Southern Cross Media is seeking opportunities to grow its regional broadcasting footprint, but wants changes to legislation to allow its regional media businesses to compete against digital platforms.
Southern Cross Austereo delivered “a credible result” in the 2019 financial year, as we reported in August.
Despite challenging advertising markets, group revenue of $660.1 million was 0.5% up on the prior year. EBITDA was up by 0.9% to $159.9 million and underlying net profit after tax was up by 3.1% to $76.2 million.
Speaking at today’s Annual General Meeting, Chairman Peter Bush said:
Shareholders will have seen the trading update we released to ASX on 15 October. We believe that SCA has consolidated the market share gains achieved in the first quarter of last financial year and is continuing to trade in line with media markets. However, in the prevailing weak advertising markets, SCA’s revenues for the first quarter were 8.5% lower than in the first quarter last year. With advertising markets continuing to be short and volatile, we expect EBITDA for the six months ending 31 December to be in the range of $60 million to $68 million.
I can assure shareholders that your Board and executive team have been proactive in managing the current difficult trading conditions and in shaping the business for the future. Disciplined management of operating costs is a core focus. Actions already implemented will reduce operating costs in the second half of this year.
Shareholders will be aware of our decisions to outsource our television playout and broadcast transmission services. These “back-of -house” functions are asset-intensive and can be performed more efficiently by specialist service providers. In the current half, we have incurred one-off restructuring costs of $1.5 million, as well as new operating costs of about $2 million, in connection with outsourcing these services. However, over time, outsourcing these services will deliver reliable and standardised performance of these functions, while supporting capex savings of $5 million to $7 million.At the same time, the national operating model introduced from 1 July 2018 is supporting our offices around the country to efficiently deliver consistent, high-quality services to our people, audiences, advertisers and communities.
There is a clear focus on our “front-of -house” activities: creating compelling content and using our audio assets to help our advertising partners succeed.
Our strategy for digital radio in metro markets is a powerful example of this. Uniquely in the Australian market, we have curated nine digital radio brands, four under the Hit network and five under the Triple M network. Aggregating our FM and digital radio audiences is providing additional value for advertisers and a sustainable competitive advantage over commercial radio peers. The most recent Metro radio survey in September 2019 showed that SCA’s digital radio stations had 317,000 digital only listeners, providing advertisers with a greater aggregate reach of 7% across the Triple M and Hit networks.We are also increasing our investment in smart audio consumed through internet-enabled devices, both protecting and expanding our audiences.
You can listen to our radio programs around the country on your computer, mobile phone or smart speaker, either live or on a catch-up podcast. PodcastOne Australia has expanded beyond its market-leading library of Australian original podcast series to offer branded podcasts, helping companies to better interact and engage with their employees and customers. Our exclusive sales partnership with SoundCloud has expanded our portfolio of digital audio assets and audiences
Shareholders will also have seen our announcement last week of the proposed acquisition of Redwave Media. We are strong believers in the resilience and value of regional radio as an asset class, and will continue to explore opportunities to expand the footprint of our regional radio network.In contrast to audio, the regional television model faces significant structural challenges. Advertising revenue in the total regional television market declined by 5.3% compared to the prior year.
Competition for audience and advertisers is coming from subscription video-on-demand platforms, such as Netflix and Stan, as well as other online platforms like YouTube and Facebook. Increasingly, competition is also coming from the metropolitan television networks that provide their live programming on-demand and for catch up in regional markets. The networks have also increased product placement and other in-program integrations, reducing the incentive for program sponsors to buy advertising from regional broadcasters. At the same time, broadcasting legislation unduly constrains the operating model for regional broadcasters to compete in the Internet era.
There are significant disparities in regulation of content and advertising on broadcast platforms compared to online platforms. The ACCC’s final report on the Digital Platforms Inquiry has recommended that the Government should address these regulatory disparities. SCA looks forward to the Government acting promptly to implement the ACCC’s recommendations.
The announcement last week of the proposed merger of Seven West Media and its regional affiliate, Prime, is a logical response to these market dynamics. The merger will create a simple and scaled proposition for advertisers, while maintaining content for local audiences. Against this backdrop, shareholders should be assured that your Board and executive team have a clear understanding of the available strategic options for SCA to secure and optimise our company’s future position.
In the meantime, SCA continues to operate its television assets effectively. Through the Boomtown campaign and other initiatives, our sales and marketing teams have successfully promoted the benefits for national advertisers to invest in regional media. Total television revenue of $206.6 million was down by 3.2% on the prior year; but national television revenue was slightly up to $108.1 million, and our sales teams delivered a power ratio of 1.05 in the four aggregated east coast markets. Underlying EBITDA improved by 1.2% to $33.7 million.