EXCLUSIVE - What the Google and Facebook content deals mean for Nine

Chris Pash
By Chris Pash | 11 June 2021

The final content deal made by Nine Entertainment with Google and Facebook is commercial-in-confidence. 

None of the major news groups have provided dollar levels on the deals. News Corp would only say “significant payments” to provide premium news from some of the world’s best known premium titles. 

However, details provided by Nine to the ASX, and analysis by investment banks, give some indication of the benefit to that media group.

It’s nowhere near the hundreds of millions of dollars floated during the early days of negotiations when media groups came out fighting with backing from a federal government ready to legislate for change, resulting in the News Media Bargaining Code.

The Nine agreement with Google is to supply news, excluding video, for Google’s News Showcase and other products. We do know that the amount payable is a fixed annual fee “with modest growth in the early years”.

Nine, when announcing the deals last week, said it expected growth in its publishing division EBITDA (earnings before interest, taxes, depreciation, and amortisation) in the financial year starting in July to be in the range of $30 million to $40 million.

But this earnings update amount includes expected net revenue from the platform deals, the impact of the termination of Google’s previous sales agreement on programmatic advertising sales revenue from March 1, as well as the ongoing growth in subscription revenues for mastheads.

But how much of that $30 million to $40 million will be coming from the digital platforms? The answer is the "bulk" of it, according to market analysts.

And this is incremenetal revenue that doesn't need significant capital investment to generate a return. Most of it can be booked as profit or reinvested. 

Nine CEO Mike Sneesby, in an email to staff, acknowledged discussion about how the revenue from these deals will impact the business.

“While the precise dollar value of the deals are commercial-in-confidence, they will play a role in evolving Nine to a world where the majority of our revenue is digitally led,” he wrote.

“These deals will contribute to supporting the world-class journalism on which our business thrives and to give us the opportunity to pursue growth that will continue to underpin the long-term strength of our business.

"Our FY22 budget planning cycle is well underway, part of which is focussed on developing investment opportunities that will enable us to continue to grow and serve our audiences.

“These deals consolidate our position in an increasingly competitive market, but we will need to remain creative and open to opportunities to improve what we do and how we do it.”

The news sent analysts to their calculators to work out what this meant to the value of Nine, a media group already seen as an industry leader.

Brian Han, senior equities analyst at Morningstar, lifted the fair value estimate for Nine by 7% to $2.40 a share, reflecting the benefits of the digital platform content supply deals. Nine shares closed at $3.01 yesterday.   

“It represents a long-awaited finalisation which puts a concrete financial dimension to the compensation regime with the digital platform giants,” Han wrote in a note to clients.

Han pointed out that some of the $30 million to $40 million will likely be driven by continuing cost cuts and efficiency improvements at Nine’s publishing division.

“However, we believe the bulk of it is from the new content supply deals -- juicy high margin arrangements which finally shift the image of the much-maligned and structurally-challenged division to one that can now much better monetise its (albeit still dwindling) journalistic resources,” he says.

“Investors and, more importantly, the journalist community will be keenly watching how these digital platform deals change management's resource and capital allocation to the publishing division in the future.”

At investment bank UBS, analysts thought the $30 million to $40 million net impact was roughly in-line with expectations, with possible upside in the future.

“We highlight the deal with Google excludes video – in our view, there is still an opportunity for Nine to generate incremental sales or to negotiate a deal with Google in the future relating to video (e.g. YouTube),” write the analysts.

At Goldman Sachs, analysts say the digital platforms deal is another driver of growth for the new financial year starting next month.

“Overall we are pleased to see these deals (and respective Metro Media disclosure) finalised, given their strong earnings contribution and the recurring nature of the payment stream,” say the analysts.

Nine now has a number of incremental earnings drivers: digital platforms, the WIN affiliate deal, and growth at real estate site Domain and streaming content platform Stan.

Goldman Sachs rates Nine a buy.


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