Australia

'Worst I've ever seen': How COVID-19 accelerated the media industry's woes

At 11am on Monday, staff at Network Ten's digital news website 10 Daily received an email inviting them to an "important meeting" at their Pyrmont headquarters in 90 minutes' time. The team was mostly working from home, but managers encouraged them to come into the office.

In an empty part of the building, director of news content Ross Dagan told the 30-strong team something none of them had expected: they were gone. The 10 Daily website would close and another Australian newsroom was shut down.

Channel Ten announced it is shutting down its 10 Daily website just two years after launch.

Channel Ten announced it is shutting down its 10 Daily website just two years after launch.

Shortly thereafter, Network Ten's new boss Beverley McGarvey sent out an all-staff announcement about "a range of transformative measures across Network 10 and ViacomCBS" in Australia and New Zealand. As a result, she said, "some staff will leave". The news floor was summoned to a 2pm meeting. No one except the 10 Daily journalists knew who was getting the boot.

Days later on a virtual conference call, Australian Competition and Consumer Commission chairman Rod Sims described the COVID-19 pandemic as a "force majeure" for the industry. The term, which describes a clause in contracts that frees two parties from obligations due to an extraordinary event, was fitting in the wake of a devastating two months for Australian media.

In just eight weeks, popular magazines such as like OK! and Harper's Bazaar, as well as local papers such as The Manly Daily and The Wentworth Courier, have stopped print editions. Online publishers including BuzzFeed Australia have shut, TV shows such as Australian Survivor have been put on hold indefinitely and the suspension of sports competitions has caused dramatic falls in revenue and mass redundancies at pay TV operator Foxtel.

Smaller digital-only operations have also not been able to withstand the advertising downturn. A little over 12 months ago, BuzzFeed announced it would cut 15 percent of its local workforce. Most of the cuts were in editorial, leaving just five to run BuzzFeed Australia's newsroom.

BuzzFeed said it decided to close its Australian news operation to focus on content that "hits big in the United States".

BuzzFeed said it decided to close its Australian news operation to focus on content that "hits big in the United States".Credit:AP

On Friday that newsroom shut. "Both for economic and strategic reasons, we are going to focus on news that hits big in the United States during this difficult period," a spokeswoman said. The sales operation will continue in the interim, but the decision was a sign that not even global media outlets could justify the cost of running multiple international newsrooms in the current crisis.

More than 600 Australian media industry jobs have been lost so far this year, and many others have been stood down. Despite the unprecedented audience thirst for news, business models are failing and outlets are going bust.

Some of the changes are temporary, but for many media companies the crisis has accelerated cost-cutting and restructure plans that were expected to take place over the next few years. COVID-19 has become an accelerator of change, but it cannot be blamed for the woes that have afflicted the industry for decades.

"The need to rethink the business model was there before the virus came along," says Professor Derek Wilding, co-director at the University of Technology's Centre for Media Transition.

"While there is certainly pressure on media companies as a result of the emergence of digital platforms, there is also shared responsibility here for the current environment, and that's partly explained by the failure of media companies to develop their own business models that took advantage of digitisation and aspects of distribution before digital platforms became so dominant.

"[COVID-19] really highlights the problems that have been building over two decades and gives the sector a degree of financial difficulty that they weren't even considering at the start of the year."

The financial pressure media companies face is driven by an inability to evolve quickly and a dependence on advertising revenue, which is closely tied to the state of the economy.

Advertisers, the main revenue stream for most media companies, have reduced spending over the past two years. While some have moved the amount they spend from traditional media to digital platforms like Google and Facebook, others have cut their expenditure altogether.

Media analysts have previously attributed the decline in spending to a weak economy, low industrial production and reduced consumer sentiment. These factors have worsened since the pandemic.

Before the crisis evolved Nine Entertainment Co (publisher of this masthead) and News Corp Australia were looking at ways to cut costs. News Corp decided to restructure its business model and Nine had outlined a three-year plan to cut $100 million from its television business. The two companies also decided to shut national news agency Australian Associated Press after 85 years of operation, saying it was no longer commercially viable.

"This is an unfortunate reality of media disruption," AAP's chief executive Bruce Davidson said at the time. "We're not the first media company to be shut down and we won't be the last."

As social distancing restrictions were put in place, announcements from ASX-listed media companies became more frequent.

Nine, Seven West Media, oOh! Media, Southern Cross Austereo and Prime Media Group withdrew earnings guidance because of the significant decline in advertising, and have since implemented executive salary cuts and reduced working hours. Magazine and newspaper titles at News Corp and Nine have been suspended, while outdoor advertising business oOh! Media and Southern Cross, which owns regional television and radio assets, launched capital raises.

"There are definitely going to be winners [in this pandemic] and they are those media and entertainment businesses that had already made the leap to provide really attractive online websites, were set up with good pay walls, had business models in place," former PwC partner and media consultant Megan Brownlow says. "The losers are media and entertainment businesses that hadn’t started making the pivot to digital or were by the nature of the business locked outside the home...outdoor media and cinema."

