Sentiment shift

Seven West Media's December half earnings results and analyst briefings yesterday delivered the first good news the TV sector has had for some time – CEO Jeff Howard told Mi3: “I'm feeling pretty positive, more positive than I think we've been feeling for quite some time." Seven and Nine's share price lifted yesterday on Seven's outlook despite Stoke's outfit taking big hits to its earnings and after tax profit. 

On an earnings call to analysts, Howard pointed to Seven's marketshare and audience gains at 7plus and an uptick in advertising demand in the December quarter. He later told Mi3 the newly appointed Chief Commercial Officer Henry Tajer, was likely to change Seven's sales structure – an ongoing point of contention with media buyers. But Seven, he said, had no plans to appoint another CMO to the business after Mel Hopkins was caught up in Howard's cost out carnage at Seven last year – both Nine and Seven have axed their group CMO roles, which partly serve as a market engagement remit with corporate marketing peers who control media budgets and have overseen more than $600m in ad spending exit linear TV in the past two years. 

Regardless the ad market is turning, per Howard, who said 18 months of messaging from broadcasters that linear TV audiences had stabilised and digital assets from the sector are on the rise is starting to land. He said 7plus had withstood the "dumping" of inventory from a flurry of new global streaming platforms eyeing linear TV's advertising take. 

While certain the market of the ad market upswing, Howard had caveats.

"This is the media sector. There are always challenges, you just never know where they're going to come from, so you've got to be ready to respond when they hit."

Those challenges were manifest in first half results in which earnings before interest, tax, depreciation and amortisation [EBITDA] fell 26 per cent to $92m and post-tax profit slumped 67 per cent to $18m for the December half that followed a brutal round of cuts and a massive restructuring amid a challenged ad market and heightened competitive pressure.

But Howard said it was a tale of “two distinct quarters”, the second suggesting a corner may have been turned as cricket brought in new audiences and ad dollars that Howard said have stuck around – and signs broader market malaise is lifting.

Across the industry, “our sense talking to everybody is that there's a bit more positivity as we've come into Q3”, he told analysts. “It feels like we're seeing some pretty good momentum in the market for the first time in a couple years.”

For now the markets appeared to agree, with both Seven and Nine’s valuations climbing on the result and outlook. Howard sees further mutual gains, maybe via its new $60m-plus Phoenix TV trading platform going live next month, and via cross-industry collaboration to reduce cost and overlap as streamers with rapidly scaling ad tiers and inventory sharpen incumbent incentives.

Though "cautiously optimistic" and setting a higher share price growth target, "cricket is a long game", per an analyst note from Macquarie. The investment bank expects Seven to book upside from sports and freer-flowing ad dollars following an anticipated rate cut as well as bottom line improvements from cost control.

Likewise, it said Seven's digital audience growth and a view that structural declines may have bottomed out "could suggest an inflection point where the industry finds a floor, with BVOD growth mitigating free-to-air TV declines."

"That said, we are cautious, and note ongoing competition from streaming services."

Audience gains

Of the streamers, agency bosses suggest Amazon will increasingly wield influence over the broader TV market, as retail advertisers use its platform to funnel BVOD spend that they can link directly back to ecom sales, creating a "Trojan horse" through which is can attack a greater share of brand budgets, i.e. TV ad dollars.

Howard acknowledged the threat of the broader cohort of global tech firms. 

"The platforms are always a threat. If the platforms had their way, they would wipe traditional media off the face of the planet, which would not be good for democracy," he suggested.

"What I'm hoping is that as an industry, we're starting to come together and are realising that is the issue we have to deal with – not us, Nine and Ten fighting in the trenches about who gets a bigger share outcome."

Analyst questions provided an immediate opportunity to demonstrate that camaraderie, as Howard duly batted away suggestions Seven’s share growth had come at Ten’s expense: “I'm not in the business of calling out where we got it from, but obviously we're very happy with the four points that we picked up in the second quarter.”

Either way, “I am feeling pretty positive, more positive than I think we've been feeling for quite some time,” Howard told Mi3. “We've got audience momentum. The content is performing really well. Things are going well in The West. The ad market feels like it's got some momentum behind it and we've got some big tail winds coming with AFL and the election,” he said, earlier telling analysts that “a bit of Clive money” had already started rolling in. “So, yeah, I'm pretty bullish on the second half.”

