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

Good morning, everyone. Thank you for joining us for our full year '22 results briefing. I'm Mike Sneesby, CEO of Nine Entertainment. And joining me is our Deputy CFO, Graeme Cassells. I'd like to start off by acknowledging the traditional custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders, past, present and emerging, and extend that respect to all First Nations people today. For myself, I'm on the land of the Cammeraygal people of the Eora Nation. 2022 has been a record year for Nine. Record revenue, EBITDA, earnings per share and dividends. We are proud of what we have achieved across all of our businesses and not just the numbers reflected in this result. This year, we've also further enhanced our competitive position, reinforcing Nine as Australia's leading media business. I would like to thank and congratulate the team at Nine on this exceptional result. They're focused on the priorities that drive revenue and growth opportunities across the business while remaining disciplined in cost management. Our audience performance has been consistently strong. We've gained underlying share across all of our platforms by continuing to focus on our key audiences and delivering them the content they want as and when they want it. Our total television business leads in broadcast ratings as well as BVOD streaming for the calendar year-to-date. Importantly, we led the market for total TV revenue in both the June half with a pleasing 41.5% share and also for the full financial year, notwithstanding the impact of 2 Olympics and an Ashes series on another network. Our total television audience strategy focused on the key demographics that advertisers buy across all of our platforms, and that strategy is delivering. In free-to-air, Nine Network has drawn further ahead in the 2022 ratings year-to-date, once again dominating the key demographics. We are also seeing continued audience inflection across our key programming. So far this calendar year, we've seen clear year-on-year growth in total audiences for shows like the Australian Open, Married At First Sight, Travel Guides, The State of Origin and most recently, the launch of The Block. The 18th season of The Block launched a couple of weeks ago with season-to-date audience up almost 28% on a total television basis, including almost 60% growth in streaming on 9Now. Our free streaming business, 9Now, grew live streams by 50% across the year, and minutes streamed by 72%, as we continue to broaden its advertiser base beyond the traditional television advertisers into the digital video market. There have been wins across all of our radio markets in FY '22. Ben Fordham has recorded 2GB breakfast best-ever cumulative audience. Ray Hadley celebrated 20 years hosting mornings on 2GB while delivering his best-ever survey result. 3AW's Breakfast team, Ross and Russ, celebrated 17 consecutive surveys at #1. While Breakfast in Melbourne recorded 162 consecutive surveys at the top. And earlier this week, our new team for Breakfast in Brisbane, Laurel, Gary and Mark, posted a record cumulative audience for the 4BC breakfast slot in their very first survey with Nine. Nine's strategy of live and local, coupled with our cross-platform sales proposition is clearly paying off with EBITDA growth of more than 80% across the year. The Sydney Morning Herald, The Age and The Australian Financial Review have all continued to add subscribers underpinning overall growth in subscription revenues. In addition, with the registered audience base now passing 1 million, we are able to collect behavioral data for more readers across Australia every day. This result also reflected our first year of revenues from digital platform deals, giving us increased confidence to continue our investments in the future of the business. Excluding the digital platforms, underlying EBITDA growth was around 23%, a direct reflection of our quality journalism, our audience engagement and our long-term investment decisions, the ones that we're continuing to make. Our subscription streaming business, Stan, is Australia's leading local streaming service. Through this period, Stan has continued to grow both sports and entertainment subscribers and has actively invested in sport, events and originals to build a stronger, more differentiated and valuable business for the future. Our strong balance sheet has enabled us to continue to assess and take investment opportunities where they make strategic sense and financial sense for Nine. In 2022, we invested in Stan, we actively supported Domain's investment in Realbase, and we've continued to enhance the 9Now product experience through significant technology upgrades, whilst maintaining our commitment to market-leading content across all platforms. Notwithstanding this investment, our balance sheet has continued to strengthen with leverage now less than 0.3x. Reflecting the strength of our operating performance and the recent trading in our shares, we have today announced an on-market buyback of up to 10% of our issued capital to be implemented over the next 12 months. This initiative leaves Nine with the capacity to maintain a dividend payout ratio of around 60% to 80% through the cycle as well as further investment in strategic growth opportunities, both organic and inorganic. Turning now to our results. Today, we have reported a 24% increase in EBITDA, including half 2 EBITDA growth of more than 40%. Both our Broadcast and Publishing businesses have announced record results, and we've exceeded key operational milestones at our growth business of Stan, 9Now and Domain. On Page 4, you'll see the performance of the various parts of our business and the obvious benefits of our portfolio of assets. There is a clear benefit to all of our businesses from being part of the Nine Group, both in terms of content and monetization. The benefit of this revenue diversity will enable us to continue to deliver strong results through the cycle. The chart on Page 5 highlights Nine's progress as our business further expands through digital distribution. Digital revenue increased by almost 30% to more than $1.1 billion while digital EBITDA grew by 43% and accounted for more than half of total group EBITDA. Nine is in a unique position in the Australian media industry. Our strategy is delivering increasingly diverse revenue streams from both consumer subscriptions and advertising with a growing digital component. At this point, I'd like to ask Graeme to talk through the group financials.

