Seven West Media’s free digital streaming service, 7Plus, is providing a welcome good news story as it draws in good audience numbers crucial to advertisers. SWM may be at a turning point where traditional linear television no longer dominates the business, supplanted by broadcast video on demand.
The content war is always a tooth and nail scrap for bragging rights on audience pull, and it can be an expensive business with no guarantee of success. SWM CEO James Warburton told the company’s annual meeting that: “Every additional audience share point we gain has a direct and tangible impact on our revenue and on our bottom line.”
SWM said it has won the TV ratings survey for 2021 and expects to hit 40% share of the metropolitan TV advertising market in the current 6 month period. With revenue share generally following audience share, SWM believes it will exceed consensus earnings forecasts of $260 million EBITDA for FY22f by between 7-10%.
SWM has had to fight a multi-year battle to shrink its cost base. For the last 14 years since SWM demerged from the Seven Group, its total expenses across television, magazines and newspapers has been just over $1.3 billion each year.
The balance sheet has undergone similar surgery with net debt reduced by $320 million over the last two years and now stands at a much more controllable $240 million.
The metro TV advertising market has recovered soundly after the pandemic with 11.5% growth in FY21. But 7Plus has been the shooting star with revenue growth of 78% in FY21 in a BVOD market that grew 55%. SWM now expects its digital earnings to double in FY22f to over $120 million.
The launch of the Virtual Oz measurement system (VOZ) is showing that BVOD is adding sizeable additional audience for key FTA shows. This is high yielding inventory as advertising can be targeted making BVOD more valuable to advertisers.
The acquisition of Prime Media will give SWM a 90% audience reach across Australia and will simplify the process for advertisers to access a larger audience across metropolitan and regional areas. Cost synergies of $5-10 million pa makes the deal financially appealing too.
Investment view
The free-to-air commercial television market is not the powerhouse it once was as firstly younger audiences switched to online entertainment and then streaming sources became mainstream content competitors. Advertisers logically followed the audiences but FTA operators have successfully adapted by fostering broadcast video on demand services that have supplemented the core business.
For many years, commercial FTA businesses have benefitted from extensive industry protection through an array of media rules such as anti-siphoning rules on major sporting content, audience reach rules or ‘two-out-of-three’ cross-media ownership rules that aimed to limit media influence.
But these rules were set before the rise of Google and Facebook which have since leeched material amounts of advertising dollars from traditional media companies while freely using their content.
The Australian Government has finally forced these interlopers to pay a fair price for the use of the content. But SWM is once again calling on the government for more protection by extending the anti-siphoning rules to include online streaming services. If SWM should lose its valuable AFL broadcasting rights, for example, it would be a substantial blow to its ability to attract audience and advertisers.
The business has reduced its financial risk by repairing the balance sheet and operational risk has also improved as the cost base has declined. These changes have improved the investibility of SWM although we prefer Nine Entertainment as the best way to gain exposure to the rise of BVOD.
We have retained our Buy recommendation on SWM as the sector and SWM itself continue to improve.
