Australian investors have a long history with media companies, from the days of the great home-grown media empires of Consolidated Press, Herald & Weekly Times, News Corporation and Fairfax.
The industry is still well represented on the stock exchange – there are 36 listed media companies to choose from – but media, as an industry has not had a good time in recent years.
Media is a classic cyclical sector, riding a strong economy which generates consumer confidence and business spending, which flows into increased advertising revenue and slumping when spending is down and money is tight. In Australia, the industry has also suffered from stifling media laws that have not kept pace with economic, demographic and technological change. And that latter force, technological change, has disrupted the media landscape profoundly.
In particular, the arrival of the internet has had a huge impact on the media landscape. In one sense, the internet has enabled an extension of the media industry – into “social” media – but in another, it has decimated it, as comfortable media businesses have been changed forever. Quite simply, the digital web took the traditional dominance of newspapers, magazines, broadcast TV and radio away.
Newspapers and magazines used to publish, and ask the public to buy them; TV and radio used to broadcast, and ask the public to tune in. Advertisers were told that they needed to use these vehicles to reach consumers. But the internet blew that away – all of a sudden people could get information and content on their computers, smartphones and tablets – unknown just 15 years ago – allowed consumers to dictate when, where and on what they accessed media content. And they wanted it for free.
Advertising moved online. According to advertising agency PHD, Google and Facebook now account, conservatively, for 40% of Australian advertising revenue.
Struggling with change
The Australian media industry was not prepared for this change. The example most quoted is how Fairfax controlled the “rivers of gold” that flowed into classified advertising, which appeared in the huge Saturday editions of its premier mastheads, The Age in Melbourne and the Sydney Morning Herald in Sydney. But almost overnight, internet start-ups appeared to snatch this business: Seek Limited took the lion’s share of job ads, Realestate.com.au took the real estate ads and Carsales.com took the car ads. In an often-cited comparison, the share market valuations of each of Seek Limited, Carsales.com Limited and REA Group (operator of Realestate.com.au) grew to exceed that of the company, Fairfax, from which the trio had taken the business.
Fairfax exemplifies the media industry’s struggles, having fallen in value on the stock market by 90% since 2007. To be fair to Fairfax, it then developed its own online property classified business, Domain Holdings, which it floated off in November 2017 at a $2.2 billion valuation, retaining 60% of the business.
Australia was also highly unprepared for the internet age, with media ownership rules that had been drafted in the 1980s, such as the 75% “reach rule”, which prevented TV networks from reaching more than 75% of the population, and the “two out of three” rule, which prevented companies from controlling more than two out of the three forms of media (radio, television and newspapers). These regulations were developed to ensure diversity of media ownership in what was historically a very concentrated industry – but the media industry argued that the rules prevented it from evolving to meet the challenges of the digital age. When any media content provider anywhere in the world could reach any Australian with internet access, the rules made no sense.
Australian newspaper publishers have since been forced to go digital, while retaining their paper editions.
Reform of media rules
Last October, the government overhauled Australia’s media rules, axing both the reach rule and the two-out-of-three law, as well as abolishing the free-to-air broadcast annual licence fees that affect television and radio, in favour of new annual fees based on the spectrum that broadcasters use.
The media rules reform was welcomed by the free-to-air broadcasters, which have struggled as much as their print counterparts, writing down the value of their broadcast licences and taking owners Seven West Media, Nine Entertainment and TEN Network Holdings to big losses. Ten Network was actually pronounced worthless by KPMG last year after entering voluntary administration, and having its liabilities assumed by US media giant CBS.
According to figures compiled by Deloitte for radio industry body Commercial Radio Australia, advertising revenue for the five major Australian metropolitan markets slipped by 0.2% in the year to June 2017, its first contraction in growth since 20121. But radio ad revenue grew by 2.3% in the December 2017 half-year2.
There are other green shoots of fightback, such as when Nine Entertainment delivered a $116 million half year profit in February, indicating movement back towards television.
Australian media companies are striking new collaborations to survive and prosper, such as shared printing and transport between Fairfax and News, and Fairfax and Nine’s joint venture subscription video streaming service Stan.
Investing in media
Australian investors have a wide choice of media investments, ranging from diversified global group News Corporation; print, online and radio group Fairfax Media; print, online and TV company Seven West Media; TV, online and entertainment group Nine Entertainment; radio, TV and online business Southern Cross Media; property advertising player Domain Holdings; and radio group Macquarie Media; marketing and communications service group WPP Aunz; and Asia-Pacific media intelligence company iSentia. If outdoor advertising is added to the sector, companies such as HT&E, APN Outdoor and Ooh!Media come into consideration.
For a global exposure to media, investors could look to US-listed exchange-traded fund (ETF) PowerShares Dynamic Media Portfolio (New York Stock Exchange code: PBS), which invests in 30 US-based stocks that include heavyweights of traditional media such as Time Warner, the New York Times Company and News Corporation, as well as the giants of “social” or “new media,” such as Netflix, Twitter, Alphabet (parent company of Google), Facebook and Twitter.
Or for an investment more targeted to social media’s global prospects, the Global X Social Media Index ETF (Nasdaq code: SOCL) might fit the bill. This ETF gives diversified exposure to 30 social media companies from around the world, including some from outside the US, such as Tencent Holdings (owner of Chinese social media sites WeChat and Weibo. Chinese stocks make up just under one-third of the Global X Social Media Index ETF portfolio at present, with 55% of the portfolio in non-US stocks3.
1. Commercial Radio Financial Year Radio Ad Revenue
2. Commercial Radio Radio starts 2018 on positive note after rise in December half ad revenue
3. SOCL Social Media ETF factsheet
Information current as at 14 March 2018. This document has been created by Westpac Financial Services Limited (ABN 20 000 241 127, AFSL 233716). Past performance is not a reliable indicator of future performance. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Westpac Financial Services Limited and some of its related entities may have invested in the past, currently or in the future, in some of the ETFs referred to in this document. ©Westpac Financial Services Ltd 2018