When people think of Nine Entertainment Co. (ASX:NEC) their first thought is the Channel 9 television station where they watch familiar shows like the news, The Block and coverage of the rugby league. The natural extension from there is that Nine must derive its revenue from advertising. Whilst this is true it is not the full picture.
Nine is a diverse media business. In addition to the free to air TV station 9, they own the on demand service 9NOW, a number of radio stations including 2GB and 3AW, the video streaming service Stan, all of the old Fairfax print and digital publishing mastheads like The Financial Review, The Sydney Morning Herald and The Age, along with about 60% of real estate advertising business Domain.
When you look at the complete picture, about 61% of revenue comes from advertising, or 74% if you include 100% of the revenue from Domain. This proportion has been gradually declining while subscription revenue has been steadily increasing. Revenue has grown at a compound annual growth rate of 17% over the last 5 years and is forecast to grow a further 5% in this financial year.
Advertising revenue from the traditional formats of free to air TV, radio and print publications has been gradually declining as a structural shift takes place towards digital. Further, advertising revenue tends to be quite cyclical, fluctuating with movements in economic growth. The sharp declines in Nine’s share price in the middle of the year reflected concerns around the slowing of economic growth. In an announcement yesterday, Nine confirmed that the advertising market has become increasingly challenging however market share gains and cost cutting have enabled them to stick with their previous guidance, excluding the impact from Domain (see below).
The portfolio of radio stations were acquired via the purchase of Macquarie Media. Nine acquired the remaining 45% of Macquarie Media that it did not previously own in November 2019 for $114 million. Since then, revenue from radio has fallen from $131 million to $91 million last year before rebounding to $102 million in FY22. In recognition of this decline, $61.5 million of the intangible assets were written off. Nine remain optimistic that radio can turn around and make a more meaningful contribution. Whilst the optimism may be more like wishful thinking, radio only accounts for 4% of revenue so it is not a big contributor.
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