Thanks, Mike, and good morning, everyone. Nine reported group revenue of $2.7 billion, up 15% on the prior comparable period and group EBITDA of $701 million, which was up 24% on FY '21. This followed on from half 1 growth of 15% and was slightly ahead of the 22%-plus guidance we gave at our first half results in February. Group net profit after tax and minorities, and before specific items was $349 million, up 34%. We also reported a net specific item cost of $58 million, of which $23 million related to Domain. On a statutory basis, net profit for the year was $315 million. The Board has approved the payment of a fully franked final dividend of $0.07 with this result. On a full year basis, the dividend of $0.14 equates to 68% of debt profit after tax and before specific items. This is an increase of $0.035 per share on FY '21 and marks Nine's highest annual dividend payment in its history. Slide 8 details the composition of specific items, which together totaled a cost of around $77 million pretax, around 1/3 of which were covered by Domain in the result last week. Of the residual $54 million, $13 million related to the implementation of our finance modernization program and $35 million related to surplus leased property, specifically Media House in Melbourne, where the lease runs for a further 7 years. On Page 9, we look at operating cash flows, focusing on the wholly owned business so it ties into wholly owned net debt. For the year, operating cash flow was $570 million, excluding the Domain Group. Cash conversion was 99%. There was a modest working capital build of just $7 million. On Page 10, we have reconciled net debt of the wholly owned group from the starting position at 1 July of $171 million to the broadly unchanged $173 million we have reported for June 30. Beyond the operating cash flow movements from wholly owned businesses, Nine distributed dividends of $213 million to shareholders, capital expenditure was $48 million and tax was paid of $115 million. We also invested $131 million in Domain to support its acquisition of Realbase earlier this year. On a wholly owned basis, our leverage at the end of June was around 0.3x EBITDA. As Mike has mentioned, we've announced with this result the commencement of an on-market buyback of up to 10% of Nine's issued capital or up to 170 million shares. Nine intends to maintain its dividend payout ratio of around 60% to 80% through the cycle and retains the capacity to further invest in strategic growth opportunities. This announcement reflects Nine's strong balance sheet and confidence in our outlook. Whilst the macroeconomic outlook remains uncertain, we are particularly confident in our ability to grow revenue share and further strengthen our relative position through this period. I'll now hand back to Mike to add some further color on the divisional results.

