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Chapter 1: What is the main topic discussed in this episode?
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If I had to pick one word to describe America's history in the Middle East, I'd probably go with mistake. But it was the Americans believe all a dreadful mistake. The backpackers crossed the poorly marked border by mistake. The war in Iraq was a big, fat mistake. So why is it happening again? I'm Matt Bevan, and on my show, if you're listening, we actually try to learn from the world's mistakes.
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Frustrations boiled over at the ARN Media Annual Shareholders Meeting, with owners voicing anger at the performance of the company in recent years and its messy divorce from two of its biggest stars. Meanwhile, the price of oil has dropped, with markets seeming to pull from never-ending reserves of hope that the Strait of Hormuz is soon to open. So what should we make of these market moves?
Welcome to ABC Business Daily. I'm Carrington Clark.
And I'm Alicia Barry, ABC finance reporter and host of The Business on Thursdays.
Good morning, Alicia. Thank you for joining us early. You're usually spending your time prepping for the telly, where people will be able to see you on The Business later today. But you've joined us here in the pod studio, so good to have you.
It's lovely to be here, Carrington.
Let's turn our attention to ARN Media. There was a lot of anticipation about this meeting. Usually, media companies do not like to be the ones in the headlines, but they have found themselves in the headlines for the last few months because of this very messy fallout with two of its
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Chapter 2: What frustrations were voiced at the ARN Media annual shareholders meeting?
They're two years into this contract. And maybe it comes as a blessing to ARN that they don't have to pay. At least at the moment, it's in the courts. this money out to these megastars. It's a big fall from grace for Kyle and Jackie O. But if you look at the time when Kyle and Jackie O signed the contract with ARN around November 2023, ARN shares were 90 cents. Today, they're around 26 cents.
And over the course of just this year, the shares are down 34%. So it is no surprise that shareholders are unhappy, to say the least. And today at the company's annual general meeting, as you say, Carrington, they've had a chance to voice their anger. with a 90% vote against the new CEO, Michael Stevenson's salary. That's the remuneration report. This happens at every general meeting.
Chapter 3: How has the price of oil impacted market expectations?
And his salary was set at $1.1 million plus around $2.5 million of incentives, I believe. So this 90% vote against this remuneration report is just a big indication that shareholders are not happy.
Casting our minds back to when Kyle and Jackie-O first came over to ARN. So they were previously with Southern Cross Media through the Today Network here in Sydney. They were huge stars, but they couldn't come to an agreement about how much they thought they were worth versus how much their previous employer thought they were worth.
They sign on and effectively brought their entire audience along with them. They rebranded the station here to KISS, and they really were the powerhouses behind ARN's success. And that's why we saw them grow. sign this huge deal.
I mean, these were extraordinary numbers even at the time, though I think with the benefit now of hindsight, they were numbers that were not going to be sustained in a fragmenting media market. And so this is messy. The board did not want to talk too much about this because they said it is before the courts and you can understand that argument.
But yes, that question fundamentally, at the time that they signed this contract, there was champagne, Poppin, this was a huge celebration about locking in their two biggest stars for a very long period. This was supposed to underpin the financial success of the network. And yet now it does look like perhaps they became too big a cost to carry.
And there was a lot of behind the scenes, but also some of it public. Action against the network when it came to advertising dollars and a really orchestrated campaign going after Kyle and Jackie O for some of the more controversial commentary.
And what we hear from the ARN board is that actually it was hurting their bottom line, that they weren't getting the advertising dollars that they thought they should be getting.
Yeah, that's right. And I mean, this brand damage from the unsafe behavior that has occurred on the radio station has meant that advertisers have walked away. I mean, I dipped into this annual general meeting for about 10 minutes or so, and I heard the chairman, Amish McLennan, speaking. Look, he sounded like he was at a funeral.
I don't know if that was a deliberate attempt to sort of be contrite given the the state of the company or if he genuinely was feeling very downbeat. But it wasn't a joyous occasion, that's for sure.
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Chapter 4: What is the current state of ARN Media's performance?
There was obviously therefore questions about whether or not this was a product that you could move across the rest of the country. And traditionally... it's very hard to get breakfast radio to work around the country. Most people want to hear their local insights from people who are living in the same city as them and interacting with them.
And so I think, unfortunately, if that was the model, it came a cropper. Now, obviously, there is the dispute between Carl and Jackie O, this very public falling out of two people who've worked together for so many years and had been very close. They're both taking legal action to try to get paid out for their contracts.
Obviously, ARN is trying to defend that position because that would be a massive blow to them. But they also need to just put this behind them, don't they? They need to come up with, well, who is going to take over this breakfast program going forward? Because this is the way you start your day. And this has always been the most important program for any individual radio station.
And the fact that this is still playing out in the courts and they don't know who's going to take over is a difficult predicament to be in.
Absolutely, when you're trying to secure advertisers, right? But also it plays to a much broader issue, I would argue, in the media sector, and that is the fragmentation. I mean, Carrington, you and I are on a podcast right now. People can play this any time they would like. So are people still listening to that one radio station in the morning when they get in the car?
Are they getting in the car? You know, are they walking to work with AirPods in their ears? I mean, ARN is sort of banking its growth opportunity in the digital space. It's pointed to that outlook and it says the convergence of audio and video creates a material opportunity. So they're going to start filming their programs. They're going to start doing more podcasts.
Is this big flagship radio breakfast program, what they're going to hang their hat on in the next couple of years?
