The recent passing of television legend Bert Newton perfectly symbolises the point of inflection of the industry from linear to digital. Bert was the archetypal TV personality to whom millions of Australians turned to for home entertainment the likes of which we will probably never see again. But as linear appointment TV fades gradually into history, the rise of digital TV has reached a point where it can offset the declining revenue of Bert's generation.
The evidence for this shift is building that broadcast video on demand (BVOD) can offset the structural decline in linear TV. NEC is guiding 9Now revenue growth of more than 45% in 1H22f in spite of SWM attracting a chunk of Olympics-related advertising revenue out of July. SWM recently said it is also seeing strong growth in BVOD at 7Plus confirming the growth of BVOD generally. We think BVOD can contribute up to 13% of NEC's total TV revenue in FY22f.
BVOD is being driven by increased live streaming of free-to-air shows and catch-up viewing as well as new content aimed at BVOD audiences. BVOD is helping to sustain the audience reach of overall TV – a key metric for media buyers and advertisers.
The ability to target audiences more accurately has been a Holy Grail of the advertising industry ever since nineteenth century retailer John Wanamaker lamented that half the money he spent on advertising was wasted, only he didn't know which half. In the digital world, this is no longer the case. NEC is in a strong position from a yield point of view as it can combine data from its own platforms (9Now, SMH, The Age, AFR, Domain and Stan) to discern a more complete picture of its users. This data is very valuable to advertisers in an environment where it is getting harder to track consumers.
Much of the growth in BVOD revenue will logically cannibalise linear TV but there is a definite opportunity to grow the pie by accessing the broader digital video market dominated by Google/YouTube and Facebook. With more precise measurement from the new VOZ audience data, advertisers will be able to accurately calculate a return on investment – the key factor that eluded Mr. Wanamaker.
TV advertising still works, so new approaches such as BVOD that enhance the TV platform are welcomed by media buyers and advertisers. NEC believes its total TV revenue can grow over the medium to long term. For 1H22f, NEC is expecting metro FTA ad revenue to grow 6% over last year.
With good progress at NEC's other media assets, the company is expecting 1H22f EBITDA to be up by around 10% over last year.
Investment view
Advertising conditions have improved thereby benefitting most of NEC's traditional businesses. Subscriber growth at Stan remains strong but there is some uncertainty over a changing environment for SVOD at the moment. NEC has negotiated a tricky pandemic-affected period quite well and is in a stronger position than its rival SWM. We still see plenty of upside in this story, particularly as it builds its digital prowess across all platforms. With double digit eps growth ahead for the next 3 years and a solid 4.5% dividend yield, we maintain our Buy recommendation on NEC.
