An old media company doing things "a little differently"

Today's interview is with Macquarie Media Chairman Russell Tate and CEO Adam Lang. This is a very tightly held stock, has been rising but on very thin turnover as it always does trade on thin turnover because it’s 54.5% owned by Fairfax and 32% owned by John Singleton. An interesting thing about this company is that a year ago this month, John Singleton tried to buy the whole company from Fairfax and the public but failed. Fairfax knocked him back so that’s where they sit there, still 54.5% Fairfax, 32% Singleton. 

It’s obviously all about Alan Jones and Ray Hadley and to a lesser extent, Neil Mitchell in Melbourne. They’re the number one announcers in their slots. The question is, what sort of growth can they get when they’re number one already and that’s Adam Lang’s job, is to grow the business. He’s just been appointed CEO. He used to run Fairfax Radio Network before it merged with Macquarie three years ago. Anyway, he’s now got the job of trying to grow the business when it’s already number one, which is an interesting challenge and I think it’s a most interesting interview with the two of them. 

Here’s Russell Tate and Adam Lang from Macquarie Media.

Gentlemen, I wonder if we could start by just reviewing what happened exactly a year ago when John Singleton wrote that letter to you saying that the sensible thing is to just take you over and we need to get access to your data room if you don’t mind and you knocked them back.  I presumed that was that and they just went away and that was the end of it, was it?  That was a weird sort of situation really, I have to say.

RT:  I assume you’re talking about John writing to Fairfax, is that right?

That’s right, sorry, he wrote to Fairfax, exactly, and Fairfax said, ‘Macquarie Media is a separate company, you’ve got to talk to them about the data room.’ 

RT:  Yeah, that’s right.  If we just go back a little further, the actual merger of the two companies which were Macquarie Radio, where I worked at that stage and Fairfax Radio Network which Adam headed up.  Those two entities actually merged in April 2015.  Out of that transaction, Fairfax finished 54.5% of the merged company and John individually finished up with 32% of that company.  I was Executive Chairman and Adam came in as Chief Operating Officer.  That’s where the merger first happened, John being a 32% shareholder and Fairfax having the majority.  What you’re talking about was very much a subsequent event to that. 

John Singleton still owns 32%, is that right?

RT:  That’s correct.  Nothing in that sense has changed.  I mean, between Fairfax and John that’s 87% or something  of the total shareholding.  That hasn’t changed, notwithstanding the level you’re referring to.

Well, in fact it’s one of the most tightly held stocks on the market and as far as I can tell, is very difficult to build a sizeable stake of any sort for anybody else.

RT:  Well it is when you’ve got Fairfax at 54.5% and obviously Fairfax are thinking about where that company goes forward and what to do with the various parts that are now components of it and John himself is the 32%.

It is interesting that the share price did fall a little bit after those events in mid-June last year but then recovered strongly and is now, $1.45 and has had a – and obviously that’s more to do with trading than takeover speculation now.

RT:  Yeah, look, because it’s so tightly held we don’t take that much notice of movements in the share price in the short term because frankly, they’re on very, very small volumes and the stock doesn’t trade too much. 

No, that’s right, but still, it’s been steadily rising.  Obviously the shareholders are seeing value there.

RT:  Better up than down.  Since the merger, the merger’s been absolutely successful in economic terms.  We’ve more than doubled the previous sum of the parts.  We did that a year ago, we’re about to announce another year’s results which are pretty solid. 

Before I start asking Adam questions, I was just wondering, as you say that doubled sum of the parts was a phenomenal result from the merger, how much of that is due to synergies and cost savings and how much to growth in earnings.

RT:  Virtually all of it was synergies up until the end of the last financial year, which is where we pretty much had achieved the double.  Since then we’ve started to grow the revenue pretty substantially this year actually.

And is that because of purely ratings?  I mean, perhaps Adam, you could come in here.  Is the key brief from the board for you to grow ratings or to diversify the business?

AL:  It’s growth, and I think that’s a very common objective for any executive team.  We recognised that we cannot achieve substantive profit growth through just cost synergies any more.  We’ll still be very disciplined about our cost management.  I think it’s a good skill that we’ve developed.  We are thoroughly merged, I think as Russell said, and we’re no longer merging, not in the process of anything, we’re merged.  Really, the cost management will be part of our dynamic, but really it’s around growing audience, yes, also growing our sales capacity which we’ve started to do.

It seems to me that your problem to some extent is a good one in the sense that it’s difficult to be higher than number one and you’re number one in Melbourne with 3AW and number one in Sydney with 2GB.  A couple of your time slots, you’re number two, but really there’s not much left in terms of ratings growth in share. 

