Yahoo!7 presents Seven with a digital dilemma

Future growth prospects for Seven West Media are likely to come from its digital business, but Yahoo!7's middling performance suggests Seven may have outgrown its digital partner.

Most media companies are at pains to tell the market that digital is at the core of their future strategy.

Seven West Media is one of those groups.

However, for some reason it has stopped reporting on the performance of its digital assets.

There’s no doubt Seven West is serious about digital. Yahoo!7 is a well-run and well-regarded business, and over the past eight years the company has shown it is willing to invest in and acquire complementary businesses to improve its stature within the digital space.

That said, its half-yearly results reported yesterday place digital into the nondescript pigeonhole of ‘other’ when reporting on business unit performance.

The company did the same for its 2013 first-half results as well as its 2013 full-year results. The last time Seven West split out digital (specifically Yahoo!7)  was in its 2012 full-year results.

‘Other’ for Seven West includes more than just the company’s digital assets. It includes its share of TV ratings compiler OzTam, its share of Sky News, its share of broadcast facilities and services company TX and nine regional radio licences in Western Australia.

One could reasonably assume that revenues from Oztam, TX and the radio licences wouldn’t fluctuate too much from year to year, and Sky News most likely is rising at a similar clip to the broader subscription TV ad markets – say 3-5 per cent.

Understanding where Yahoo!7 is at is harder to ascertain. SMI data is of limited use as it only includes revenue that is generated from media agencies acting on behalf of large advertisers, not advertisers that deal direct with the media vendor.

Getting clarity on this number is vital as two of Seven West’s three other divisions, newspapers and magazines are both battling severe structural changes that continue to see their revenue trend downwards. It is unlikely newspapers or magazines will ever recover these losses.

And television – the area where Network Seven is the clear market standout – is large in scale but modest in terms of growth prospects. The first half of 2014 saw the TV division deliver revenue increases of 2.6 per cent for Seven.

It is likely Seven Network will continue to grow in line with the overall TV market, but that is limited to 2-3 per cent per annum.

So where does the double-digit segment growth need to come from? Digital, most likely.

So why isn’t there more clarity on it from Seven West?

‘Other’ divisional revenue from Seven West has remained largely unchanged since the first half of the 2012 financial year. That year it was $32.6 million. For the same period in FY 2013 it was $30.9 million. For the first half of 2014, it was $28.9 million.

What this means is that effectively the only area Seven West Media has seen growth from since 2012 is its television operations. It rose 1.6 per cent in first half 2013, and 2.6 per cent in first half 2014. For the same period, newspapers, magazines and other have all been down.

It raises questions about the impact of the overall challenges of partner Yahoo! on Seven West’s digital performance. Yahoo!’s share price has enjoyed a resurgence over the past 18 months, but its revenue has been slowly going backwards since 2011. More importantly, for Seven, Asia-Pacific revenue for Yahoo for the 3 months ending December 31 declined $US22 million last quarter.

Last year, Nine made the decision to take full ownership of its digital future and severed its equity ties with Microsoft around ninemsn, buying out the partner’s share and setting up partnership deals that would allow Nine to continue to represent certain properties within the Australian market.

Yahoo! no doubt provided Seven West with a great partner in 2005 when it decided it wanted to get back into the digital game after its previous ill-directed attempts. Its infrastructure and technology was a significant contributor to Rohan Lund being able to lead the company so effectively and scale so rapidly. But you have to wonder whether Seven West has possibly outgrown Yahoo and might be in a better position in the future if it went out alone, focusing less on being a generalist portal and more on video, IPTV and other areas more strongly linked to the core TV business.

If there’s one thing Seven West has shown over the past decade, it’s that it hates to lose. And while its not losing the digital battle, financials show it certainly isn’t winning right now either.

Ben Shepherd is a media and technology consultant. He can be found on LinkedIn and on Twitter.

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