Thanks, Graeme. Starting with our Broadcast division, comprising our total Television business and 9Radio, which contributed around 54% of group revenue and 59% of EBITDA. Focusing first on total Television. Across the year, Nine recorded total TV revenue growth of 10% to $1.3 billion, of which 13% was digital revenue, up from 9% in FY '21. EBITDA growth of 19% was marginally below earlier guidance with the key difference being the more than $2 million total Television component of the $5 million group-wide recognition bonus paid late in the period. This record result reflected the strength of Nine's programming performance across the year as well as the clear benefit of our cross-platform sales proposition. In FY '22, Nine free-to-air EBITDA lifted 14% to $285 million, resulting in a full year margin of almost 26%, as we continue to lead the industry in key ratings and underlying revenue share. As mentioned at our interim results, in survey year 2021, Nine once again won the year in all key demographics on both the network and primary channel basis. That momentum has continued into calendar year 2022. The year started well with an amazing Australian Open as well supported by key strips like LEGO Masters and Married At First Sight, as well as Travel Guides and our core news and current affairs and sports content. The back half has also started strongly. As I mentioned earlier, with The Block launching with incredible numbers in a competitive slot. In a free-to-air market of $2.8 billion, Nine's revenues for the year were more than $1.1 billion, equating to growth of around 7% on the prior comparable period. Once again, we lead the market in metro revenue share across the year with a 40.6% share in the June half. Reported free-to-air costs were just under 5% higher than PCP, inclusive of an $8 million increase in broadcast license fees and a $10 million increase in tennis rights cost, coming back from post-COVID. The second half cost increase of just over 4%, being slightly below that recorded in half 1. Turning to Slide 16. 9Now continued to perform strongly and consistently across the year with revenue growth of 41% and EBITDA growth of 37% to $101 million. Whilst the BVOD market grew by 47% across the year, it remains a growing subset of the total digital video market of around $3.5 billion. 9Now strong growth in all key metrics, including daily active users, up 33% and 75% growth in live streams, shows meaningful progress as we focus on the opportunity of the broader digital video advertising market. Nine's premium content, coupled with the advantage of our first-party database of around 20 million signed-in users, and a monthly reach of almost 16 million across Nine's unrivaled network of media platforms, continues to give us the confidence in 9Now's future. We are quite literally growing and defining the market. 9Radio's ad revenues grew by 14%, ahead of the 10% growth in the market. Share growth was driven primarily by agency revenues with growth in Tier 1 agencies in all cap cities. We've invested through 2022 in the extension of our radio business to digital, with the introduction of Nine's single sign-on and the investment in the technology to enable targeted advertising, resulting in digital streaming revenues being included in this result for the first time. As I mentioned earlier, radio audiences grew by 10% across the year, importantly, including growth of 5% in the 25 to 54s, Nine's key agency demographic. We have lifted our revenue share to around 17%, and the cost base has been significantly restructured. So the business is primed for further growth ahead of the ad market movements and augmented by further digital penetration and monetization. Stan's revenue growth for the year of 22% was underpinned by growth in both entertainment and sports subscribers as well as 9% growth in ARPU. Excluding Stan Sport, Stan's costs were up by around 16%, reflecting the ramp-up of both the NBCU output deal and Stan's original productions. Overall, Stan reported EBITDA of $29 million. With more than 2.5 million active subscribers and clearly positive cash flow and profitability, Stan has been focused on creating a differentiated and defensible market position. The launch of Stan Sport and Stan Event have outperformed our expectations and added significantly to the value and sustainability of Stan in the Australian market. This year, we have seen market sentiment towards global streaming businesses turning rapidly, with the spotlight now firmly on profitability. As a result, we are seeing more diversified strategies for global content distribution, a more rational direct-to-consumer streaming market and a greater volume of premium content available for licensing. This has placed Stan in very good stead. Already operating at scale with more than 3 years of profitability and a strong pipeline of original programming, Stan is well-placed to partner with international studios and content producers. Turning now to Page 19. For the year, our combined Publishing business derived more than 60% of its revenue from digital sources and around 37% from subscriptions and licensing, both key to the long-term future of the business. Digital subscription and licensing revenue grew by more than 66% to $171 million across the year, driven by growing digital subscriber numbers across each of The Herald, The Age and the Australian Financial Review, as well as revenues from Google and Facebook. Digital subscriptions are a key growth driver for the publishing business. Total active subscribers grew in the high single digits on a percentage basis across the 12 months to more than 450,000 as of June 30. Incremental registered users now exceed 1 million, just over 12 months since the launch of the registration wall for The Herald and The Age. Advertising revenue across both digital and print continued with positive momentum. Digital advertising revenues recorded growth of 10%, notwithstanding the end of the former Google sales agreement in February of 2021, while print ad revenues rebounded strongly with above market growth in all key categories. Overall, Publishing costs increased by $27 million or 7%. Around half of this related to increases in staff and production costs, the remainder reflecting Nine's ongoing investment in products and content as well as some post-COVID cost rebalances. In total, Publishing reported EBITDA of $180 million, growth of $62 million or 53% on the prior year. Excluding the net impact of the revenues from the digital platforms, Publishing EBITDA would have been up by around 23%. Outperformance over previous guidance was driven stronger -- driven by stronger subscription in advertising revenues. Domain reported last week, and Page 19 summarizes their results. Ongoing EBITDA growth of 38% reflected the success of Domain's marketplace strategy, together