RT:  That’s right.  Certainly, there’s room to grow in Perth and Brisbane and that should give us good growth we believe going forward.  But yeah, you’re absolutely right in respect of Sydney and Melbourne.  But what we have done once we got through the synergies, the major ones, this year in particular we’ve been successful at developing, changing, experimenting with how we sell our product and how we sell our audience, importantly, and we’re starting to see some very good results from that.  We’re an old media company and as you say, we can’t grow our ratings much more than they are, so we’ve got to be doing things a little differently in the new media environment.

I wonder if I could get Adam to expand on what you mean by growing your sales capability?

AL:  Sure.  To point to some examples that are in the public domain, a large chain of retail stores such as the Chemist Warehouse, they have been a historic advertiser with us for a couple of decades really.  One of the benefits of the merger is that they weren’t just trading independently with Macquarie’s 2GB or Fairfax’s 3AW.  They were trading together with Macquarie Media with all of our assets.  We, in conjunction with them, have developed a program called the House of Wellness, which is a live radio program that we work on producing with them and that is a very commercial objective for us, produce great content as commercially relevant.  It also happens to be achieving number one ratings. That’s something new. 

We’ve got other classes of industry that are appropriate for us to approach in similar ways.  You look at what has happened with aged care or retirement living or even the commission into financial services.  There are a range of client and industries that have certain challenges and that are uniquely speaking to our audience.  We’ve got an audience of grandparents and parents listening to us as they are consuming our content.  We can lead that to these industries in a really unique way.  That’s some of the ways that we’re developing this content. 

Other ways is probably more traditional – sport.  We’re doing more sport.  A lot of really good partnerships in sport have been developed both metropolitan and regional.  I think probably one of the other side or probably not so well known stories is our partnership with the FiftyUp Club, which is where the FiftyUp Club aggregates a large group of consumers who then may wish to opt in and trade as a member of that club with certain classes of services that they can buy, be it insurance, be it energy consumption, really to aggregate groups and exploit group buying power with providers.

We’ve gained great revenue from the FiftyUp Club and there’s some more innovations to come on that front.  I think the one overall sales benefit that we’ve had is to take a really strong change in approach, and that is to say, look at the radio market, it’s roughly divided 50% direct clients, 50% clients that have a relationship with agencies.  We have done very well in the direct client base.  It’s really a large component of small to medium sized enterprises spend their marketing budget with us and maybe their entire spend is with us or a large portion of it and they keep trading with us because we develop a relationship with them where we know when they’re getting a return. 

We’ve had a lot of these clients for years and had a very healthy share of that advertising pie.  But where we’ve been absolutely weak is where we rely on agencies to advocate radio or advocate our brand of radio on our behalf.  The short answer is we can’t rely on them.  We’ve taken the approach of going direct to those clients.  I’ll give you an example of cars in particular, car dealers have a very strong trading relationship with us.  Car brands on the other hand have not seen the benefit of advertising to our audience curiously and seen the advantage of advertising with other providers.

We’ve slowly been able to connect them with this disjointed approach and so they’ve been able to see the benefit as car brands is also advertising with our stations and to our audience.  There’s a huge amount of growth in this national client sphere. 

Is this because you refused to pay kickbacks to the agencies?

AL:  Well, that may be part of it but I think that’s an ephemeral point.  This is much more about us choosing our own destiny and saying we are the only ones who are specialists in our product, we’re the only ones who really know it and can sell it, we should not be relying on an agency to do that for us and we can’t.

RT:  I think also, Alan, it’s important because it’s a very significant point for us.  Our audience is predominantly over 50.  The average age in media agencies is about 25.  That, as silly as it sounds, presents some problems.  Our audience is still undervalued massively, not just in our case, but the over-55 market generally is undervalued massively in terms of its spending power, it’s sheer size, it’s everything.  That’s where all the wealth is – you know this as well as anybody.  But it doesn’t get the amount of money it deserves in terms of advertising dollars.

Yes.  Are you prepared to tell me how much of your revenue comes from Alan Jones?

AL:  [Laughs]

RT:  No…

AL:  No, is the short answer.  Good of you to ask though.

Okay, well perhaps you could talk generally about the extent to which you have a key man issue and what you do about that?  Do you have key man insurance against him or something?

