Nine Entertainment Co. Holdings Limited (NEC) Earnings Call Transcript & Summary

Well, good morning, everyone. I'm Hugh Marks, the CEO of Nine Entertainment, and I'd like to welcome you to the company's FY '20 results briefing, last time from Willoughby. And Graeme Cassells, who is currently acting as our Chief Financial Officer, also here -- with me here today. There's no doubt 2020 has been the challenging year. The extensive bushfires over summer, followed swiftly by the COVID pandemic have tested us all, both in our personal and our working lives. And our spare of thoughts for those who have been unwell, suffered loss throughout this period. From a company perspective, I've been incredibly impressed by the way the entire Nine team has embraced change and got on with the job. That's what makes Nine the company it is. And whilst this has meant that the advertising markets were clearly very difficult, particularly during the second half of FY '20, there are a number of significant operational highlights across this year. Nine recorded growth in audiences across all of our mediums, FTA, BVOD, SVOD, Digital & Publishing and Radio. Growth in audiences clearly means we're creating content that resonates, which is, of course, the first step in our strategy. And as those audiences continue to migrate to our digital platforms, this has the added benefit of providing enhanced opportunities for advertisers through the utilization of our growing first-party database, a database unmatched by other local media businesses. On the back of this audience growth, all of our advertising businesses have shown positive momentum, growing our share of the ad pie in each of the markets we operate in. Even in Radio, which has had a difficult 12 months, the changes we've implemented have resulted in clear share growth through the fourth quarter, standing us in good stead as we go into FY '21. Nine's response to the COVID crisis was swift and deep. Clearly if the top line was going to falter, we needed to adjust our cost base. And to the credit of all our people, we did this very efficiently, without impacting on our ability to continue to provide the best content for our audiences. We cut a massive $225 million in cash costs out of our calendar 2020 budget, many of which are costs that will not return to the system as the market improves. This included reducing the rights cost of the NRL for the duration of the contract through 2022, but sport will remain a key part of schedule and this reworking of the existing contracts will enable us to sustainably invest in NRL for the future. Our business continues to migrate to a digital base at speed. In this result, EBITDA from Nine's digital media businesses increased by 40% and now accounts for almost 50% of total group EBITDA. That's to $166 million or $178 million post the AASB 16. And these digital media assets are exposed to other advertising markets that will continue in strong growth for the foreseeable future or subscription revenues across video, publishing and Domain. Now in particular, Stan has had a landmark year, with active to subscribers now at 2.2 million and reporting a $50 million EBITDA improvement on last year. You may have missed a couple of announcements we made earlier this week, both of which markedly improved our long-term content supply, an increased commitment to Stan originals and the completion of a major output deal with NBC Universal. The business is now and will remain self-funding and at scale, continues to have enormous growth potential. Very pleasing during this period has been our ability to reduce our cash commitments and working capital. On a wholly owned basis, this has resulted in cash conversion across the year of more than 100% and a net debt level of %291 million, which was about $100 million lower than the guidance we gave in February. As a result, our leverage at June was 1x giving us plenty of liquidity headroom. On Page 5, you'll see the performance of the various parts of our businesses and the obvious benefits of our portfolio of assets. What you will see is that whilst we have cut significant costs from our business overall, we have continued to invest in those areas that are in growth, specifically in Stan and 9Now, where revenue growth has continued throughout the pandemic period and for which we see significant future potential. We're continuing to rebalance our investment towards the businesses that are in growth. The chart on Page 6 highlights Nine's progress as we migrate our business to a digital base. Across the year, profit from our digital businesses, so that's 9Now, 9Digital and Stan as well as the digital components of Metro Media and Domain contributed, as I said, almost half of total group EBITDA. Growth in total digital EBITDA of 40% or around $47 million. And that's in a period where Domain, one of our core digital assets, has encountered significant market-related headwinds with EBITDA declining by $19 million. Ex Domain, Nine's wholly owned digital assets together almost doubled in EBITDA across the year to $112 million. And this is a clear indication of the strategy we laid out around 4 years ago, to build a digital media business of the future, investing in Stan and 9Now as well as 9Galaxy and then we furthered with the merger with Fairfax late in 2018. We are well placed to accelerate this strategy as we move through the next horizon. Now at this point, I'd like to ask Graeme to talk through the group financials in greater detail. Over to you, Graeme.