with the underlying strength in the property market. All key business units reported growth in revenues. The 24% growth in digital revenues was underpinned by residential with 9% growth in national listing volumes, coupled with a strong 14% increase in controllable yield. This result reflected the initial contributions from Domain's recent acquisitions of Realbase and IDS as the group continues to deliver on building out its marketplace strategy. What links all of these businesses together and underpins the growth and profitability of our digital revenue streams is our data. You've heard about our pool of more than 20 million registered users. And whilst that's a big number, it's not the only number that matters. The scale of our registered users gives us the first-party data relationship with our audience, which enables us to understand more about them. But what enables us to generate advertising revenue and increase yield is the volume of content our audiences consume and the frequency of which they engage across our network. More than 16 million people engage with our network every month across our mastheads and broader publishing platforms, streaming on 9Now or streaming on 9Radio, Nine's digital asset suite is unrivaled. I'll now turn to current trading. The new year started on a positive note in terms of audiences across all platforms. And while broader economic conditions have become more uncertain, the advertising market to date has remained resilient. Nine is confident that the diversification and balance of its earnings profile across growth, subscription and advertising-based businesses will ensure ongoing strong margin and profit performance, with almost half of Nine's revenues now coming from outside the traditional advertising cycle. Across all of our advertising-driven businesses, total Television, Publishing and Radio, we are confident that in FY '23, our advertising revenues will grow more strongly than the underlying markets in which they operate. For the September quarter, total Television revenues are expected to grow in the high single digits, driven by growth in both linear and streaming. For the first quarter of FY '23, Nine's metro free-to-air revenue is expected to be up in the low to mid-single digits on a percentage basis, which includes some significant share gain on the same period last year. 9Now continues its growth trajectory with more than 30% revenue growth expected in the September quarter over the prior comparable period. Nine expects this positive momentum to continue through the rest of 2023 as 9Now continues to build its presence in the broader digital video advertising market. Total Television costs are expected to show a similar percentage increase in FY '23 to that reported in FY '22, albeit, an increased weighting to half 1. This phasing is due primarily to the investments in the Cricket World Cup, the U.S. Open and the timing of Ninja Warrior. These investments are expected to further support the group's leading total Television revenue share and expanding share of the digital video advertising market. Radio's Q1 advertising revenues are expected to grow in the low double digits on a percentage basis, driven by improved market share as well as continuing growth in digital revenues. In Publishing, total advertising revenues are expected to grow in the mid- to high single digits in the first quarter of FY '23 with growth in key categories, especially travel. Nine's subscription businesses, Stan, Publishing and Domain continued to grow in relative importance to the group. Subscription revenues in the first quarter are expected to grow in the mid-single digits at the key mastheads and low double digits at Stan. In FY '23, Nine is expected to record growth in both revenue and EBITDA at Stan, with EBITDA expected to be more evenly phased across the halves than in FY '22. As Domain cited last week, trading for the first 6 weeks of FY '23 reflects ongoing growth in new listings, coupled with further expansion in depth penetration. FY '23 will also reflect a full period of the recent strategic acquisitions of Realbase and IDS. Through FY '23, Nine intends to continue to invest in the future of its business through targeted content investments across all key platforms as well as ongoing focus on digital technologies and the utilization of the group's extensive database. Underlying cost inflation will primarily relate to people with an expected base wage increase of around 3%. Across all of its businesses, Nine remains focused on tight cost management, balancing investment with returns and longer-term growth opportunities. In total, Nine is expecting half 1 FY '23 group EBITDA of $380 million to $400 million. It's been a big year for Nine. We've made marked progress against our previously stated targets of digital EBITDA and revenue from video on-demand and subscriptions as we broaden our business from reliance solely on traditional advertising. And whilst numerical progress was clearly made in FY '22, we have also had great success in expediting our digital strategy. Notwithstanding our traditional businesses have performed markedly better than we expected, we are well ahead of where we expected to be, and it's our execution that stands us apart. Execution on our content strategy and the focus on delivering growth in digital audiences, investment in our products, and the associated technology to ensure that we have a world-class consumer experience, and optimization of our advertising proposition through technology and data, all ensuring that we remain the leader in the Australian media market. We're excited about the future of Nine. We are delivering on growth opportunities across all of our businesses, and we will continue to support that growth through targeted investment. During 2022, we have also elevated the strategic focus of the whole of Nine, engaging with our Board in a more rigorous and strategic way, while creating a unified vision and purpose across the group. In a First for Nine, our staff were invited to join a conversation on Nine's purpose and values. This process has been inspiring for me to be involved in, witnessing the engagement and a clear passion for Nine demonstrated by our team members from all parts of our business and from right across the country. Having a clearly communicated and understood purpose and vision and considered values unites us and provides a framework for a high-performance culture at Nine, crucial to our long-term success. Nine is creating and executing the blueprint for the future of media in Australia, and we will remain at the forefront of that future. That now concludes the formal part of today's presentation. And Graeme and I will now join our Chief Revenue Officer, Michael Stephenson; and James Chessell, our Managing Director of Publishing, for the Q&A session.