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Because of the way advertising bookings are made, it has been difficult to assess the full damage of the pandemic on revenue, but some media companies have provided a ballpark figure to the market. News Corp Australia revealed earlier this month that advertising revenue had fallen by more than 45 per cent in April.

A Morgan Stanley research report by Andrew McLeod on Friday said the average decline in share prices for media companies this year was 52 per cent. The report forecasts a 50 per cent decline in advertising revenue for the June quarter.

"Even post COVID-19, when the overall advertising market stabilises and starts to improve, we think the magnitude of the recovery will disappoint investors," the report says. "If the global tech players continue to grow revenue double digits in Australia, but the total pool of ad revenues is only increasing 2-3 per cent per annum, there is necessarily a 'crowding out' of ad spend left for domestic media companies to pursue.

"At this point in time, the ad cycle is sharply lower and presents a further challenge for these stocks, many of which in our view, are dependent purely on the ad cycle for their revenue/earnings growth."

Data obtained by The Sun-Herald and The Sunday Age provides a more detailed insight.

The Interim Standard Media Index data, which measures bookings from media agencies and represents about 70 per cent of the local advertising market, shows a 42 per cent decline in spend for the month of April.

Interim television revenue is down 33 per cent to $145 million, while radio has fallen by 48 per cent to $25.2 million and newspaper advertising is down by 38 percent to $15.2 million compared to the same time the previous year.

Australia's magazine industry has taken a particularly big hit, down 54 per cent to $3.5 million for April. That figure was $9.9 million in 2018. These figures will change slightly due to late advertising bookings, but they give an indication of massive hit to revenue.

Harper's Bazaar is one of the titles that has beem temporarily suspended.

Harper's Bazaar is one of the titles that has beem temporarily suspended.

Declining advertising was a driving factor for German publisher Bauer Media's decision to snap up Seven West Media's magazine arm Pacific Magazines. Bauer initially planned to make about 200 staff redundant last December as part of the $40 million acquisition. But the pandemic exacerbated existing problems. Bauer wanted to renegotiate the amount it paid - and when it was unsuccessful, cut more than 120 jobs.

It also suspended the print editions of titles including NW, OK!, Harper's Bazaar, Elle, InStyle, Men's Health and Women's Health.

Marina Go, former Bauer executive and chairman of The Walkley Foundation, says it is unlikely all those titles will come back, and media firms will have to use this upheaval to reinvent themselves.

"It should be an opportunity," she says. "Every organisation I'm involved with is using this time as an opportunity to change things. That should be the same for magazines."

The fall in revenue of the last few months contradicts the consumption habits of consumers during the pandemic. Television, radio and news media audiences have all grown substantially. Newspapers have also experienced a boost to subscriptions.

"[COVID-19] has forced an experiment," Brownlow says. "It's forced laggards onto digital platforms and digital ways of consuming content and combined with time at our disposal, they have been consuming cultural and media products, loads of news, loads of television, loads of literature and music. All of the things that are created by the media and entertainment industry ... consumption has gone up."

But the growth has not been enough to make up for the loss of advertising. The federal government has implemented measures to alleviate some of the pain. A $50 million public interest journalism fund was announced in April to help regional broadcasters and publishers, and a 12-month waiver of spectrum tax fees for broadcasters.

Media companies are also hoping to cash in from the mandatory code of conduct being created by the Australian Competition and Consumer Commission, which will govern relationships between media companies and Facebook and Google. Publishers are expecting to receive millions of dollars from these tech platforms for their content.

But it remains unlikely the advertising market will ever return to levels that would give media companies any deal of confidence.

"The ad market is the worst I have ever seen across all media sectors and categories and will take some time for client spend and confidence to come back to the levels pre COVID," says Barry O'Brien, chairman of Australian independent advertising agency Atomic 212.

Consolidation is highly likely, which means increased concentration of media ownership (in what is already one of the world's most concentrated media markets) and the closure of more titles.

"There are two dangers," says Wilding, the UTS expert. "One is that there is a risk to diversity in the sense that in terms of numbers there are fewer providers of Australian news. We've seen that so starkly in the COVID-19 environment.

"But then it also has this added effect in regional areas where there were few sources to begin with. If a local paper closes and a local community is left with syndicated news from capital cities and there isn't a start-up in those areas ... then the impact on that community is really severe."

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Brownlow is more optimistic. She says the long-term impact of the pandemic will benefit Australia's media industry - eventually.

"In the near term, it's bleak - consolidation, media organisations shutting down, advertising recession ... all of these incredibly bleak outcomes," she says.

"But what will happen over the longer term is that those journalists who have been made redundant are incredibly skilled, educated, motivated, driven by a passion to serve their audiences and to construct Australian stories ... They will build start-ups that are going to serve these news deserts and they'll do it digitally."

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