Thanks, Hugh, and good morning, everyone. The reported results are shown on Slide 9. The FY '19 numbers are, of course, not directly comparable as they only include the Fairfax and Stan results for just over 6 months. FY '20 also includes the impact of the introduction of AASB 16 and a full year impact of purchase price accounting. The discontinued businesses line reflects the performance of ACM and Events in the previous period up until completion of their respective sales, so with no contribution in FY '20. It also includes the performance of Stuff New Zealand in both periods through to end of May 2020 when the business was sold, and includes operating performance as well as specific items. On this basis, Nine reported group revenue of $2.2 billion and net profit after tax and before specific items from continued operations, of $141 million. We also reported a net specific item cost of $665 million, resulting in a statutory net loss for the year of $509 million. Page 10 summarizes the specific impacts of COVID-19 on reported group profit. Impacts in operational revenue and costs are broadly covered off in a divisional commentary. Above and beyond that, Nine benefited by around $1.3 million in the second half due to the waving of spectrum fees and around $6 million from the JobKeeper allowance, $4.6 million of which related to Domain. For both of these, there will be further benefits to flow in FY '21 as detailed at the bottom of the page. On a cash basis, Nine's PAYG tax installment rate for our wholly owned businesses varied downwards to nil during the period. Notwithstanding, the final tax payment for FY '20 tax liability, now due in December, is estimated to be just over $1 million. Slide 11 details the composition of specific items, the majority of which are noncash. The most significant of these is the $591 million impairment of intangibles, which includes a goodwill write-down of around $300 million relating to Nine's Metro Free To Air business as well as the $188 million impairment relating to Domain. The asset impairment write-offs include payments made under the original NRL contract for around -- subsequently canceled of $28 million as well as the prepayment relating to the 2020 Cricket World Cup, now postponed. For the rest of this presentation, we will be focusing on the group results, which are presented on a continuing business basis. They're presented on both a reported and pre-AASB 16 PPA basis to best reflect the underlying performance of the group. All variances are calculated in a consistent pre-AASB 16 PPA basis and against pro forma FY '19 results, so comparing like-for-like. On this basis, as shown on Page 13, Nine reported revenue of $2.2 billion, down 7% on PCP. Group EBITDA was $355 million, down around 16% on PCP. On a reported basis, group EBITDA was $397 million. It's worth pulling out the depreciation line in this table. On a reported basis, it is up by around $65 million, with $57 million of that increment due to AASB 16 and purchase price accounting. We expect group depreciation and amortization to total between $160 million and $165 million in FY '21, with Nine's new Sydney headquarters at Denison Street accounting for much of the delta. Group net profit after tax minorities was $141 million for the year or $160 million pre the impact of AASB 16 and purchase price accounting. We intend to pay a dividend of $0.02 fully franked with this result, taking the full year total to $0.07. This equates to a payout ratio of around 80%. We remain committed to paying dividends to our shareholders and intend to maintain a payout ratio of 60% to 80% of net profit after tax and before specific items through the cycle. Page 14 shows the components of the accounting impact of AASB 16 and purchase price accounting. There was a positive $42 million increase in EBITDA resulting from the implementation of AASB 16, as rental costs were reclassified as depreciation and financing costs. Pretax profit was impacted by net costs of $17 million from PPA and $11 million from AASB 16. The chart on Page 15 gives some updated color on Nine's cost initiatives across its businesses. Earlier, Hugh spoke to the chart, which highlighted the differences across our business portfolio as we continue to invest specifically across Stan and 9Now, whilst reducing our cost across our other businesses. This chart highlights those cost initiatives across TV, radio and publishing, and illustrates our expectations regarding the timing of P&L benefit and whether that benefit is short-term, cyclical or whether the cost base has been permanently reduced. This chart represents net costs. So in fact, actual cost out will be greater than what is illustrated as some natural inflation in other areas offsets. There have obviously been some short-term nonrecurring cost savings in terms of incentives, travel and entertainment and reduced printing volumes, and while those costs will return in the future, some are unlikely to return to the same extent. There have been some timing issues with content being delayed or held over, but more importantly, we have made fundamental changes to our operating and cost structure, which will stand us in good stead as we come out of the current period and return to a more normal operating environment. In all, over the next 3 years, from these 3 businesses, we will estimate that this will equate to a net cost reduction of around $230 million. We have looked at operating cash flows on a continuing business basis, focusing on the wholly owned business, so it ties into wholly owned net debt. In short, underlying operating cash was $373 million. Page 16 details adjustments made to cash flow from non-wholly owned assets as well as the adjustments relating to AASB 16 to enable like-for-like calculation of cash conversion. On this basis, cash conversion was 137% as working capital unwound over the past 6 months. On Page 17, we have reconciled the net debt position of the wholly owned group from the starting position at July 1 of $121 million. Suffice it to say, the net actions of the past 6 months operationally have resulted in a lower net debt than we were forecasting at February. Beyond the operating cash flow movements from wholly owned businesses, Nine distributed dividends of $170 million to shareholders and invested around $114 million net in transactions, primarily the acquisition of Macquarie Radio. CapEx was slightly lower than earlier expectations at $117 million, of which around $64 million related to the relocation of 9 Sydney offices to 1 Denison Street with a further $40 million to come in FY '21. On a wholly owned basis, our leverage at June year-end was around 0.9x EBITDA, leaving us plenty of liquidity headroom and well below our banking covenants. I'll now pass back to Hugh to run through some details of the divisional results.

