3D chess: This is how Nine could buy Foxtel

Tim Burrowes

August 12, 2024 11:37

Welcome to a Tuesday update from Unmade. Today: Gaming out a way for Nine to buy Foxtel. Plus, more news on October’s REmade retail media conference.

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If you’ve been thinking about upgrading to an Unmade membership, this is the perfect time. Your membership includes:

Member-only pricing for our HumAIn and REmade (October 1) conferences;
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More in store at REmade

REmade curator Cat McGinn writes:

We’re delighted to announce a new session for our retail media conference, REmade, which returns as a full-day event in Sydney on October 1.

This year’s program is designed to empower marketers at every stage of their retail media journey, providing actionable insights and strategies to thrive in this rapidly evolving landscape.

The session we are announcing today features Officeworks, Coca-Cola, Zitcha and Broadsign. It explore the role of in-store in the retail media chain, the potential of in-store digitisation and sophisticated asset deployment to create engagement beyond the end-of-aisle displays. The speakers are:

Anna Mcloughlin – Head of Digital, Market Activation at Coca-Cola Europacific Partners
Sophie Smith, Head Of Marketing, Officeworks
Troy Townsend, Co-Founder and CEO, Zitcha
Remi Roques, General Manager, Broadsign

Previously announced sessions include global retail media expert Colin Lewis on the intersection of trade marketing and retail media, a deep dive into shifts in customer behaviour, and a panel discussion on mastering omnichannel strategies. Other sessions will focus on the standardisation of measurement, key metrics, loyalty, data privacy and the future of retail media.

The emerging program can be viewed on the REmade website, Discounted earlybird tickets are available for another seven days.

Nine’s route to buying Foxtel (and selling Domain)

Although this piece is about how Nine can find a way of buying Foxtel, to get to that point we need to start somewhere else.

At 6.53pm on Sunday, somebody at Nine threw a grenade at their own side. It was the kind of thing that doesn’t happen by accident.

The Australian Financial Review published an article hinting that Nine’s majority owned real estate platform Domain, is being badly run. Comparing Domain to the News Corp owned REA Group, the Nine-owned newspaper pointed out that Domain has lost 10.8% of its market capitalisation so far this year, while REA has gained more than 10%.

The article was then published in Monday’s print edition.

It was unusual timing. While REA has reported its full year financials, Domain isn’t due to do so until this Friday. If this was routine reporting, that would be the moment.

And if you were to suddenly start critiquing board managements on short term share price moves, Nine’s share price has sunk by 30% in the same period while News Corp is up by 16%. Pot. Kettle.

And, anyway, it’s difficult to make direct comparisons between the Australia-focused Domain and REA Group, which has big international interests. The’s why we include Domain (market cap: $2bn) but not REA (market cap: $27bn) in our local Unmade Index of listed media and marketing stocks.

The target began to emerge further into the article – Domain chairman, and former Nine board member, Nick Falloon. “Former Nine Chairman Peter Costello was no fan of Domain’s performance – or chairman Nick Falloon – but nothing was done.”

The article goes on to point out Falloon’s age (66, according to the piece).

Domain’s CEO Jason Pellegrino also comes under fire as having “failed to move the needle at Domain despite spending some $340m on new acquisitions in the past three years” (later the digital version was amended to read $264m).

If you were in any doubt that this article is more than routine reporting, it’s the only one in the AFR’s media and marketing section where the paywall has been lifted so it’s accessible to all. Perhaps the powers that be want to make sure the piece is seen.

Who the powers that be actually are is another question. The AFR’s previous editor-in-chief Michael Stutchbury officially finished on Friday. His successor James Chessell did not return to the company until Monday. Which adds to the intrigue about how this piece ended up in print. (Independent. Always?)

It’s not fair to mention the name of the reporter, by the way, because I suspect this played out well above his pay grade. Media is a shitty beat to cover if you haven’t got air cover from your bosses to play it straight.

At the very least, it looks like an attempt by players within Nine to put pressure on Falloon to call an end to his time as chair. Falloon has had the role since Fairfax Media floated Domain back in 2017.

From the time Nine took over Fairfax and the company boards merged, it was a divided one.

So why now? Perhaps Falloon might get in the way of what comes next.

He’s being tapped (roughly) on the shoulder and told that Friday’s results announcement is the moment to announce a graceful handover before things get nasty. Remember how awkwardly timed revelations about Falloon’s use of a corporate golf club membership dropped in Nine’s Sydney Morning Herald last time the board war ran hot?

Domain is starting to look like Nine’s key to buying Foxtel.

As we reported back in June, Domain now accounts for more than half of Nine’s valuation. Nine’s 60% stake in Domain is worth $1.16bn; Nine’s current market cap is $2.24bn.

On Friday of last week, News Corp broke cover on its attempts to sell Foxtel Group.

A private equity company – Platinum Equity – was flagged as a potential buyer. Running the declining business for cash is certainly a move in the private equity playbook.

But Platinum Equity doesn’t own any other broadcast assets. What it does understand, however, is the real estate sector. It has owned the UK-based property services group Leaders Roman since 2022.

So what might make sense is a three-way transaction. Nine sells its stake in Domain to Platinum Equity. It then uses that money to fund a purchase of either the whole of Foxtel Group, or just News Corp’s two-thirds (Telstra owns the rest).

There’s precedent for that in the company DNA. Fairfax’s half of the $100m investment in launching Stan as a joint venture with Nine came from its 2013 sale of holiday rental business Stayz.

There could potentially be other components to any deal. Such a move would propel Nine further in the direction of being an entertainment-first company. As we wrote last month, could there be an asset swap where News Corp takes over Nine Radio’s talk stations in exchange for Lachlan Murdoch’s Nova Entertainment music stations? Maybe a news masthead too?

There are attractions and hurdles to the whole concept.

A chief attraction for the Nine management would be if a deal is enthusiastically received by the market, it would earn them breathing space. Keeping your job is a powerful motivator.

While Nine is ASX-listed, its kingmaker is WIN proprietor Bruce Gordon who owns a 25% economic interest (although he can only vote 15% unless he gets rid of WIN’s northern NSW licence which is a Network Ten affiliate).

But would Nine’s wider investor community like a Foxtel deal? News Corp is getting out because of headwinds including the imminent arrival of Warner Bros Discovery’s Max, and consequent loss of HBO content, and the likely costs of the next NRL deal.

However, a combined Nine / Stan / Foxtel / Kayo would offer the ability to outbid almost anybody on sport rights. I wonder whether NRL would ask the Australian Competition and Consumer Commission to step in.

There are similar pros and cons for investors of giving up Domain. Around the world, most successful classified businesses now run independently of old media. Domain and REA are the global exceptions. However, they might also ask themselves whether they would be giving up the right asset – Domain used to make up a third of Nine’s valuation; now it’s a half.

This is becoming a very interesting results season.