New Zealand’s two big listed media companies have cost-cut their way to improved profits – with both Sky TV and NZME using the Covid-19 economic downturn to cut spending substantially into future years.
NZME on Wednesday reported a full year 2020 statutory net profit of $14 million, up 45 percent, as a result of removing 14 percent of its total cost base through the Covid-19 crisis. As a result, it will face $20m less in costs each year, and it hopes to improve profits again in 2021 and re-start dividends to its shareholders, dominated by Australian funds.
The publisher’s results represent a remarkable turnaround, mirrored by its NZX share price sitting at a three-year high of 90c after going as low as 18c in March 2020.
Sky lifted its net profit 234 percent for the first six months of the financial year from $11.9m to $39.6m, partly by removing $52m or 18 percent of costs. Some of those savings were one-offs due to lower production costs from Covid-19 stopping sports events, but around $23m is likely to be saved in ongoing years.
Both media companies are trying to counter hits to advertising revenue. NZME’s income from ads was down 15 percent in 2020 and Sky advertising was off by 14 percent in the six months to December 31.
NZME, like Sky, is focused hard on subscriber (reader) revenues. Sky has slowed the fall in subscribers to its Sky Box service and increased the numbers of those using Sky Go as an on-demand service. NZME has now signed up 53,000 paying subscribers to its flagship nzherald.co.nz website, up from 43,000 six months ago and now bringing in $6.6m in annual revenue.
Both companies are intent on all-but eliminating debt. Sky now has enough cash to pay off its $100m of bonds that mature in March, and NZME has taken a further $44m off its debt during 2020 to $33m, down from around $100m just two years ago.
Sky TV’s plan to turn itself into a leaner,“capital light” media company appears to be on track under new CEO Sophie Maloney.
While Covid-19 impacted Sky’s revenue it also had an upside with a chunk of the $31m savings in programming costs due to cancelled and postponed events. Losing domestic cricket to Spark also contributed to the lower cost of programming.
Dropping the headcount and axing SKY Watch magazine saved another $12m. During the half, Sky got rid of its sports news shows and brought “efficiencies” to its international streaming service, Rugby Pass.
Both of those projects were initiatives undertaken by previous CEO Martin Stewart who left the company, suddenly, at the end of last year. He had been at Sky for less than two years.
Sky’s share price rose very slightly after the result, but until Maloney can stop the steady erosion of Sky Box customers the market will remain cautious. The new CEO told analysts the position was “stabilising” but box customers dropped from 610,000 in the previous comparable period to 565,000. Streaming customers increased by nearly 60,000 but they produce a lot less revenue.
The average monthly revenue from a box customer is $79 compared to about $18 for a streaming customer.
Sky also appears to be following a trend in media companies by lowering its debt levels. While the current low interest rates make debt less of an issue, high borrowings have previously been a handbrake on MediaWorks, NZME and Stuff. Sky has $123m sitting in the bank and has indicated it will use it to repay the $100m of bonds that fall due in March.
The company’s decision to sell its outside broadcast vans to NEP and avoid $50m in future capital expenditure fits with its plan to be a smaller and more nimble player in a disrupted market.
The NZME full year result was notable for its improved earnings, permanent cost cuts and the steep reduction in company debt. NZME reported advertisers were waiting to confirm bookings month by month, adding some uncertainty to forecasts, but the improvement in business confidence meant if the economy and Covid-19 situation remained on track, it could expect improved profits in 2021.
The drops in advertising revenue were eye-watering, down 26 percent for NZME’s print products and 14 percent for its radio business, with a rise in digital revenue not enough compensation.
Board chair Barbara Chapman said the business had agreed new strategic priorities (to be home to New Zealand’s leading audio company; for the New Zealand Herald to be New Zealand’s Herald and OneRoof to be the complete property destination) with performance targets to the end of 2023.
Chief executive Michael Boggs emphasised the ongoing pivot to digital: “Our measurable targets within each division include a focus on accelerating NZME’s digital transformation. With this concerted effort we expect even greater momentum in digital advertising, digital subscriptions, digital classifieds and digital audio products.”
Investors are likely to receive a dividend some time after June, when banking covenants allow it, given the steep pay down of the company’s debt. When the possibility of a dividend was raised late last year, NZME’s share price (which had languished below 50c on the NZX for 14 months) shot up in expectation. After yesterday’s positive full year report NZME ended the day even at 90c.
Magic Talk’s softer side
MediaWorks has gone for familiarity and warmth – and put risk and provocation aside – by replacing departed Magic Talk afternoon host Sean Plunket with a former NewstalkZB stalwart Danny Watson and the Magic evenings host Leah Panapa.
Watson spent 15 years at Newstalk, finally leaving his afternoon gig in late 2015 when Kerre Woodham moved from hosting the evening show. His moving on then was no surprise, after a long and ultimately solid but unspectacular stint for the station.
For Magic Talk to revive his chatty, everyman talkback style after the tumult of John Banks’ removal and Plunket’s departure signals a safety-first approach but also a scarcity of options for a station struggling with a damaged brand and a relentlessly dominant competitor.
Panapa is a warm and relatable host in the evenings, and has filled in since Plunket’s exit. She might wonder why she didn’t get a solo run at the fulltime afternoon job.
O’Brien joins Newshub Nation
Newshub is spicing up its Saturday morning politics show Newshub Nation. From next week, its political editor Tova O’Brien will share the presenters’ desk with Simon Shepherd.
O’Brien will bring an edge to the interviews with politicians that at times can elude Shepherd, despite his considerable skill and experience.
O’Brien made headlines around the world when she eviscerated Advance NZ leader Jamie-Lee Ross in a post election interview.
The former Europe correspondent’s style is not everyone’s cup of tea – some see it as overly aggressive, bordering on rude – but Newshub Nation needs to differentiate itself from the higher rating Q & A on TVNZ1.
Both programmes are funded by NZ On Air which must be asking itself if it should be paying for two very similar shows that pull low audience numbers. Newshub’s boss, Sarah Bristow, will be hoping O’Brien can stir things up and get her programme’s ratings up in a non-election year.