Thanks, Graeme. I look forward to when we don't have to talk about AASB 16 one day. Turning now to Page 19. Nine's Broadcast division comprises our Free To Air business, 9Now and 9Radio, the old Macquarie Radio. Together, Broadcast contributed around 55% of group revenue and EBITDA for the year, with 9Now becoming an increasing contributor. Page 20 steps through the performance of our FTA television business, FTA revenues were $952 million, which equates to a decline of 13% in a market which declined by 14% across the year and notable 22% in the second half. Nine's share of Metro ad revenues for the year was just shy of 40%, which was up marginally on FY '19 and included a second half share of 41.4%, Nine's highest 6-month share in more than 20 years. Premium revenue is included in this table, and of course, the contribution from sports was down given the pause in the NRL, while the contribution for our entertainment schedule was up by around 22%. Free To Air costs were 6% or $50 million lower than the prior period and $72 million below the guidance we gave in February. The interrupted NRL season represented about $50 million of this decline. As we've discussed over the past few months, the onset of COVID-19 and the associated lockdowns caused us to revisit all of our cost lines and expedite and expand our previously announced 3-year cost-out program. We're now targeting $160 million by the end of FY '23. EBITDA for the year was $138 million or on a pre-AASB 16 basis, $124 million, which was down 42% on the prior period. Page 21 gives a little more color on Nine's cost base. What's really pleasing is that the forecast financial year '21 cost base is now back to similar levels to 2010, and down 23% on the peak in 2015. It's also worth noting that all categories of costs are down on this peak. Turning to Slide 22. The BVOD market grew strongly, up 31% across the year. 9Now had strong growth in all key metrics, including monthly active users and engagement as well as almost 50% growth in minutes streamed and continues to dominate with around a 50% share of revenues and 42% share of BVOD minutes. 9Now delivered EBITDA growth of 36% for the year, notwithstanding the difficult second half and at almost $50 million is now a key contributor to group EBITDA. The results from 9Radio were disappointing with the 78% decline in EBITDA, highlighting the issues Macquarie was facing. What's pleasing, however, is the clear growth in share we've seen over the past couple of months, as the restructuring we have implemented begins to impact. Latest industry data for the June quarter has 9Radio attracting a network revenue share of around 17.4%, up from 15.5% in the prior period. And coupled with the cost initiatives already in place, this leaves us well positioned as the ad market continues to recover. Moving on to Page 24. The Digital & Publishing business comprises Metro Media and 9Digital. Together, these contributed around 25% of group revenue and EBITDA for the year. Now you can see a breakdown of the Metro Media result on Page 25. Nine's focus remains on growing the digital subscription base of this business. At June 2020, digital subscribers across the SMH and Age and AFR were 25% higher than the same June last year, which reflected in revenue growth across the year of 9%. Together with retail sales and our masthead events, what we refer to as rate of revenue, this accounts now for almost $0.60 in every dollar of revenue, a creditable transition from a business, which relied on advertising for 80% of its revenues 10 years ago. Across the year, Nine reported 7% growth in Digital masthead revenue with growth across both subscription and advertising. This went part of the way to offsetting the decline in print, with the very soft print ad market masking what was Nine's share growth. Like-for-like costs declined by $20 million, of which $17 million related to production and distribution, while investment in editorial actually continued to increase at the margins. In total, Metro Media reported EBITDA of $75 million or $88 million under AASB 16. Of course, Domain reported last week and Page 26 summarizes their result. After a stronger start to calendar 2020, the challenge relating to COVID-19 heavily impacted on the property market and demand through the fourth quarter. Notwithstanding an overall listing market that was down in the double digits, Domain benefited from its newly introduced pricing model, increased depth penetration and ongoing cost focus. There were further benefits from geographic market mix due to the relative outperformance of Sydney and Melbourne in the second half. During the year, Domain continued to grow its audiences and focus on providing solutions for both agents and consumers. And we believe there is a real opportunity for the group to build further on its market position, resulting in strong leverage as the cycle returns to more normal conditions. Turning now to Stan on Page 27. Stan has had another breakout year with continued substantial growth in all key indicators. Active subscribers are currently at $2.2 million, which compares with $1.7 million this time last year. And viewing per subscriber is up by more than 20%, highlighting increased subscriber engagement. And all of these stats were achieved, notwithstanding the increased competitive environment. Stan's leverage to subscriber growth is again evident, with revenue growth of 54%, well in excess of costs, which grew by 19%. And this led to a significant improvement in operating performance with an EBITDA delta of more than $50 million. So that's FY '20. A tough year, but one that has forced us to double down on the long-term transformation of Nine. Not only our audience is up, our share up and our costs down, but the composition of our revenues and earnings has been substantially re-weighted to the future