Seven’s total TV revenues fell $45m despite total audiences climbing 1.5 per cent, with 43 per cent BVOD gains countering 1.8 per cent linear leakage, and a 50 basis point win in total TV revenue share to 41.5 per cent, which Seven claimed was a “record result for a non-Olympics broadcaster in an Olympics period”. Linear TV revenue fell 9 per cent to $505m, BVOD revenue climbed 15 per cent to $85m. 

Cricket scores

Howard said cricket, with five-year audience highs driving revenue growth up 16 per cent year on year, had powered the second quarter recovery. He thinks Seven can repeat the trick with the AFL and its broader digital-first strategy.

“It was the best cricket summer we've ever had. We had 350,000 new registered users come on to 7plus to watch the cricket, and 200,000 of those, roughly, have hung around and consumed non-sport content.”

That drove average cricket audiences to “peak in the mid eight hundred thousands”, per Howard. “Before the cricket, or average 7plus audience would have been in the three to four hundred thousands per day.” He claimed the halo effect was still showing, with average audiences about a hundred thousand higher. “It is meaningfully up.”

Personalisation pays

Seven’s investment in personalisation is likewise helping to keep those audiences on platform longer – with the firm recognising “BVOD minutes” are of less interest to advertisers than increasing the number of people watching.

But Howard said investments in smarter data, analytics and recommendation engines only pay off if the content and experience is good enough in the first place.

“That's why we focused on sport and ‘7plus first’ to grow those high value audiences. The work we've done around dynamic ad loading, the size of the pods and the number of pods and all those sorts of things to hold or grow the yield in the face of the global streamers turning up and just dumping inventory in the market has been really important,” said Howard.

(The firm is keen to work with advertisers on trials to see how reducing ad loads affect results and audience churn.)

“We've had nearly 9 million Aussies inside the 7plus platform in the last 30 days, we've seen a very large increase in the average daily active users across the platform over the last six months,” he added.

“So we're making sure we're driving the metrics that will actually drive the revenue opportunity for both us and for the BVOD industry. It's critical to grow the BVOD industry over time.”

Phoenix vs Galaxy?

Howard indicated the total cost of its new Phoenix platform will come in between $60m-$70m. “It’s been a very big project.” But he said Seven could no longer have people fiddling with “spreadsheets and bits of paper” across disparate systems if it’s trying to achieve efficiency of transaction and sharper results while seeing off the financial threat of make-goods. Seven expects to see “significant freeing up of inventory” after Phoenix, which enables dynamic trading across the piste, goes live on 2 March.

“Phoenix is a vitally important project,” per Howard. “Yes, it was an expensive investment, but we're confident that over time, we'll get a return on that investment.”

Could the trading platform be part of the collaboration and cost de-duplication efforts Seven is talking up with Nine and Ten – i.e. getting them to use it?

“I'd probably prefer not to talk about that one at this point,” said Howard. “But certainly, we're open to having conversations with anybody about anything.”

CMO no-go

While Seven is touting improved marketer sentiment, it doesn’t have a chief marketer to engage and influence those holding the purse strings, neither does Nine. Howard indicated there’s no immediate plan to change that.

“We obviously made the changes we needed to make. I'm not in a position to talk about the changes Nine needed or did make. We've moved our marketing resources into a different part of the organisation and we're very happy with how it's going, and how it's supporting the broader business objectives at this point.”

Turbo Tajer

But Howard does expect some disruption to Seven's sales operation after an overhaul he engineered last year saw veteran Chief Revenue Officer Kurt Burnette axed and Seven return to selling channel silos for linear and digital - a move which disgruntled media buyers. Any changes, Howard said, would be the remit of recently appointed Chief Commercial Officer, Henry Tajer, a  former Dentsu, Amazon and IPG Mediabrands global boss.

“We saw an opportunity with Henry in the market … to bring someone onboard that’s going to help us turbo charge our ambitions,” said Howard.

“He’s been in the business for two weeks. He’ll have different ideas. We can’t expect him to turbo charge things with no change … But… We’ll work with him through all that.”