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Nine Entertainment boss Matt Stanton can’t hide from the giant social media platforms that are gobbling up the company’s audience and advertising dollars. But Friday’s move to sell out of the radio business and the tail of regional television to buy into outdoor advertising affords some additional protection.
Nine calls it a transformation. That’s a big word to describe this move. The company has been shifting towards a more digital focus for years, but this deal will give it another shove, as outdoor advertising billboards in Australia are now 76 per cent digital.
Stanton’s thesis is that outdoor advertising is one of the last vestiges of media that provides shelter from the big technology platform businesses and AI disruption that continue to pummel the once highly profitable traditional media companies.
So, in some respects, buying outdoor advertising company QMS for $850 million feels like taking earnings insurance.
Nine has behemoths like Google and Facebook and Instagram owner Meta eating into its advertising revenue and content. And now, the artificial intelligence pedlars – the OpenAI and Anthropics of the world – are also looking to pinch the company’s content and train their bots with it.
The government’s news bargaining incentive that will force platforms to negotiate some financial compensation to media companies is still a work in progress.
That’s the world Stanton is living in. But derisking a business, ironically, also carries risks. Specifically, spending on the wrong assets or overpaying.
Nine has remained alive thanks to digitising its big publishing assets, like this masthead and The Australian Financial Review; making the most of its broadcasting digital channels; and the creation of streaming service Stan. In doing so, it has managed to keep clear of the jaws of extinction.
Nine’s $3 billion sale last year of online real estate portal Domain – which provided the cash to buy QMS – runs contrary to Stanton’s strategy at first blush.
Domain was a growth business and a duopoly that, if run optimally, deserved a spot in Nine’s asset line-up. But the $3 billion price tag US real estate giant CoStar paid for Domain was too generous to pass up.
It left Nine with a big pot of cash – which is a dangerous luxury because it carries the risk of being misspent.
The Nine board could have opted to give all the money back to shareholders, or it could have invested in content – like trying to create the next Bluey on Stan – or ploughed it back into the publishing business.
Nine chose to diversify its revenue base – which mitigates risk as long as the assets contribute to earnings as advertised or expected. Stanton says the acquisition of QMS will add to earnings per share.
But the price paid for the outdoor business could raise some eyebrows, given it is on the high side.
That said, the immediate reaction from investors was quite positive, with Nine’s share price receiving a 4.6 per cent lift in the hours following its announcement. And the outdoor advertising market has been growing at a compound rate of 9 per cent over the past 10 years, although this is forecast to ease to about 6 per cent.
The key to success for the outdoor acquisition at Nine will be its ability to cross-pollinate – to use billboards and bus-stop real estate to promote Nine’s other products and attract advertisers to Nine as a company that can give them a one-stop suite, what it calls “sofa to street”.
More broadly, the deal reduces Nine’s financial exposure to broadcast television.
The strategy looks solid, but success will depend on its execution.
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