media revenue growth areas. Further, our competitive position has been enhanced, and that stands us in great stead as the cycle continues to recover. I'll now just say a few words about our current perspective and ambitions before touching on recent trading. Overall, Nine is a content business, quality, exclusive content that we're focused on monetizing. And Page 29 lays out how we think about the structure of our business: television across broadcast and video-on-demand through Nine, 9Now and Stan; publishing becoming increasingly digital; and classifieds through Domain and Drive. Nine's focus is on further supporting the potential of our existing growth assets, while maintaining the profitability of our traditional media portfolio. In the FY '20 result, we managed our costs aggressively through the down cycle in television, radio and Metro Media, whilst continuing to invest in the content that drives our audiences and the technology that enables us to maximize the return from those audiences. Whether that content is more suitable for BVOD or SVOD, or content that fuels our Metro Media subscription base, our investment is clearly being more targeted towards the growth areas of the market. Resolution of Nine's relationship with the global digital platforms is the next step in this strategy. We're grateful that the ACCC and the government have finally recognized the significant imbalances that have been formed over the years between the publishers and the digital platforms, and we're prepared to take action. We are feeling increasingly positive about the potential outcome. We've made much progress already, but there is still a significant opportunity to do more. And on Page 30, we highlight 4 key operational targets, which will mark the continuation of Nine's evolution. Firstly, we aim to reduce the cost base of our legacy broadcast and publishing assets by around $230 million ensuring they're fit for purpose. We now have a detailed blueprint to reach this target by 2024. And already, we have in place initiatives that will deliver almost 80% of this cost out target. Secondly, through growth in our digital assets, we aim to source around 60% of our group EBITDA from digital sources, that's Stan, 9Now as well as the digital components of Domain and publishing. Given we're at nearly 50% with this result, it's important to note that this includes the assumption that our nondigital assets increased their contribution back towards pre-COVID levels through FY '24 as the economy recovers. Thirdly, we expect more than 35% of group revenues will come from subscription. So that's Stan and parts of Domain and publishing, thereby reducing our exposure to advertising markets. And finally, we're targeting around 30% of group revenues from video-on-demand. So that's SVOD through Stan, already $1.5 billion market; and BVOD through 9Now, which at this stage is a relatively small subset of the broader $1.2 billion digital video market. Finally, turning to current trading. Whilst advertising market conditions remain challenging through the start of FY '21, I think it's fair to say that overall, the market is faring better than we had anticipated and seems to want to recover as COVID conditions stabilize. At this stage, Nine's September quarter FTA revenues are expected to be down around 15%, reflecting the continued weakness in ad markets and clearly unhelped by the NRL finals and state of origin, which will fall into Q2. Ex this impact, we estimate our revenues will be down more like 12% in the September quarter. FTA costs are currently expected to decrease by 5% over the year, notwithstanding the cycling of any one-off cost reductions, specifically the NRL. The BVOD market is expected to continue to grow in FY '21. In fact, in June and July, the BVOD market grew by 13% and 30%, respectively. 9Now's EBITDA growth will be tempered by some increased investment in content as the business continues to expand into that broader digital video market. 9Radio is expected to show a marked turnaround as advertisers return to the network and the cost base has been reset. Digital subscription trends at Metro Media are expected to continue, albeit offset by some further short-term declines in print. There are further cost initiatives to come in the short-term from reduced printing costs. In addition, the recent outcome of the digital platforms inquiry should enable an incremental revenue stream, which will permanently change the trajectory of this business. As Domain commented with its result last week, the property market continues to hold up against difficult economic backdrop, with July 2020 recording unseasonably strong activity against weak comparables. However, the company has limited visibility into the important spring selling season. As a result, Domain will remain disciplined in managing its cost base to take account of the trading environment, while continuing to invest in its growth initiatives. Current subscriber momentum is expected to continue at Stan, albeit at a more moderate rate in FY '21. Stan maintains its positive long-term view of market potential, and therefore, we'll continue to invest in incremental content to ensure this momentum is maintained. In the short term, Nine remains focused on delivering content -- on metrics, sorry, that it can control and further enhancing its competitive market position. Our long-term goals are clear. By 2024, $230 million of cost out, $60 million of EBITDA from digital businesses, more than 35% of revenues from subscription and 30% of revenue from video-on-demand. As you can see from this result, we have all the foundations in place and are well advanced in achieving these targets, clearly, solidifying our position at the forefront of media in Australia. I think we've said enough now. So I will open the lines to questions and hand over to the operator.