AL:  We won’t talk about any of the arrangements we have in place and I think I’d talk about Alan notionally as an incredible presenter.  He’s been on radio since 1985, he’s been breakfast since 1988.  He’s been largely number one in Sydney that entire time.  He has also been networked to Brisbane for the last three years.  He’s a unique individual, he works tremendously hard, he loves what he does.  We value our working relationship with him greatly but we also know that maturing happens.  He may have the willingness and the capacity to trade on for some time and we’ll keep talking to him about that.  He may not though, he may look to evolve what he does in life. 

We always, whether it’s Alan Jones or Ray Hadley or Ross Stephenson or Neil Mitchell, whomever it may be, part of the obligation upon us is to ensure good succession planning and we actively do that.  In filling in for Alan you would have heard Steve Price from time to time, Chris Smith and we’ve heard Ray Hadley.  We know that these are people that are uniquely qualified to do that job.  We seek to cultivate a succession plan for everybody including our key people such as Alan Jones.

Just on another subject, the conventional wisdom has been for a long time that newspapers were vulnerable to the internet and obviously that proved to be the case, but the radio wouldn’t be because it was a different beast to the newspapers.  I just wonder how long that is going to be true given the rise of podcasts and audio streaming, but in particular, podcasts and to what extent you think you’re vulnerable to that?

RT:  I think with radio generally there’s two parts.  Our radio, being news talk radio which is live, breaks news certainly more often than any other medium can, it can do it economically.  Our news is a major, major part of our programming.  What we’re seeing even right now, this year we’ve seen real revenue growth, I think we’ve seen generally a bit of a cutback on digital spending, but I don’t think news talk radio is really going to be impacted at all.  It hasn’t been impacted to date to any significant degree and in fact we’re seeing revenue growth year on year.  We’re pretty comfortable in the space that we own.  That’s a very different position, I might suggest, to music radio. 

Podcasts – we are probably better placed than anybody in media anywhere to be doing podcasts.  We do do them, they’re part of what we do, we do them easily, we do them economically.  We have most of the content frankly where they have access to it.  At the moment it’s not that big a deal in terms of our basket.  I think podcasts are interesting.  We’re as well placed as anybody to take advantage of whatever interest there is in podcast.

AL:  I completely agree.  I think one of the statistics that surprise me the most, Alan, if you look at podcasts purely as anything audio files consumption, but we might also talk to a section of it that is time-shifted radio consumption.  Just to give you an example of that, the top two podcasts, as it were, every week, every month, jostle between the news – as in, people downloading or streaming on demand, the last news update.  Even though we might do it every hour or half-hour, it doesn’t suit where and when people were at the time, so we get huge downloads of our news bulletins every week, every day. 

And second, or first depending on the day and the jostle, is Steve Price and Andrew Bolt – a unique piece of radio that not everyone can get at that time, but they love listening to it.  Beyond that, as Russell said, we do actually make content that some of it appears on air, for example, 60 second mentor, small business stories, you might hear a 60 second version of it in an ad break and then you can download a podcast of several minutes if you wish to.  So we’re actively trading in that market already.  

It sounds a bit like you see part of your future with podcasts and you’re sort of riding the change that’s occurring yourselves.

RT:  Yeah, that’s my point.  Personally, I’m not that thrilled about the future of podcasts.  I think everybody’s keen to talk about them, it’s a pretty easy idea to come to grips with.  I’m a bit sceptical about how big it’s going to be in the end, but to the extent that it’s there and we want to take advantage of it, we’ve got all the resources, we’ve got all the voices, we’ve got all the personalities and we’ve got, frankly, access to all the content, the subject matter, if and when we want it.  That’s not difficult for us.

AL:  I think in this, Alan, like everybody you have to look at the internet as part of that.  We use our websites, our podcast to help amplify the content we create and work with clients to do that.  I think we’re definitely in the market, in short.  

Given your ownership structure, is there a limitation on what you can do in terms of acquisitions and growth through that means as opposed to just growing your sales?

RT:  Yes.  As I said at the outset, Alan, Fairfax are the majority shareholder and obviously what we are able to do – to date we haven’t had any issues with wanting to do something and not being able to.  Obviously, what we might want to do, any combinations that we might want to achieve with other media players will need to also suit the major shareholders.

AL:  Aside from that, there is another government limit.  Although we’ve had media law reform, there’s aspects of it that haven’t changed.  We’re limited to owning two radio stations in a market, so we have to navigate within the law that exists.

Yep, of course.  Well, I’ll have to leave it there.  It’s been really interesting to talk to you guys, thanks.

AL:  Pleasure.

RT:  Thanks Alan, thanks for your interest.

That was Russell Tate, the Chairman, and Adam Lang, the CEO of Macquarie Media.