Gyngell goes into bat for free-to-air
David Gyngell is the closest thing Australia has to television royalty. But the Nine Entertainment boss will soon be facing the sentiment-free glare of the sharemarket where he has to convince investors that free-to-air television has a certain future and especially Nine Entertainment.
Marking Friday's release of research reports by the investment banking managers (UBS, Macquarie, Morgan Stanley and the Commonwealth Bank) that will kick off the $3 billion float of Nine Entertainment, Gyngell spelt out Nine's investment case — telling Fairfax that "if you are going to buy media, which is a challenged and dangerous place for some fund managers and mum and dads, I believe ours is the best possible space".
His pitch is a departure from the usual management-speak. He is not selling the story that Nine has the best business because it has the lowest costs; rather it has paid up to invest in assets and programs and this will underpin its future. "Everything we are doing at the moment is at an all-time content investment high," he said.
So he is sending a clear message that there are no spending surprises lurking around the corner.
This appears to be a swipe at the Ten Network, which this week announced new loans aimed at paying for programs.
While Nine's free-to-air competitors have questioned Gyngell's top dollar acquisition of sporting rights including cricket and rugby league and the purchase of Adelaide and Perth station affiliates, he makes no apologies for this spending approach.
It is a rare attitude in business these days that says "invest heavily in content and they will come".
"At Channel Nine I have invested a lot of money in event programming and taken the costs up a lot and I am not a cheap guy to run ... I passionately believe in making great content and chasing revenue. I don't believe cutting costs is a hard thing to do. It's the easiest thing to do in our business and you can do it any day of the week and any mug can do it for you."
It is a view that reflects his belief that there is still life (and money) to be made in free-to-air television, despite its negative industry tag as "old" media.
To attempt a float of a traditional media asset puts Gyngell in the difficult position of convincing investors that this industry will not be a longer term victim of fragmentation, and that the worst of the invasion from pay TV is over and that various forms of market share creep from digital media have limits.
He argues that the background of free-to-air in Australia is very different to other countries, particularly the US. TV in Australia is like television in the 1980s in America, according to Gyngell. Without the benefit of premium sport (thanks to anti-siphoning laws) pay TV bumps up against a natural market share ceiling.
There are plenty of eager eyeball competitors; the Netflix and Hulus of the world will challenge free-to-air. Even free-to-air operators will probably compete using cheap digital models.
"But [as] broadcasters we do big bulk programs and more people watch that," he says. "I don't buy that it's going to deteriorate in Australia like it has in other areas of the world. I don't disagree that the advertising market growth curve over the last 20 years is going to be challenged through choices advertisers have in digital products, but television has proven time and time again to be getting its share.
"If the economy is down or flat as it has been over the past four to five years that's normally reflected in free-to-air [revenues]. But most recent numbers showed that TV is still getting some growth."
Television operators argue that they will not follow the rocky track of print media on a 10-year time delay.
This is the story Gyngell and his television competitors at Ten and Seven (which also runs a meaningful print business) have to sell.
"I am extremely confident that free-to-air television will be the biggest game in town. It will not have the growth curve of the last 20 years but it will definitely have some growth."
This may not be the definition of a business with great growth prospects but neither is it of one that is moving backwards.
Over the past couple of years both Channel Nine and its arch rival Seven have improved their share of ratings and advertising. But they have been given a free kick from Ten Network, which has lurched from one disaster to another. Nine's biggest gain will need to come from taking share back from market leader Seven. This will be hotly contested.
Meanwhile shareholders will need convincing that if they want exposure to the cyclical free-to-air market then Nine presents a better option due in part to the fact (unlike Seven) it has no exposure to print and its debt levels are more conservative.