[Operator Instructions] Your first question is from Kane Hannan from Goldman Sachs.

Just 3 questions from me, please. Firstly, just on Stan, obviously for the NBCU, the originals' announcement [indiscernible]. Do you think you guys actually need to extend that Showtime deal when that expires to have sufficient content on the platform? And if you were, would we be -- would you need a further step-up in subscribers for it to make financial sense? Secondly, again, on Stan. Just interested if you could contrast the subscriber churn trends you've been seeing across Melbourne and Sydney, just given the differing COVID performances in those markets? And then finally, just the FY '24 target, the 60% of EBITDA coming from digital. Obviously, 2 variables there. So just interested when you set those targets, how you were thinking about the earnings trajectory of the nondigital businesses?

Yes. No, thanks, Kane. Yes, look, Stan, I think as we've said before, there are various models for Stan's future. And all of those models have different operating outcomes, but all of them show a business that will continue to grow in subscribers and profitability. It's just a question of to what extent and at what pace the business continues to grow. Would we like to extend Showtime? Of course, any quality content we see a home for on Stan, but with the announcements we've made this week, where in the originals, cases Stan originals, detaching ourselves from supply chains and in the case of a deal with NBCU, one of the largest content producers in the world with significant operations, both across North America and Europe, we've got a great long-term supply partner. So the business is actually able to absorb additional content, if it becomes available, but the business will be -- will continue to grow and be highly profitable based on the deals that we have in place. And mentioning about the originals, one thing to note is those shows, those Stan originals often perform better than shows that we're acquiring from overseas. So our ability to continue to invest in that space, I think, will be a key growth factor going forward. In terms of churn trends, we haven't seen any noticeable change in churn. What we've seen, of course, as Melbourne went back to lockdown is perhaps increased subscriber acquisition coming down -- coming from Melbourne, but pretty much at the margins. And Stan has actually had pretty consistent subscriber acquisition. We anticipated as COVID conditions remain that there may be an increase in churn, but it's not something that we've seen at this stage. What I think we will see, as I said in the results presentation, we will see more -- or we expect to see more moderated growth this year, because of the significant growth we've had in the year just gone. But again, the business will be in good growth as we go through FY '21. And all of the cost of originals and NBCU, all factored into those growth assumptions. So it's a business that's in really good shape and in control of its own destiny, which is important. In terms of the FY '24 targets, I think, as we said, our ambition is to ensure that our, I guess, traditional media businesses return to profitability that they were going back into COVID-19, so I guess FY '19 type levels. That's our ambition. And so what you're seeing with that continued growth in the contribution of the digital business is, obviously, a significant growth coming from those other business areas. So that's how we see the business. And with the cost out targets we've received or we've got already with what we've already achieved in terms of cost out, and then as you see the market continuing to recover in that September quarter, particularly in FTA, that sort of lays out how you can think about the composition of the businesses over that period.

Our next question is from Eric Choi from UBS.

Thanks for all the details at the [indiscernible], that's really helpful. First question, just wondering if you could how to go at quantifying what the NRL disruptions were to your TV revenue in FY 2020? And then second question, I guess, as those disruptions clear, the electives sort of be [indiscernible] to FY '22 as well with all those sorts of benefits, I guess, do you think we can grow share again in FY '21 versus FY '20? And then just lastly, just following up with Stan again. Just trying to get a sense of what earnings we could annualize into FY '21? So maybe if you could give us a sense of the third quarter versus fourth quarter earnings, that would be helpful.

It's a bit cheeky, Eric. NRL numbers, look, I think the best way to think about it, if you think about the September quarter, maybe, so I think we sort of were saying probably we're down around 15%, what we're looking at in the September quarter. Obviously, there's still a few weeks to trade, but September revenue is getting pretty close to where we forecast. So if you look at a minus 15% with the movement of the final series and I guess, no state of origin in July, if you were to adjust for that and the Ashes, I think, which we had in the same comparable last year, you're starting to get a market that -- I guess, an underlying market that's down by around about more 10% rather than the 15%. And I think if you went back into previous months, that probably is a sort of similar impact when there was no NRL. So that's a kind of good indicator. Share into FY '21, we are anticipating growth in share in this half. We have moderated our program runout through COVID. Obviously, we didn't want to fire all of our guns while the market was weak. We've got quite a solid slate of programming coming through into the end of the year. And we've got plans well advanced for our content into the beginning of next year, and particularly dealing with the COVID-related production issues. So we feel that the business is in a position to continue to grow share over the coming financial year. And in terms of Stan, well, I'm not going to give you a forecast. I'll just talk about current trading. And as you would have seen, what's happened through COVID, obviously, is we've had a growth in subscribers probably more than what we'd anticipated ex COVID. So our run rate as we've gone into the year is, in fact, better than what we had anticipated, and that's sort of continued through July and even a bit into August. Hence, we're at that 2.2 million number now. So that sort of puts the business in a really strong position to continue to grow its revenues faster than its costs over the year. So while I think we may have mentioned at our February results that we anticipated maybe a more flattening of Stan's profitability as we go into FY '21, I think you'll see continued growth in this year.

Our next question is from Roger Samuel from Jefferies.

Two questions from me. First one, just in terms of your FY '24 target of 60% of EBITDA coming from digital business, obviously, Domain is a large proportion of the digital business. So how should we think about your expectation for FY '24? Do you -- you expect Domain to grow quite significantly from now into FY '24? Or do you think that growth to 60% of EBITDA will be mainly driven by your BVOD or Stan business? So that's my first question. And the second one, just on Stan. You mentioned that the subscriber momentum will kind of reduce in FY '21. Is that mainly because of the new entrants in the market? Or do you think that because you had a stellar year in FY '20, and therefore, it's a harder comparable period in FY '21?

