalano said that he doesn’t believe the thinking behind the sinking valuation of traditional media and the opinion that the valuation “goes to zero at some point”. This is evidenced by the company he bought almost three years ago being “a long way from a business that is nearing zero”.

“The risk of putting them together,” Catalano said, “is that you focus too much on the digital business at the expense of the traditional media business, and I think that you saw that at Fairfax where Domain and Stan got the bulk of the attention. while divisions like ACM and Metro were continually forced to make cutbacks to fund the growth of those businesses.”

“Alex and I have got a very exciting business in ACM that we are regularly transforming with digital assets. We’ve now got over 115,000 digital subscribers, more and more digital products being launched to support our print products and what we’ve experienced with that is a growth in our digital and print audiences.”

What assets are added next? 

A report in The Australian today reignited talks of a sale of Southern Cross Austereo, of which Catalano was linked to last year, and he did not rule out the opportunity of looking at acquisitions in the near future.

He suggested that if you get the digital side’s profits to the right level “maybe you go and buy some other media assets, or we might pick up some TV channels or some radio channels or digital assets, for example, build your own Daily Mail.”

Catalano’s WI Chess Investments was rumoured to be making a play previously for Prime Media, with Catalano and Waislitz upping their investment in the regional broadcaster several times, before it was eventually acquired by Seven West Media.

On other opportunities, Catalano said following a strategy meeting, “there are a number of things we’re building internally to expand the business and there’s always opportunities for us to look at other assets to grow the business”.

He also said there is “no shortage” of movement in the regional TV or radio industry and that “we are constantly in discussion with various parties”.

He said the opportunities are highlighted by “changing the nature of the business” since acquiring ACM in 2019, transforming it to a “digital publishing business, rather than a newspaper business with manufacturing centers trying to make a winning by printing papers for Fairfax and News Limited (Corp)”.

Catalano said despite being the third largest employer of journalists in the country with “600 odd”, and 1600 total employees, there is a “hell of a lot more work” still to be done on growing the business.

Last year, ACM launched ‘ConnectNow’, its first trade campaign since its move to independent ownership.

Early thoughts on floating the business

Catalano said it is “too early to say” what percentage of the business will be up for sale in any listing, and what percentage would give control.

“That depends on what comes together out of the business.”

Even as a result of Monday’s SMH article, “I’ve had three approaches already from businesses saying “could we be involved, we could be a complimentary asset””, he said.

“So it will depend on what’s part of the group”, he said and affirms that he is not going to tie companies together that cannot work together.

“We’ve got three tiers to our business,” Catalano said. “We’ve got the consumer facing portals, tier two with the advertising agencies and the media companies that are helping develop the product and advertising content for those portals, and then the third tier are the likes of  Propic, Acquire and Advantage, which are the agent services or PaaS (Property-as-a-Service) products that are helping feed the top two.”

“Unless they fit into the ecosystem, we’re not necessarily interested in just putting anything together. So that will help determine what the possible float will be worth.”

He seemed confident of one thing however: “I would expect given the value of the individual businesses, I’d expect it to be a pretty valuable asset when it is completed.”

He pointed to the “incredible depth of talent” across the groups, highlighting that seven members of the Domain executive leadership team, that were working with him when he left have since joined him in his new venture “in some shape or form”.

Again, he reaffirmed that he is not building a Domain 2.0, as he did in 2019, and that there are plenty of avenues in the real estate market to go around, after it was reported he and Waislitz are set to increase their stake in Real Estate View to 72% this week.

“I think that REA and Domain are largely classified listings portals that do a good job for active buyers and renters in  the Australian property market, but they’re not necessarily diverse digital linear offerings.”

Beyond REA’s home loans division he says, “I don’t think of REA or Domain as being anything other than sites that you go to when you are buying or renting a property”, whereas he reaffirms a point he made in Monday’s SMH article, that the advertising market only makes up $1 billion of the total $250 billion total transactional value of real estate in Australia, which is made up of the mortgage market, insurance, agent commissions, and conveyancing.

“Those businesses (REA and Domain) are only really focused on one 250th of the entire market, so I don’t see the need for us to create a competitor to them.”


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