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MediaWorks breakeven stymied by radio

Wednesday 22nd May 2019

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It’s tough being a media company. And nowhere is this more apparent than for MediaWorks Investments, home of the Three TV channel, the Edge and More radio stations, among others.

The company today reported a net loss for the year ended December 2018 of $5.5 million, a fractional improvement on the prior year, but a disappointment for a company that thought it was heading faster towards the black.

Revenue was up a smidgen, from $300 million to $302 million, with TV and digital making more - up 3.4 percent at $133.7 million, and 25 percent at $14.5 million respectively.

But it was radio, MediaWorks’ biggest earner and arguably its most reliable, that stymied the company this year. Radio revenue fell almost $6 million, or 3.4 percent, to $153.8 million.

Chief executive Michael Anderson says that was unexpected.

“The radio drop was a surprise. It’s a rare occurrence and we didn’t see it coming. The last time historically radio was in decline was 2015, and before that, it was in 2009 after the GFC.”

Anderson says the company has isolated the problem with radio ad revenues to the third quarter last year, but doesn’t know why the drop happened.

“Why? Irrational caution [from advertisers]? All we know is all media suffered the same. Still, it seems to have been a one-off and it has already corrected itself in the first 4-5 months of 2019.

“It’s disappointing; if radio hadn’t dropped...”

Anderson doesn’t finish his sentence, but this time last year the company thought an almost obsessive focus on TV prime time local content and the 25-54 demographic might see them move towards profitability - maybe even get back into the black.

It didn’t.

Ironically, while MediaWorks didn’t achieve its 2018 goal of getting Three to the number two slot for those critical prime time 25-54 parameters, in April this year it leapfrogged to number one - overtaking TV1 and TV2.

“Three is the only major free to air channel to increase both audience, up 2.2 percent, and share, up 6.4 percent, in Q1 of 2019 in the 25-54 demo,” MediaWorks says in its presentation.

Meanwhile, Anderson says achieving double-digit growth in earnings before interest, tax, depreciation and amortisation for the second year running was a sign of systemic improvement in company performance, despite a weak market.

Trading ebitda (adjusted for one-off costs) rose from $21.5 million in 2017 to $24.7 million last year.

“If the market throws us a curve ball, there’s not much we can do. But we can have an impact on our underlying performance and I’m really happy with how that continues to grow.

“We are not losing share, we have found cost savings, and we have invested heavily.”

In particular, it’s centralising its radio operations in a purpose-built facility in Auckland’s St Mary’s Bay. And in December it announced it was investing in Australian “out of home” (billboard) company QMS Media.

This purchase rules MediaWorks out as a potential buyer of media company Stuff, Anderson says.

“You’d be brave to do the two simultaneously.”

But QMS alone adds a further string to the company’s bow, he says.

“This makes us the world’s first radio-TV-digital-out of home company. I don’t know of another with that range of assets.”

Whether it will be the world’s first profitable radio-TV-digital-out of home company remains to be seen.

Anderson isn’t overly optimistic the company will be back in the black this year.

“Next year we’d like to see our third year of ebitda growth and continue our move towards not making a loss. But the variable is that market, and it would be a foolish person who would ignore that variable. We will be seeking to reduce that loss and with a bit of luck see it eliminated.”


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