No, no problem. Thanks, Roger. I think in terms of the FY '24 forecast and the digital businesses, I mean we certainly anticipate Domain benefiting as the cycle of property listings continues or recovers to what are more normal levels. So yes, over that period, of course, we would anticipate seeing profit growth from Domain, but we also anticipate good profit growth from Stan and from 9Now and in fact, the continuation of the evolution of the Metro Media business with the contribution from digital subscriptions and also a contribution coming in from digital platforms. So it's a pretty broad-based kind of plan, with all of those 4 areas, I guess, contributing to growth -- continue growth in those digital business metrics. So -- and I think that's really the benefit of where we are now as a business is all of those businesses are performing really well or in a profitability position just with an outcome from ACCC platforms to deliver. But subject to that, over the course of the next 6 months, broad-based growth across all of those digital businesses. So I wouldn't hang it on any one particular hat. In terms of Stan, I think what you'll see, and I think Netflix has also made a similar comment in the U.S. and in fact, a number of businesses have, which is what you've seen is a rapid uptick of SVOD through COVID. And over the last certainly 12 months, whether that's bringing subscribers forward or whether that's a permanent step change in the market, my personal view is it's a permanent step change in the market. But I just think you won't see those growth rates necessarily continue through this year. So it's just the really cycling of what's been that permanent step change that's being driven by people needing to be at home. So that's just the reason for us being a little bit more cautious so that you don't all put another 500,000 subs on your numbers as we go into FY '22 -- FY '21, sorry.

Your next question is from Lucy Huang from Bank of America.

I have 3. In terms of TV, are you able to tell us how audience or growth has tracked in some of the lockdown restrictions have been removed? Just wondering whether audience growth has still continued strongly and what that might mean for ad dollars coming back into TV in a post vaccine world? And then secondly, just in relation to the cost out in TV, it looks like a large chunk of that is coming from structural costs. Just wondering if you can give us some details as to what that entails? And then just lastly, in terms of Stan. So with the new NBC Universal deal. I'm just wondering how this will impact cost growth in Stan in FY '21 and '22. Does it offset kind of what could be the CBS Showtime contract rolling off? Or do you think this is a step-up in content costs for the year?

Well, I might have a go at #1 and 3. And Graeme, I might hand to you a minute in the cost out of TV, the details of that, if that's all right. In terms of TV audiences, we've actually said, it depends on what day part you look at. So news and current affairs has remained very strong. I think our 6 p.m. News Bulletin, which is, by the way, or coincidently or by the way, the strongest revenue segment in our schedule, 6 to 7:30. That's where we write a lot of our premium revenue. We've actually seen our news audiences maintain a number up about 10% year-on-year. And that's sort of -- yes, partly in Nine, maybe not quite the same, but Seven was also seeing some growth in audience in that slot. So I think that's a good indicator for Free To Air as we go into the remainder of this year and into next year. It does seem that there's been some sort of a permanent shift in audience, which I guess is not surprising, but a good indicator for television. And if you look at even our morning segments, today shows numbers are up around 10% or 15% year-on-year and continuing to grow. So Karl and Ally are doing a good job there for us. So you are seeing sections of the schedule -- important sections of the schedule that are in audience growth. Prime-time has been quite a competitive period over the last 3 or 4 months, which has been great again for the industry. A number of shows have performed well. All networks have had solid numbers. So what you're seeing in that prime-time is, again, some, I think, pretty consistent audiences year-on-year. So again, that's a good indicator for television as the market continues to recover. And then you've got perhaps the weakest elements of the schedule, late night, multichannel, a bit of daytime, although daytime numbers have been quite strong on main channel. Obviously, these are sections that are 20%, 25% of our revenue base. There has been continued audience loss in those segments of the schedule. But I think as I've been saying over the last few years, it's a much smaller component of the revenue base of Free To Air. So what we need to be able to continue to do to ensure that we take advantage of those audience changes is make sure that we're pricing and managing our inventory in those areas of the schedule where there is high demand, appropriately to ensure that we get the benefits of that in terms of market growth. So the audience story in Free To Air television is not bad at the moment, it's a pretty good one across the industry as well. So that's a promising development. In terms of Stan, you won't see a lot of cost come through this year in terms of NBCU or in terms of Stan originals. Obviously, that will start to come through more in FY '22 as those plans ramp up. We will have content launching. In fact, we've got a show launching this Friday, Billie Piper Show, which should be quite good. All of you tune in to Stan. But you won't see significant cost growth in this year as a result of those costs as well as those changes. And of course, the Showtime deal we still have in operation. We've also got Paramount for a number of years to come, which is the other part of our Viacom business. And we've recently reassigned a lot of the CBS catalog for a period. So we're not seeing a roll-off of any cost in relation to CBS Viacom at this stage. So what you'll see is more of that cost come through as we go into FY '22. And of course, that will be coming at the same time as subscriber growth through '21 and '22. So that's why Stan is in a good position as we travel through this year. Graeme, I'll get you to answer the detail of the TV cost out.

