Southern Cross Austereo: The Year in Review and The Challenge for 2015

It has been said before, but 2014 wasn’t a great year for Southern Cross Austereo.

However there have been some encouraging moves which will put the company in a better position for 2015.

Southern Cross Austereo: The Year in Review and The Challenge for 2015

In senior executive changes Guy Dobson’s focus on metro operations should prove to be a good move.

Craig Bruce, who led the successful programming changes in Melbourne and Adelaide during the year will remain as Head of Content, his contract being up for renewal this month.

It leaves SCA’s CEO Rhys Holleran to focus on running the company, the overall business, strategy, industry and growth.

Rick Lenarcic now has a focus solely on regional radio operations, this is a smart move. Metro radio and regional radio are very different types of businesses, different dynamics, different landscapes, different demands and different expertise required.

So what else?

Could SCA be looking at further new operational initiatives? ARN made their GM’s roles redundant a few years back, which made the company leaner and meaner, putting greater onus on the group executives. I’m not suggesting SCA will, or should, do this, but it is an example of ‘out of the box’ thinking that has, in ARN’s case, paid dividends.

The SAFM rebrand in Adelaide to Hits was a great move and has given SCA some strong momentum. It’s created a fresh new brand in the market. Listeners are always interested in something fresh, new and exciting. It’s also created ‘hope’, much like football fans have at the start of a new season, it gives the SCA team in Adelaide a sense of ‘what could be’ as they move into 2015

This year in Melbourne SCA relaunched Fox breakfast, FiFi & Dave which has been a great success story as has been the new Nova breakfast line-up of Meshel & Tommy.

Sydney was another matter, the new breakfast show of Jules, Merrick and Sophie failed in the ratings as expected. Almost any line up SCA put on 2day breakfast would have failed. Having to follow the K & J show would be no easy task, no matter how great the talent.

In a way they were the sacrificial lambs. Management outwardly supported the team in the press, whilst planning for their replacements. Duality, one of the necessary requirements for effective executive management.

Sydney, of course, and in particular 2dayfm remains the big challenge. It’s not a branding issue, it’s a content issue and SCA knows it.

Will SCA re-brand the entire Today network to Hit? I expect they will, whether they do it at the start of the New Year, or mid-year to coincide with the Hamish and Andy’s start date is probably the question. The Hit brand name suits 2days new strategic direction for next year.

Currently the Sydney ratings are 2Day 3.6 % and Triple M a healthy 6.1%

2DAYFM’s success will depend largely on the breakfast performance of new team Dan & Maz. Dan & Maz have performed reasonably in Sydney drive (4.3%) compared to the station average of 3.6% (and they have rated 10.1% on Fox drive)

However they will start well behind established teams like Fitzy & Wippa, Jonesy & Amanda, Kyle & Jackie and The Grill Team. They will take at least 1-2 years to gain any real ratings growth.

Guy Dobson stated that “We need to grow (2day) Sydney, that’s the complete focus for us, make no mistake”

He also said “It starts and ends with breakfast”, and he’s right.

H & A were announced in November for a July 2015 start. This will help ratings, but remember drive has to achieve around a 7% increase to add 1 share point overall.

Drive on 2day currently rates 4.3%, so if H & A increase by 7% (to 11.4%), it takes 2dayfm to 4.6 (from 3.6). That doesn’t take into account the ‘halo’ effect, and the flow-on into Breakfast listening from a strong Drive offering.

I’d expect them to rate in the early/mid teens this time round given the added drive competition.

So whilst H & A are not the cure all for ratings they will perform well and are also a strong revenue opportunity for the Today Network. The ASX certainly liked the announcement. According to The Australian newspaper a  couple of SCA Directors even bought shares around the time of the announcement.

Still, there will be three CHR’s in Sydney, although Kiis is technically a contemporary Hot AC format, but it will be super competitive.

There have been and will be more Board and Management changes at SCA. There will be a new Chairman next year, as Max Moore Wilton’s term is up.

A new CFO Nick McKechnie has commenced and new Directors include highly regarded and respected ex Austereo CFO Kathy Gramp.

Melbourne will be a greater challenge for SCA in 2015, due to the new Kiis breakfast & drive shows. Matt Tilley will certainly be a drawcard for some Fox listeners, just as Hughesy & Kate will be for a number of Nova listeners. SCA haven’t experienced strong sustained competition in that market from ARN up until now.

SCA have to get metro right. The metro radio market is the biggest revenue segment of SCA, with overall metro revenue accounting for $249 million delivering an ebitda of $73 million. Metro radio being more than 40% of SCA’s revenue.

This compares to Nova Entertainment’s recent ebitda of $52 million, and ARN’s ebitda of approx. $60 million.

Both Nova and ARN are now getting fairly close to SCA in metro profit, and both have fewer stations than SCA.

SCA’s regional radio revenue was $156 million in FY 13/14 with regional television delivering $207 million revenue.

At the last annual results SCA said that the largest station delivers 17% of revenue. That would be 2DAY, so it accounted for around $42 million and that was after the ratings impact of K & J. It may have been as high as somewhere in the vicinity of $50 to $60 mil previously.

SCA is a diverse company, an advantage when one area or station is not performing.

SCA CEO, Rhys Holleran described the company as a Content maker and a Content taker. The vast majority of its revenue though comes from Content making in metro and regional radio.

He said “It’s about content, It’s about ratings”. And it certainly is.

SCA’s CFO Nick McKechnie said “The network is bigger than any one station”. That’s true, but a lot depends on 2day next year, not only for the revenue it generates, but also the Today (or Hit ) Network revenue that is dependent on it.

Not only did ratings take a hit in 2014 but investors also did. SCA’s ( SXL ) share price was $1.74 12 months ago and is now around 98 cents, dropping as low as 79 cents during the year so its been a rocky ride.

Never before have the three major FM companies been in such a competitive environment as they will be in next year.

2015 should be a better year for Southern Cross Austereo.

Brad March is a Director of Radio Today, is a former CEO of Austereo and has been named Media Executive of the Year. He’s Director of Marchmedia and Pacific Retail Management.