Well, thanks for joining us, and we'll now take the first question from the operator.

Your first question comes from Fraser Mcleish with MST Marquee.

Yes, great. Obviously, great to see that strong growth at 9Now continuing. I was wondering if you could, Mike, maybe just go in a little bit more detail about some of the factors driving that growth? And maybe in particular, what happens in a tougher advertising market? Do you think BVOD can still deliver strong growth? And then my second one, maybe just on Stan Sport. You've been going for just over a year now. Maybe just what are the key learnings on that and what are the opportunities for further growth in Stan Sport?

Yes, okay. Look, I'd probably just reflect back on some of the commentary we made in the result presentation talking about the mix of revenues that we now see decoupled from the advertising cycle. And certainly, 9Now, our BVOD revenues, is one of those revenue streams. I might get Steve just to give a bit more color around the confidence we have behind that growth.

Yes, sure. Thanks, Mike, and thanks, Fraser. Mike mentioned in his results presentation that we would see revenue growth of 30% in the quarter and of course, right through the half, which I think underpins and supports the confidence that we have in BVOD to continue to grow. I think there are a number of factors that are influencing that growth. The first, of course, is consumer behavior has fundamentally changed. So we're seeing increased audience, in particular, in the live stream and audience will equal revenue, of course, immediately and even more so over time. The second part is BVOD by nature, brings together the very best of television and the very best of digital. So the ability for us to deliver more targeted advertising within that platform, again, creates greater demand from advertisers. January of next year, we'll see the launch of VOZ and VOZ will allow advertisers to buy or maximize reach across both linear and BVOD in combination. And that, again, will be a huge driver of demand for BVOD, I think, right through the cycle. All of those things in combination allow us to enter into and accelerate the growth from the digital video market, which, of course, is important to us over time. And I think to your question, Fraser, allows us to go through the cycle irrespective of what's happening in traditional advertising markets.

