Nine CEO Hugh Marks on the company’s sales challenges, cost savings and ‘disappointing’ revenue share

Yesterday Nine posted a 9% drop in profits across its business and suggested it would be looking to make $100m of cost savings over the next three years. Mumbrella's Hannah Blackiston speaks with CEO Hugh Marks after his call with investors to discuss Nine Radio's poor results, disappointing revenues in broadcast, dropping one-off sporting events from the line-up, and what's going on at Nine's closest rival.

Nine Radio

Towards the end of 2019 Marks confirmed that the advertiser boycott of Alan Jones had hurt Nine Radio’s revenues. Comments Jones made about New Zealand Prime Minister Jacinda Ardern, including that Australian Prime Minister Scott Morrison should have “shoved a sock down her throat”, resulted in 100 complaints being lodged to the Australian Communications and Media Authority (ACMA) and a boycott by advertisers including the Commonwealth Bank of Australia and Coles.

Nine Radio has a lot of potential says Marks

Nine’s results presentation has put some numbers behind those words for the first time, with Nine Radio reporting a revenue drop of 16% for the first half of the 2020 financial year compared to the same period the year prior and a 63% drop in earnings before interest, tax, depreciation, and amortisation (EBITDA).

“There’s no secret that there’s been an issue in breakfast in Sydney, that’s something that hasn’t rectified as yet and that’s a focus for the business,” Marks tells Mumbrella.

“More generally, there have been some Sydney-specific sales issues that we’ve been very focused on from early on in the acquisition period. We’re very focused on lifting Sydney sales performance, Melbourne’s been very strong and the other markets are strong as well, so it really is a Sydney-specific issue that we need to address.”

Speaking on the content changes that kept Nine Radio in the headlines for a large part of November and December, Marks said the broadcaster now has a perfect base to build on for the next five to 10 years of business and that he’s confident advertisers will want to engage with the platform.

“A lot of those [content] changes were designed around that strategy, we’ve made a bunch of changes, now it’s time to focus on audience and revenue conversion.”

One-off expenses

Nine flagged in the results that the business would be focused on finding $100m of savings over the next three years. That money is primarily going to come from the free-to-air (FTA) portion of the business, with international content and one-off sport on the chopping block.

“As we look at our business and how we spend money, we’ve become a lot more focused on the return that we get across our whole business from every dollar that we spend,” Marks told investors.

The Ashes might pull big ratings but the revenue doesn’t follow

With international content costing FTAs more than $1m per annum, but no longer providing the same pull for consumers, it’s definitely something currently under the microscope for Nine. With big streaming platforms, including Netflix and Nine’s Stan, offering an incredible catalogue of international content, consumers are no longer turning to the FTAs for those programs.

One-off sport is another area where Marks wants to reduce costs.

“We had some one-off costs in the first half associated with The Ashes and the [T20] World Cup, and while we got great ratings, if I look at our revenue at the end of the day you have to really question if those one-off sports rights are able to be realised into a revenue proposition on a consistent basis in FTA going forward,” Marks said, echoing Seven CEO James Warburton’s comments about one-off events.

Marks told Mumbrella the issue is brands that spend during one-off events usually move their spending from other areas. One-off events like The Ashes aren’t akin to the Olympics where brands plan for them in a schedule and factor the event into a long-term marketing campaign.

“Sponsors build those sports rights into the fabric of how they think about and market their business, what they do in communications to customers, what they do in marketing and therefore also what they buy in media. Something like The Ashes comes once every four years, it probably comes as a surprise, no sponsors build it into the fabric of their marketing tone, texture of behaviour, and while you can still sell some revenue in that, it’s something that is much harder to consistently deliver,” he said.

Revenue share

Marks was very vocal during the investor call about Nine’s “very disappointing” revenue share for the first half of the year. Nine held an FTA revenue share of 38.7% for the half, despite 2019 handing Nine its biggest ratings year, in terms of audience share, in OzTAM history, a drop from the previous comparable period (PCP).

Those one-off events were partly to blame, says Marks, but he also says he had expected more from the Nine sales team.

“I did throw them a lot of challenges in the last year with mergers and acquisitions and other things, so there’s been a refreshing of sales structures and people so it’s been a busy and complicated period and it just comes down ultimately to delivering that last 1 or 1.5%,” Marks says.

MAFS is one of the tentpole programs that has helped Nine from strength to strength in the ratings

“I’ll take some blame for the complexity of the challenge they had in front of them, but let’s not be under any doubt we need to deliver that extra 1.5% this year on a consistent basis and if we do the business will benefit.”

Given the 2019 results were cycling in from a weaker 2018, Marks is confident that things can improve for the business by the mid-year reporting period.

“If we look at the beginning of 2020, particularly the start of the ratings season, we’ve seen consistent strength at Nine, consistent strong audience shares north of 40%, we anticipate that turning into revenue share north of 40% as we move through this year,” Marks told investors.

Marks acknowledges the Olympics would take some revenue share across to Seven, but says Nine still has plans to grow its revenue share over the period.

“There’s no doubt Seven would not be pleased with their ratings performance at the beginning of this year. Ten are making some good investment in some content, that will get them off their weak performance last year. [Ten’s] challenge in terms of extension beyond their key programs is the depth of their schedule, it’s not as strong as Seven or Nine in terms of news and current affairs and sport, but that puts a limit on their ability to really aggressively grow revenue share. But Ten is certainly performing better as we move into this year and Ten’s performance is also something we hope will start to reflect in that slightly improved market outcome.”

Growing the business

Despite the push for savings, Nine is also focused on growth, especially as it further integrates its newer assets. Marks told investors the business is “seeking to maintain profitability in our traditional businesses and aggressively grow profitability in our growth businesses” and said filling the gaps on 9Now is big on the agenda.

“What we need to do is ensure that more people consistently use 9Now as a destination for their viewing outside of catching up on something. The targeted content investment we’ve made is really focused on making that user experience a better one and one more users will come to more consistently and then it’s a marketing exercise of making sure all the people that do use 9Now are aware of the content that is there for them to consume in a free environment. Free on demand is pretty good,” Marks tells Mumbrella. In the new VOZ landscape, Nine could push to a 50%, or higher, share, he says, if the content delivers. The VOZ landscape will aim to remove the constraints of linear broadcast.

VOZ was due to launch at the beginning of 2020 but is now scheduled for April

Across the former-Fairfax assets too there will be growth, says Marks, with printing and distribution costs to come down and digital subscribers to improve. Revenue across the Metro Media assets was $228m for H1 and EBITDA was $49.8m, up 16% on pro forma 2019 figures.

Stan is another focus, and with the churn relating to Disney and the launch of Apple TV+ apparently overcome, Marks is confident the platform can increase its 1.8m subscriber count, although that growth is likely to be slow and sustained rather than the jump it has seen previously. It’s just a matter of finding out what that next stage of growth is, says Marks, and what that will look like for the streaming business.


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