Hopes for a clean sale, quick exit
The owner of The Southland Times is facing a possible break-up as rival NZME builds its paywall. Media reporter Tom Pullar-Strecker sizes up likely suitors for Stuff and the hard yakka ahead.
Australian media company Nine Entertainment hopes to have the sale of Stuff Ltd pretty much wrapped up by the end of June. Nine is expected to put out an ‘‘information memorandum’’ on the New Zealand media company in a few weeks that should give potential buyers and tyre-kickers a clear picture of the business.
Nine’s clear preference is for a clean sale and a quick exit from the New Zealand market.
But a key question is whether Stuff, which publishes the Stuff website and newspapers including the Sunday Star-Times, might be worth less as an integrated business than the sum of its parts.
If it is, then Nine could be forced get its hands dirty to extract full value from the divestment, or alternatively it could sell Stuff to a privateequity buyer that would then break it up.
Stuff posted an operating profit of $41 million for the year ended on June 25, 2018. But that is likely to be of academic interest to any buyers interested in owning the whole business as a long-term investment.
They would more likely be working backwards from a multiple of their expectations for Stuff’s 2020 financial-year earnings, and looking at the trajectory of the business and what they could do to improve that. The year ending in June 2020 would be the first full year in which they might own the business.
There has been chatter that MediaWorks, owner of the television channel Three, could provide the clean exit Nine is hoping for.
A takeover by MediaWorks would create a media firm with interests spanning television, radio, print, online and outdoor advertising, for what that breadth would be worth.
But it is perhaps hard to see MediaWorks’ United States owner, Oaktree Capital, digging deep into its pockets given its tough experience in the New Zealand media market to date.
There is also the risk that competition concerns might hold up such a deal, stymieing the quick exit Nine is hoping for.
What could a break-up look like? There are obvious buyers for Stuff’s print assets from within the print industry. Otago Daily Times owner Allied Press might fancy its chances of extracting more value from The Press and
The Southland Times than Fairfax Media did under its ‘‘digital first’’ publishing policy.
The Commerce Commission blocked NZME’s proposed takeover of Stuff in 2017 but the rationale of its decision wouldn’t support it blocking NZME from picking up Stuff’s daily titles in the North Island, such as The Dominion Post and the Waikato Times.
That is so long as such a carve-up didn’t jeopardise the existence of the Stuff website.
TVNZ, Spark and Trade Me could all be expected to at least kick the tyres on some or all of Stuff’s digital assets.
None of the three businesses would comment on whether or not they planned to request the information memorandum from Nine.
TVNZ has been talking up the benefits of local content as a growing number of overseas content producers look to sell content directly or through the likes of Netflix.
Stuff could help TVNZ boost its relatively meagre online news presence, though there might be some public discomfort at the prospect of more of the media becoming state-owned.
Spark has become a media business in the broad sense through its investment in television entertainment service Lightbox and Spark Sport. At the very least, some of Stuff’s newer ventures, such as broadband provider Stuff Fibre and community website Neighbourly, might sit nicely within its stable.
But Spark appears to have zero appetite for getting into the news business. Managing director Simon Moutter will have memories from the Telecom days of what it is like for a corporation to be on the end of negative media.
He would probably be nervous of picking up the piranha by the head, and about the unintended consequences that might have for its core business.
Trade Me and Stuff were in the same stable for several years under the common ownership of Australia’s Fairfax. Yet the country’s biggest online shopping site, and its biggest news and entertainment site, never managed to find many synergies. Historical grievances and mistrust may have contributed to that, however, and Trade Me’s likely future owner, British privateequity company Apax Partners, might be more pragmatic.
Trade Me is now a mature business facing its own headwinds. Amazon’s anticipated launch of a local store in New Zealand in the next few years will mean Trade Me will have to work harder to maintain its profile, and purchasing Stuff might be one solution.
It might also be premature to write off the possibility that, after testing the market, Nine’s board might choose to retain Stuff for a period – at least while it waits to see whether the Government will ride to the partial rescue of the sector. With Communications Minister Kris Faafoi now overseeing the Government’s media policy, some kind of leg-up, such as subsidies for local reporting, can’t be ruled out.
The Lenfest Institute for Journalism in the US estimates the top 10 per cent of paywalled publications succeed in persuading only 1.3 per cent of readers who hit the stop sign on a paywall to then pay up.
ANOTHER BRICK IN THE WALL
Stuff rival NZME is due to report its annual result on February 19, when one point of interest is expected to be an update on its plans to introduce a paywall.
NZME has reportedly been researching a weekly fee of $3 to $7 for access to some ‘‘premium’’ content on its NZ Herald website.
In August, chief executive Michael Boggs forecast NZME might convert 4 per cent to 6 per cent of its online audience – which is shy of 2 million – into paying customers. He based that on what he said was the benchmark in Australia, where paywalls have been around for longer and encompass a wider range of content.
However, the Lenfest Institute for Journalism in the US estimates the top 10 per cent of paywalled publications succeed in persuading only 1.3 per cent of readers who hit the stop sign on a paywall to then pay up.
The indications are that NZME’s paywall will start small, and might initially centre on longerform content and business news.
If NZME put a middling amount of content behind its paywall and achieved global best practice by enticing, say, 30,000 visitors to subscribe at $3 a week within a year, that would generate an annual revenue from 2020 of a little under $5m.
Even that would not all be incremental income, though. Paywalls are costly to run, not least because they tend to have very high levels of subscriber churn. Print newspaper subscribers are likely to want at least a discount.
Content that is behind a paywall will also have a drastically smaller audience and so will generate less advertising income.
There are reasons to assume the paywall plan will be hard yakka. NZME arguably has no strong differential in its news reporting or in its analysis of the news over its similarly resourced privately owned and state-owned rivals, such as Stuff and RNZ, which look set to continue giving away their content for free online.
One of the less appreciated drawbacks of paywalls is that they make news-gathering harder. Behind most news stories, whether they are ‘‘positive’’ or ‘‘negative’’, is a source that wants that story to be told.
On the whole, news sources tend to be more motivated to provide information to outlets whose stories are widely read – and therefore not behind a paywall.
For most journalists, too, suddenly writing stories for an audience of hundreds or thousands (rather than for tens or hundreds of thousands) will be somewhat demotivating.
Another cold reality is that if news outlets succeed in breaking major news behind a paywall, then that news is likely to be quickly rereported. Bloggers will sometimes scream blue murder if the mainstream media picks up on ‘‘a scoop’’ without crediting them, but it has always been normal for media outlets to use one another as sources.
No media outlet owns the ‘‘facts’’ of a story, which is how it should and must be.
Instead, once a news outlet has independently verified the facts in another’s report it will rereport them while usually also seeking more information or comment to take the story forward.
For this reason, the content that tends to do best behind paywalls tends to be high-value niche or specialist content that few others feel compelled to report – but which of course tends to draw a small audience.
That said, all media businesses would be mad not to wish NZME the best with its paywall. If it does prove a money-spinner, then others will no doubt pile in behind its lead.