Thanks. And Fraser, I think the second part of the question on Stan Sport or Stan, related to what we've seen in Stan Sports this year, if I captured that correctly. And so look, I think the key thing for Stan Sport this year is we've seen certainly the way that we've modeled our view of sport. You'll recall, we've spoken previously around the way we think about investment in sport and the fact that we target the need for every sport that we bring on to the Stan Sport platform to be contribution-positive. So number one, we've really seen that play out. The team at Stan have done a great job of understanding the data and understanding the subscription propensity for each of the sports that they have acquired, and we've had great success in achieving those targets. The second aspect really has been the addition that Stan Sport has brought to the overall Stan proposition. We saw from an early stage with Stan that those subscribers who sign up to Stan Sport are a far stickier subscriber. They engage at a greater level with our entertainment content. So the way that Stan Sport and Stan Entertainment are working together to create a stronger, stickier subscriber base has been a great outcome for us this year.

Great. And just opportunities for further growth in Stan Sport. I guess you got the Rugby World Cup you've just announced.

Yes. Look, we've had great growth this year, on top of the sport that we've already got on the platform. As you know, we've recently announced the World Cup. So of course, we'd expect incremental subscriber opportunity coming from that. And of course, as we develop Stan Sport and Stan brand across the sport that we have on platform, we also expect to see that subscriber engagement grow year-on-year. And we've spoken previously about the model that we have in place with Stan, the ability to share some of that content on the free-to-air network, build audiences, and then effectively grow our subscription base. And we'd expect that dynamic to continue to play out.

Next question comes from Eric Choi with Barrenjoey.

Just a few for me. Firstly, you guys don't normally give first half group guidance this early. So maybe can you just speak to what's giving you confidence in providing a rank so early? Secondly, you're guiding to a small-ish $15 million EBITDA decline in first half '23, and I'm just wondering if it's reasonable to expect a small decline in second half as well, just with the cost and Stan levers you have, even if we do get a tougher macro? And then the third question on TV cost guidance of 7%. Can you talk to what else is driving the increase besides sports? I think you've talked to local content in the past.

Right, there's a lot in that to try and unpack. So I'll do my best at running through it. And if I miss something, please pull me up on it. But firstly, in terms of the guidance that we've given, the reason for us giving guidance for half 1. Well, as I said before, we are seeing now more than ever before, a bigger proportion of our revenue and drivers of EBITDA coming from the components of our business or revenues in our business that are decoupled from the cycle. And of course, when we think about our EBITDA, certainly over the first half and for the year, in fact, it is the advertising cycle that is the -- probably the biggest variable in where we end up. So the decoupling of a large part of our revenue streams gives us greater confidence at this point in the cycle versus prior years. And of course, at this point in time, our ad systems are open, particularly in television, right through to the end of the year. So Steve has quite good visibility in terms of how the market is shaping up. I would say, however, if you look at any risk to the guidance we've given in that first half, it does remain primarily the ad cycle. But again, visibility in the market, confidence in what we're seeing in that sentiment gives us a great sense of where we think we're headed for the half and limits the risk to that. In terms of cost in, I might get Graeme to talk a little bit more to that. But we did guide to a cost increase that was similar this year in total television to what we saw last year. What I would say is that, that cost increase is expected to be more weighted to the front end. And within that cost increase, there are a range of things that we're doing that are investing in and growing the business, it's not a pure increase in cost. But maybe, Graeme, if you can provide a bit more color just what we're expecting to see in those cost increases.

Yes. Sure, Mike. So as Mike said, we are very focused on -- we're very cost conscious and where we are putting costs and it's where we expect to see a return on that and revenue coming off the back of it. So specifically, in total TV, as we said, we're expecting the cost to go up, but it's around about sport, which is specifically Cricket World Cup, continuing to invest in tennis with U.S. Open, with the NRL coming -- increase in the second half and we've got Ashes, so that's a sport covered. We're going to continue to invest in 9Now through -- whether it's through increase in content, further technology improvements and marketing where we see a return. And there'll also be -- obviously, as that grows, there'll be cost of sales growth associated with that as well. And as Mike says, the phasing -- obviously, we're not giving full year guidance, but the phasing on the costs are more weighted in total TV to the first half than they were last year, primarily because of the Cricket World Cup and the U.S. Open and also in Ninja timing. In particular this year, some other local timing as well. But that's skewing the cost into the first half issue.

