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Nine boss Hugh Marks signals new approach to sports rights

Hugh Marks, CEO of Nine Entertainment Co, has signalled that the company will prioritise owning sports rights across multiple formats rather than just for free to air in any future deals.

Following today’s financial results announcement – which saw total revenues decline 3.5% to $1.238bn, an EBITDA (earnings before interest, tax, depreciation and amortisation) profit of $205.6m (up 1.9%), and a $203.4m net loss after tax – Marks told Mumbrella future negotiations would focus on Nine’s transformation beyond being a linear broadcaster.

 

Marks said sports rights deals need “streaming” and “integration”

“If all I own is television rights, it doesn’t point to that transformation,” Marks said.

“We will be increasingly looking to work with our sporting rights holders about how can we as a business work with you as we transform our business, which should lead to results in your business. That’s the challenge with sports rights. If we are just free to air rights, then it has a limited upside potential.

“We need streaming, we need integration, we need to work closer with the sports bodies around their sponsors.”

The comments come as broadcasters prepare to negotiate with Cricket Australia over its international and Big Bash rights, which are currently split between Nine and Ten. Nine already holds broadcast rights for NRL until 2022.

Asked about cricket during the investor call, Marks said: “In terms of cricket negotiations, we’ll certainly be looking for those negotiations to be concluded before we enter the next stage of major discussions with our advertisers and partners, which would typically be towards the end of this year.”

“In terms of the outcomes of those rights, obviously there will be some competition for the Big Bash, we don’t currently hold any rights to the Big Bash so it’s not in our audience assumptions or revenue share forecast.”

Marks told Mumbrella that netball was a good example of a sports rights model which worked for both sides.

Netball a “good model”for Nine

“We’ve got a relationship with netball across television, sponsorship, digital – everything really. That’s the nature of the relationship with the sport. So we are selling that whole suite of rights and delivering them a revenue outcome,” he said.

“It’s a great new model. I’m not saying the AFL, cricket, or rugby league will go to that model, but we’ll need to move a bit closer to that model.

“When you look at what we can afford to pay for free television rights, there has to be a limitation. If the market is not growing, you can’t continue to ramp up your cost. There has to come a limit to what you can pay for free television rights, which means I’ve got to re-look at the nature of my relationship with sports if I’m going to bring more revenue.”

Looking to other programs such as Nine’s sports entertainment show, Ninja Warrior, Marks said the program – which is one of Nine’s most expensive shows in terms of production costs – “will be” worth the investment.“Those shows never pay dividend in the first year, but when we take that to market for next season and again, given that we own all rights, I think you’ll see a very different advertisers’ proposition next year, so I think that’s a big upside for us.”

A digital and programmatic focus

Nine’s digital revenue was up 3.2% to $157.4m, and EBITDA profit climbed 11.2% to $28.9m.

Alex Parsons, chief digital officer, told investors 9Now was at the core of “future company strategy.”

“9Now has seen impressive usage growth in 17, in excess of 100% and has also seen strong revenue growth through the year of close to 40%,” Parsons said.

Marks added: “For us, digital has been a massive journey, which the results over the last couple of years haven’t really shown or born out.

“We’ve had to transition the business from an impressions based default traffic business, under the relationship with Microsoft, to a content business, and within that mix over the years, there has been things that have fallen in and out of the financial results of that business, but we are now, I’d say, 70% – maybe not – there towards the evolution of that business as a content business.

“There’s a lot more we will do this year on that front and combining our own platforms with social, will also be the thing we really need to get our mix right into the future.”

While Stan is not yet profitable, Marks said it should get “pretty close” to breaking even within the year.

Stan is owned by StreamCo, a joint venture between Nine and Fairfax

9Now has 4m registered users and Stan has 800,000 active subscriptions, according to the latest results.

He said new data offerings which improve offerings for advertisers, and the new role for Lizzie Young as group content strategy director, were key points of focus.

“That’s where encore viewing and catch up viewing starts to pay off, because obviously if you are a sponsor, you are integrated into the content, you get that whole experience so that’s the way we are re-looking at it.”

Commenting on the progress of 9Galaxy – Nine’s programmatic offering, which is set to be fully operational in January 2018, Marks said he had no concerns about automating the trading process.

“The main benefit is consistency of delivery to advertisers. So one of the things that we often get criticised for television is when people are buying ratings, if television under-delivers it just makes the whole experience less than satisfactory, whereas with an automated model, we will be guaranteeing delivery of outcomes.”

During the teleconference call, Michael Stephenson, chief sales officer, told investors he expected 50% of Nine’s inventory to be traded through the platform by June next year.

Michael Stephenson: 9Galaxy to be used across 50% of inventory by June next year

“9Galaxy … will revolutionise the way television is bought and sold. 9Galaxy was launched in February this year, and has been operating in beta since that date,” Stephenson said.

“It’s proven it’s ability to remove the volatility in media planning and buying, by accurately predicting delivering guaranteed campaigns for our clients.” “This removes the need for make goods.”

Media reforms

Currently, the proposed media reform bill – which includes licence fee relief for commercial television and radio broadcasters, restrictions on gambling advertising during live sporting events, and the abolition of the two-out-of-three ownership and 75% reach rules – is stalled in the Senate.

Last week, the Nick Xenophon team and One Nation Senators negotiated with The Turnbull government, reaching “in-principle” and “conditional” agreements respectively.

Asked whether he had an acquisition strategy should the media reforms go through, Marks said the company’s “destiny” sat in their hands.

“There are things we can do in our business which will lead to improved results, that should lead to benefits for our shareholders. We don’t need to make an acquisition to be able to deliver on what our strategy is, so we are in a really good position, where destiny is in our hands.

“In saying that, if something presents itself that we look at and go ‘you know what that makes sense for the long term value of our shareholders’ we’ll look at it.”

Commenting on the ACCC’s decision not to stand in the way of a bid for Ten Network by Bruce Gordon’s Birketu, or Lachlan Murdoch’s Illyria, Marks added: “Obviously I don’t know the ins and outs of the processes in terms of the current bids for the Ten Network, but I think removing uncertainty from around the future of Ten is a positive for our industry.”

Marks also pointed out it was important for the commercial networks to change their competitive mindset.

“We’ve got to accept the landscape’s changed, the audiences are changing their behaviours, we need to change with it and I think you can see in the things that we are doing and the results we are getting, we are actually starting to get dividends.

“We’ve got to change our competitive mindset, if we just focus on the Nine versus Seven versus Ten, none of us will do that great in the future.”

 

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