The rapidly changing Australian media landscape has struck another victim with Nine Entertainment (ASX: NEC) electing not to renew its partnership with Southern Cross Media (ASX: SXL) for regional television broadcasts in Queensland, Southern New South Wales and Victoria.
In 2016 an affiliate partnership commenced where Southern Cross would broadcast Nine content to those regions while also driving advertising revenue from those local markets. The deal however expires on 30 June 2021 and will not be renewed despite Southern Cross delivering market-leading sales performance over that time.
As a result of the news, SXL shares fell 15% within the first 30 minutes of morning trade.
Alongside their decision not to renew with Southern Cross, Nine confirmed they will extend their affiliation partnership with WIN Corporation under a 7-year agreement that will cover the regions previously managed by Southern Cross. Additionally, it includes Tasmania and regional Western Australia where WIN had already been Nine’s affiliate partner.
“While our relationship with Southern Cross has been strong over the last five years, the opportunities presented by the WIN Network to both extend the reach of Nine’s premium content into more regional markets under one agreement, and to work co-operatively with them on a national and local news operation, mean this is the right time for us to return to WIN,” said Nine Entertainment CEO, Hugh Marks.
“The terms of this new affiliation agreement should be positive to Nine’s EBITDA from FY22 through the broader reach of Nine’s channels and by enabling incremental efficiencies across both sales and news.”
Under terms of the new WIN agreement, 50% of regional advertising revenue generated by WIN in affiliated regions will be paid to Nine, alongside promotional slots for Nine products on WIN’s television and radio network.
While investors retreated from Southern Cross in morning trade, the national media company still retains strong ties with Seven West Media (ASX: SWM) in regional markets that provide 20% of Southern Cross’ total television ad revenue, as well as Ten in smaller markets.
Prior to commencing their affiliation with Nine in 2016, Southern Cross had a 20-year association with Ten which it will seek to resume in the markets not renewed with Nine.
Southern Cross Austereo reaches more than 95% of the Australian population through its radio, television and digital assets.
Amid the transformative media landscape in Australia where major television networks are transitioning their services towards online streaming models, Southern Cross Media’s advertising revenue has been impacted.
For the Half-Year ending 31 December 2020, Southern Cross reported a 15.% revenue drop to $259.2 million but operating efficiencies meant it resulted in a 59% increase in net profit after tax to $32.5m.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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