Thanks, Graeme.

The next question comes from Kane Hannan with Goldman Sachs.

Just 3 for me as well. I might just start on the TV OpEx. I mean are you able to share, I suppose, what percentage growth in OpEx you're assuming in the first half in that guidance range? Secondly, Stan. You made some pretty positive comments in, Mike, around the environment. You're guiding to double-digit revenue growth for the year. Is it right to assume some sort of margin expansion coming through at Stan or are there lumpy costs I should be thinking about? And then lastly, I know the targets are set before your time, Mike. I suppose you're well on the way to that 60% digital EBITDA target by FY '24. Any sort of changes internally around your aspirations for that number? Just...

Maybe if I take the Stan side of things and the 60% first, I might get Graeme to sort of see if there's anything that he can provide an additional color around those costs. But yes, look, in relation to Stan, what we've said this year, of course, is we expect that the revenue and EBITDA will grow within that business. And of course, within that, we are expecting an increase in the cost base. Having said that, the cost increase that we're expecting to see in the Stan business this year over last year is a smaller cost increase than what we saw in '22 over '21. Hopefully, that gives you some color around that. And look, in terms of those targets, yes, look, certainly, we've made terrific progress towards those targets of digitizing our business. And I think important to note, and I think a reflection of the way the team has focused on our digital growth within the business. That's in an environment where our traditional revenues have actually delivered ahead of our long-term expectations. So we're still delivering on those growth expectations in digital against a bigger traditional business than what was in our original long-term forecast. So in the context of that, it's a fantastic achievement from the team. Look, I think we've outlined the strategy this year. We've engaged heavily with our Board around what that looks like. Internally, we are starting to set new targets, and we're certainly not putting any out there publicly today. But look, I think reflecting on a great set of progress in digital within the business. Do you want to...

On the phase...

Give a little bit more information, right...

Look, on the phasing, it's -- I think, as I said, it is more weighted last year. It's probably 2 to 3 percentage points in total.

The next question comes from Lucy Huang with UBS.

Mike, Graeme and team, I've got 3 questions as well. So maybe if I can first start off with also TV OpEx and also wage inflation comments you've made. Does this go through the year to pull out some incremental costs out across the rest of the business to counteract these pressures? And then secondly, in relation to the free-to-air ad market. Just wondering if you can give us a guide as to how July and August is trending for the free-to-air ad markets right now and what your expectation is coming into the first half? And then with Stan, just wondering if you can give us some color on subscriber momentum so far. And if you can give us some color as to where subscribers are flocking to? Are they signing up onto the platform for Stan Sports or primarily Stan Entertainment?

All right. I'm almost certainly going to have to come back and get you repeat some of the ones at the end there, Lucy. But let me start with the cost component of things and what we're doing across the business. And reiterating what Graeme said, our focus in the business is on cost discipline and underlying costs within the business. And where we are increasing expenditure, it is in areas that are focused on growing the business. In the current environment, obviously, some uncertainty in that outlook. We continue to forecast strength in all of our businesses, both in terms of their profitability and margins. So in terms of where we might put in place expenditure that relates to growth, we aren't expecting to pull back on that. We believe that we're in a strong position to continue to make investments on the same basis as we would, with a clear visibility to growth right through this cycle. Having said that, we're keeping a very close eye on the cycle, and we do have levers within the business. And of course, again, cost discipline across all areas of our business. Longer term, as you see, Nine become an increasingly digital business, of course. You see efficiencies that inherently get built into that business. And over the long term, and we look at cost out programs that relate to gaining efficiency and costs right across the board. And we'd expect to continue to pursue those costs over the long term. In terms of wage inflation, you'll note in our commentary, we made a statement around expectation of a 3% increase, so thereabouts, in our base salaries. That is reflecting that the market today, of course, is pressured on inflation in the current year. But again, I think there's pressures and headwinds in the business that we have to manage in the coming years as well. So we've set that target, and we're obviously working closely with our team. You will notice, though, within our cost base, we're offsetting some of that wage pressure in the way that we work with and think about investing in our staff. We've done that certainly in terms of rewarding staff through the recognition bonus from this year's success in financial numbers. We're also increasing the way in which we spend money to invest in people, both in terms of training and education. And of course, a big piece of work the team has been focused on this year around [ bedding ] in our values and purpose as an organization. So there's a lot happening around our team outside of simply a discussion around wage increases and wage inflation. So hopefully, that captures that piece. I might get you then just to repeat the other questions after that.