Because it's sucking up a lot of resources that could otherwise be deployed to other parts of the program. Obviously, the hope is that you can leverage off those stars in your stable and use them across other platforms. But obviously... those numbers weren't stacking up.
Now, again, the current position, I believe, from ARN is that the reason they terminated the contracts with their two big stars was because they couldn't work together any longer. Jackie said she felt unsafe. This is all contested, and this is why it's going through this legal process. But you can see how they are trying to walk a very fine line because they have to
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Chapter 5: How did Kyle and Jackie O's contract affect ARN Media's finances?
Well, no, and that has everything to do with what you just said, Carrington, the concentration. If you look at the tech concentration in the US, I mean, it's about 32% of the index made up by these mega cap tech stocks. And investors are buying the growth story. I mean, there have been some concerns that these tech companies are spending too much, but there's still so much growth
baked into them returning on that investment. People want to buy that growth story still.
There's been a couple of little hints like Meta's last update when it seemed that there was a little bit more cynicism about if it was spending too much when it came to artificial intelligence, but then a company like Alphabet, parent company of Google,
And Microsoft.
Yeah, it seems like the more the better when it comes to a company like Alphabet, right? That if the more money they're saying that they're pumping into artificial intelligence, the more they are rewarded by the market.
Yeah, that's right. But if you contrast the gains that we're seeing in the US with what we're seeing in Australia, I mean, the NASDAQ is up about 13% this year, I think, from memory. If we look at the Australian share market, it's up about 3%, 4%, I think. But our tech sector compared to the US, it's about... 6%. We do have some big names like WiseTech.
Xero, NextDC, which is actually a play that is connected to the artificial intelligence investment.
On the data centers. Yes. Yeah, that's right. I mean, we do have a few, as I said, about 6% or so, but it is really minor in comparison to what's going on in the US. And I mean, of course, the US is a much larger economy. Our market is really dominated by banks, miners and supermarkets.
And they're not necessarily riding this wave of innovation.
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Chapter 6: Why are shareholders unhappy with ARN Media's leadership?
CBA sometimes is put in that camp.
The finance companies, the big banks are investing heavily in their own internal processes when it comes to artificial intelligence, but they're not necessarily making money in the same direct way that we're seeing these big tech companies. We've had multiple questions this week following the Reserve Bank's decision to hike interest rates.
And I think if we kind of crunch it down, the fundamental question is, we keep hearing from the Reserve Bank, they have one blunt instrument to deal with inflation. Well, why aren't there other options?
So our colleague Michael Yanda has a great article, which people can find on ABC website today, where he goes through some of the other options potentially of how you can deal with high inflation inflationally. outside just pushing up interest rates. What do you make of that fundamental question and some of the suggestions that we've got from Michael?
Yeah, Carrington, I mean, we heard our colleague Amelia Terzon put that question to the RBA governor after the rates decision on Tuesday. What tools beyond interest rates can the RBA use so that it's not hurting regular people? And you can understand the frustration in the community. I mean, this interest rate tool really does hit people who have mortgages, those who are renters.
not those who have paid off their mortgages. And it's about 60% of the population in those two camps that are really being hurt by this. Unless you go and fundamentally rewrite the architecture of monetary policy, which Michelle Bullock could not do on Tuesday, the RBA really does only have one tool. And it is a monetary policy tool, which is interest rates.
When we look at what the government can do, fiscal policy, I mean, a lot of heavy lifting has been left to the RBA. And as Michael Yander points to, it's much easier for governments politically to stimulate growth. They can do that in many ways. And we have seen it with, you know, the reduction to the fuel excise that's made it cheaper for people to buy petrol in this environment.
But do they want to take money out of the economy? Well... Probably not really if they want to stay in government. I mean, it's a hard sell. But also, as Michelle Bullock pointed to on Tuesday, when governments do make changes, it's not very immediate. It usually has to be legislated and it takes time before they can roll it out. And then it's probably not quite as direct.
Monetary policy is a pretty direct tool. It goes straight to the bank accounts of Australians. Might take a few months to work through, but it happens.
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Chapter 7: What led to the messy divorce between ARN Media and its stars?
Right.
Not those who don't earn a salary, exactly. And of course, the question becomes who is doing that? Would people prefer that than seeing their mortgage repayments go up? There's a fairness question there. And who would be the ones making that setting? He also points out there's a legal question about whether or not
those powers can be given away by the parliament effectively to some sort of outside agency. Another suggestion would be that you increase superannuation payments during a period of high inflation. So the mandatory amount that goes from your pay packet to your superannuation account, you increase that.
So that means instead of the money just going into general revenue for tax, that you would have more money in your superannuation account for when you retire.
He also points out that perhaps that money could be used actually to stimulate the economy, which actually might run opposite its aim because those superannuation funds would be using the money and putting them into investments might be forcing up the value of assets, etc.,
And these suggestions would work alongside the RBA. So they would be in replace of it. And I think this goes to the heart of sort of the idea of fiscal policy then working alongside monetary policy. So these bodies or the tax idea would obviously have to be legislated, created by government. Then you don't just have central banks doing all the work on inflation.
But it's not a quick fix, Carrington. No.
No, and Michelle Bullock, the Reserve Bank governor, did get asked about whether or not it was better in the olden days where perhaps the government was expected to take up more of the slack when it came to fighting inflation. And she didn't seem to think necessarily that was the case.
I mean, that is a big question. Is the central bank the best institution to be bringing down inflation? Well, they're the one with the bluntest tool.
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