Yes. Thanks, Hugh. So the cost out in the TV are coming across all aspects of the business. The biggest chunks are on sport, where there's about just over $40 million coming, which is a result of the -- the reduction in [indiscernible] the other one-off sports costs, which won't be recurring. There's content cost of just over $60 million. As we look to reset the cost base for that, those views of $10 million to $15 million as we're looking to across the areas of operations for that. And then across the other areas of the businesses, which include administration, operations, the sales aspects, et cetera, there's probably about another $20 million to $25 million to come out of that as well. So these are probably the largest areas where we were looking to get the cost out.

Yes. And if you look at -- I think we've spoken about this a few times before, if you look at shows like The Voice, for example, which was a $40 million cost in the schedule. As you go forward, those shows just get a little bit more difficult to hold on to. And so we'll be looking to -- as we've sort of gone through a plan now to lay out the schedule for the next couple of years. So you'll see some of those higher cost shows be replaced by some other initiatives that we'll have, which come in at lower cost, and that's where you see some of those benefits coming through. And I think sports rights as well, again, Free To Air has been the one that have carried a significant component of those sports rights costs over the past period, and you're going to see continued pressure, I think, on sports costs as we go forward. And then you're going to move to 1 Denison. Obviously, that will bring operational benefits that we've spoken about before as we go through calendar '21, I guess, yes.

Our next question is from Entcho Raykovski of Crédit Suisse.

Hugh, Graeme, my first question is around BVOD share. Just interested in your thinking on whether there's a risk that may come off late in FY '21? I'm just conscious that Seven spoke earlier in the week about very strong audience gains since April. So interested in your thinking about whether you can maintain circa that 50% mark? Secondly, on CapEx. You've got on Slide 37 that you expect CapEx to step down to the $50 million to $55 million range in FY '22. Just interested in whether you think that will be a steady state number going forward which is perhaps being inflated in '21 by the office move? And then just finally, I don't know if you can comment on the length of the NBCU deal for Stan. I know it's been speculated in the press to only be a short-term deal. So any color would be useful.

Well, I'll take 1 and 3, again, and hand back to you, Graeme, for #2. In terms of BVOD share, look, there's a couple of interesting things on BVOD. 3 months does not make a summer or I don't know whatever the term is. I'm terrible at terms, as you all know by now. And in fact, if you look year-on-year, generally, through that winter period is when we would play Love Island and Love Island is a dominant performer in BVOD. We had neither the Australian Love Island nor any of the offshore versions have all been postponed due to COVID. So we're always going to get some audience loss through that period against next year. Now we could have gone and overspent and bought a whole bunch of programs to fill in that loss, but we took the view that we're better off focusing on long-term profitability, long-term consistency. So those are shows that will be back as we go into calendar year '21. And you'll start to see our BVOD audience share also start to increase now as we go into what we have is a heavier part of our schedule as we go into the end of the year. In fact, a lot of the block viewing, it's interesting this year, it's been more competitive. We've seen an increase -- quite significant increase in block viewing in BVOD. So you'll see our share continuing to recover. And a couple of other things that relate to this. We have -- what we sell in market is inventory that's underwritten by data. And you'll see some announcements from us over the course of the next 6 weeks or so that relate to this. And being able to offer to advertisers a targeted opportunity in BVOD as opposed to just a total audience opportunity in BVOD is a quite significant difference. And that's part of the reason why we've had a very positive, I guess, share of the market compared to audience. That power ratio has really been part from, I guess, the scale of our audience delivery but also part of it is that data proposition, which, again, our competitors do not have. So as the audience has continue to grow in BVOD, that data ownership and the work that we've put into that first study part -- first-party database will really start to pay dividends, particularly as well as is launched later in the year. But again, as Nine, we're able to sell a targeted audience, and that's been part of the benefit. In terms of the NBCU deal, again, it's -- the details of it are confidential. I think of it as a good midterm relationship and obviously, one that we would hope to continue in the future. I've said many times before that, in my view, people operating in the Australian marketplace, if you're a studio, your return from the Australian market is going to be enhanced by being a partner with Stan as opposed to being a direct-to-consumer business. We'll see how that plays out over the long term. But with the audience numbers we have, with the breadth of supply that we have, and ramping up our Stan original strategy in addition to the NBCU deal that we have, I feel really confident that Stan's in a position where it is, as I said, master of its own destiny as it goes into the future. And remember one thing as well that relates to this, which is there is all -- at the same time happening a lot of shows that are fragmenting away from major studios and coming through other supply chains. So one of our top shows of the year, Normal People, came from a company called Endeavor, which is related to one of the management agencies in the U.S., and they've got a new show, which, based on the success of Normal People, is in market at the moment. So our ability to source shows from, I guess, a wide range of suppliers continues to be something that's a very big part of Stan's future. So aggregator model, really the best way for you to monetize your content in this market. With strong brand and then a strong original strategy to continue to drive that brand, we've given Stan really control of its destiny in the future. The CapEx, Graeme, I'll hand back to you. I certainly hope to see CapEx come down.