So my other question was around ad market in free-to-air. Just how are they trending currently in July and August? And I guess, what are you implying in that first half guidance for ad market growth?

Yes. I'll ask Steve to give some comment there.

The July and August linear ad market, obviously, heavily impacted by the, in fact, the Olympic Games are on that period in the PCP. So markets, obviously, we'll be back over those periods, however that's 2 months. Into September, October, November and December, what we're effectively seeing is the free-to-air market return back to its pre-COVID CAGR. So -- and within that, of course, Nine is growing its share fairly significantly. And so the first quarter of the fiscal, will be in and around a 40% share and growing our share through the second quarter.

Wonderful. And sorry, just the last question around Stan. So where are subscribers flocking to when they sign on to the platform? Are they going to Stan Sports in the first instance or the entertainment product?

Look, it's hard to generalize. And of course, every subscriber does behave very differently. Suffice to say, we've had continued growth in both entertainment subscribers and sports subscribers and including those subscribers who are entertainment-only. So fair to say, we've had a consistent growth across both parts of the business, in terms of opportunity in the way that subscribers engage with our content.

Your next question comes from Entcho Raykovski with Credit Suisse.

I've got a few questions, and I might ask them one by one. The first one is on Stan. I'm just interested in whether you're seeing any signs of consumer weakness over the last few months. I'll suspect that's the one business, which is, I mean, very much consumer-facing. So are you seeing sort of people churning off more quickly and then coming back perhaps and whether there are any other indicators that suggest that consumer is more cautious?

Yes. Thanks for breaking the questions up, Entcho, it certainly makes it easier on our end. Look, what we've expected post-COVID and lockdowns to see a level of consolidation in the subscription streaming market and which is what we're seeing today. Of course, what you're referring to more is a question around is cost inflation on the consumer wallet having an impact. Look, I think it's hard to decouple the two. And I think actually, what we're seeing occur right now in the economy and for consumers and households is a reflection of somewhat related to the back end of COVID and things that happened during lockdown. So I think if you roll it all together, certainly, we are seeing what we expected to see, which is a level of flattening off. But I'd continue to reiterate that Stan has plenty of growth opportunity ahead of it. Whenever you invest in great content, you create something, which is differentiated and unique proposition, which is what Stan has done. You create that opportunity for growth. So over the long term, we continue to see great opportunity for Stan.

Okay. And when you were -- in your opening comments, you spoke about sort of the global environment in streaming. Are you seeing the cost of available content actually coming down? And are you baking that into your guidance and longer-term expectations?

Yes. Look, it's -- the content market is, obviously, just that. It's a market, and it's driven by supply and demand. But at the same time, it's not a perfect market because, obviously, content comes through in, output deals that comes through in, single sales of programs and those sorts of things. So if the market was in a perfect state, you'd probably say I'd expect to see a little bit of downward pressure. It obviously depends on the deal that's available at the time, the value of that content and the strategic nature of that content. So I think I'll just reiterate what I said before, which is that we are expecting to see revenue and EBITDA growth in Stan this year, and we are going to see a cost increase, but it won't be at the same level we saw across the business in '22.