Yes. On the CapEx, so just to be clear, Entcho, that's on the wholly owned CapEx. So that excludes Domain, obviously. And the answer to your question is, yes, at this point in time, I would see roughly between $50 million and $60 million being the ongoing expenditure, because a large chunk or a large part of the expenditure has been done on fitting out the various offices, 1 Denison, all the ones that we've done and we've built a lot of the platforms that we have to as well. So that should be the continuing level.

Our next question is from Fraser McLeish from MST Marquee.

Just a couple on Stan and just one on the cost chart, if that's all right. Just on Stan and the cost base going into '21 Q because there's a few moving parts, obviously, with Showtime coming off Disney, I think you've still got some cost in there. And if you're seeing NBCU's mainly at '22, I mean, Stan costs went up $30 million this year. It sounds like from what you're saying, the cost growth could be -- should be less than that next year. And just the other one on Stan is on price rise, you've kind of been on a 2-year cycle, which I think will be coming up to the start of '21. Is the market too competitive to put through a price rise? Or is that something that you're -- is sort of -- is on the radar? And I'll maybe ask my cost one after, if that's all right?

Okay. Yes, no problem. Thanks, Fraser. Yes. Look, in terms of Stan costs, I won't give a detailed forecast at this point because, obviously, it will depend upon how the year plays out. And a large part of where our costs end up is actually in marketing as well as content. So if we're looking to more aggressively grow, we might increase our marketing commitment, that might grow subscribers faster and vis-à-vis how Mike Sneesby, who runs that business and that marketing platform within an inch of its life based on lifetime customer acquisition and marketing costs. So it would be hard for me to give you an exact forecast at this moment, but we will see continued profit growth in Stan this year based on the subscriber momentum going into the year. I think we can be confident in that. In terms of price rise, we've spoken about price rise on the premium tier as being the one that we would put in plan for this year. It's not the biggest component of the Stan subscriber base, but I think with the announcements we've made and the positive feedback we're receiving from the market, I think there is an opportunity for us to consider a price rise on that premium tier as we go through the next little while. So that's -- that is certainly something that's always on our agenda. And you had one other question, Fraser?

And Graeme just the cost chart you put up, which is helpful, in the Slide 15, and you also made a comment about cost down $230 million. So I'm just trying to reconcile that with that slide would be helpful. If you don't mind just running through that.

Yes. So if you look in the TV is round about $160 million, roughly. Radio is just over $20 million and Digital & Publishing make up the balance of it, much of it [indiscernible].

Yes, and that chart doesn't go to FY '24, though. So we've built a model now in all of the businesses, which actually has cost targets over that horizon to FY '24, which is really beneficial, because we can give to each of the people and agree -- that are managing those businesses, what those cost targets are so that we can, rather than being reactive, we can be more proactive about those long-term plans. And you're just going to see continued change in the business. You see employment change from what might have been models in the past to more through SVOD-type production and BVOD and platforms and you'll see engineers changing their jobs from broadcast engineers to technology engineers, and there is a big retooling going on across the whole industry. But those cost plans have been pretty well laid out now for that period.

Our next question is from Brian Han from Morningstar.

During this pandemic, and I'm referring to the linear TV platform here. Have you noticed the advertising dollars are more spread across the whole day than usual? Or is most of the ad money still coming in for prime-time?

No. I think, Brian, the advertisers have not really changed the way they brief, which is generally 75% main channel, prime-time, and 25% in other parts of the schedule. That hasn't changed. Actually, it's something we're talking about with Michael Stephenson over the course of the last couple of weeks, and we'll talk about over the next few months as well, is whether we taken a change in approach to market as we consider what might be the right way to balance premium and integration revenue and spot revenue as we go forward. So I think you might see some change in sales strategy as we go forward, but no, it hasn't really played out over the pandemic period.

Okay. And Graeme, the working capital improvement in F '20, are there anything that we need to be aware of that may lead to an unwind of that positive working capital situation?

No, Brian, the working capital improvement was clearly the result of the advertising revenues. Two ways to answer. One is, obviously, the cash conversion will change as the working capital buildup with, hopefully, the revenue coming back. But no, there's no major unwinds that we are expecting in that.

There are no further questions at this time.

Okay. Well, thank you, everyone. That wraps up this results briefing. The last one, as I said, from our Willoughby studios. Next time, we'll be talking to you from our brand spanking technological masterpiece in North Sydney. Thank you all for your continued interest in Nine, and we look forward to reporting back at our next result in February.