The state of Stuff in 2018 (image: Tina Tiller)
Stuff in 2018: the media monster no one wants to own
Duncan Greive | Managing Editor
Stuff is both the biggest news site in the country and its most precarious big media company. Duncan Greive continues his series on the major media companies with a hard look at it from some senior media executives speaking under condition of anonymity.
In late November, the staff of Stuff gathered to meet their new owners, Channel Nine, which recently merged with Fairfax in Australia. According to sources who attended the meetings, they were "extraordinarily honest" about their aspirations for the New Zealand business.
Unfortunately the Australian executives did not have good news: "they don't see New Zealand as part of their long term business".
This was hardly a shock – ever since the mega-merger of Fairfax and Nine was announced reporting has suggested New Zealand wasn't part of the plan. In fact, what Nine really coveted was Domain, the giant Aussie real estate site which is a key part of the deal. Yet it's still cold comfort for those running Stuff, one of two major New Zealand media companies (the other being MediaWorks) whose current owners are keen to see the back of them.
Essentially the Nine executives were over to, as one media rival put it, check out the granny flat out the back of the house they bought. "How decrepit is that granny flat is the question Nine will be asking."
It's a bleak question, but not a straightforward one. From some angles Stuff is a stunning success: it's not just the biggest news site in the country, it's one of the ten biggest sites overall. That makes it a global anomaly, as news sites seldom achieve anything like its per capita performance in traffic. From Waikato to South Canterbury it owns the biggest digital and print products, and it has recruited an array of star journalists from other media, including Alison Mau, Carol Hirschfeld, Paula Penfold and Andrea Vance.
It has also launched a prominent social network in Neighbourly, which itself has a monthly audience of nearly a million. More audacious is its growth strategy, which has seen a slew of subsidiaries created, most of them broadly in the utility space, which aim to take advantage of the torrents of traffic its core site generates. If you're generous you could call it a telco, an insurance company, an energy provider and a film distributor.
"Of us all, they have the clearest vision," said one rival, generously. They then added, less generously, "but they're kinda fucked." Fucked meaning that Stuff is in many ways the most precarious of our major media entities. This is largely because it is alone in not having a reliably profitable wing to help take the edge off its loss-making areas. For a while it had TradeMe, which it sharply purchased for $700m in 2006, before listing it and selling it in pieces (the market says they should have kept it: a recent private equity offer now values it at around $2.5bn).
More recently it pinned hopes on a mega-merger of its own, with rival NZME. First the Commerce Commission and then the courts declined the application, leaving it alone with its problems.
The mutant hybrid that wasn't meant to be
These are chiefly related to the decline in print circulation and ad revenues which are avowedly not compensated for by the rise in digital advertising revenue or other revenue streams. As a result of this pincer movement they have had near constant rounds of redundancies, spending nearly $60m on related payouts in just the last six years, with staffing currently just less than half of the 2095 it employed in 2012.
Earlier this year, after news the merger was again being declined, it sold or closed 35 mastheads – a bleak reminder that the ComCom's desire to see more media plurality would not be granted by decree. Few in the industry doubt that more are coming. The bigger question for Stuff is how much of its (sorry) stuff a new owner would want – whether it is sold whole or in pieces. If it's the latter, as it's generally assumed, the question is also how radically a dismantling would alter the business – and whether it can survive a sell-down in anything resembling its present form.
This year saw Stuff formally adopt the name of its ubiquitous website across the whole company formerly known as Fairfax, but its business is not quite so straightforward. It operates a network of regional newspapers, ranging from the nationally renowned likes of The Press down to tiny titles like the Timaru Herald, sustained by print advertising and (to a much lesser extent) by subscriptions. This content is then piped into the Stuff.co.nz website, which packages online advertising around it – and, increasingly, advertisements for other startups Stuff has founded itself, from internet retailer Stuff Fibre to video on demand via Stuff Pix. All these ventures combined to turn over around $300m in revenue in the 2018 financial year, and deliver a profit of around $40m for its Australian parent.
While those figures look healthy enough, they mask a chilling trend. Its revenue was down 7.5% year on year, while earnings fell 27%. To put it as simply as possible, every year print becomes a significantly worse business to be in, while the revenue of digital doesn't come close to replacing it. The question is what to do with this predicament.
Stuff has built and sustained its lead in digital by having access to a huge stream of content from its network of regional papers. Its digital audience is large and loyal. The question it has been forced to ask itself is how they will retain that loyalty if they lose a significant portion of the content they currently get from the smaller papers. Because regardless of what their new owners do with them – whether they're sold as a package or broken into pieces – the business fundamentals suggest that many smaller town papers will simply be shut down, unless a benevolent and brave local owner can be found.
The genius of Stuff's solution lies in recognising that just because you are the place where the country goes to read its news does not mean you have to produce that news. If you talk to senior people at Stuff now, they simply refer to Stuff as a platform. It's a traffic machine, and they're not concerned about whether they create the news which is fed in, or anyone else does, so long as they're credible.
This is why they've been on a deal spree over the past couple of years, signing up TVNZ, RNZ, Māori Television, Bauer and Newsroom to syndication contracts which share revenue on their stories. This functions as both a replacement for sources they might lose in the event of closures and sales, and as a model for striking deals with some newly independent regional newsrooms which may flow out of a breakup.
This actually makes far more sense for Stuff than its current setup, which simply by quirk of the geography of their newspapers means it has significantly more journalists based in Timaru (pop: 43,000) than in Dunedin (pop: 127,000). The idea of Stuff as the nation's news platform – a hub which publishes their own material as well as that of dozens of regional and national creators – has a lot going for it from Stuff's perspective. Revenue sharing means they only pay when it earns them money, while providers are spared the hassle and expense of running a site and all the associated costs (sales, social media, image rights etc).
Yet there are several major potential problems with the approach. Revenue derived from click-based advertising competes in a global market with billions of units on the Google display network and similar products on Facebook. Its cost per unit has been plunging for years. The idea of splitting it two ways hardly suggests collaborative publishers are likely to see large revenue streams from it, and all will ultimately need to build digital products of their own, suggesting it might only be a temporary solution.
A perhaps larger problem is the gap between a platform and an aggregator. A platform typically sorts and serves content tailored around the specific preferences of its user, whereas an aggregator simply displays the combined output of its sources. As of today, Stuff's feed is the same whether you're a teacher in Wellington, an ex-pat lawyer in London or a retiree in Mosgiel. The 20 or so slots near the top of the page drive by far the greatest chunk of its traffic, meaning it's severely limited in its ability to adequately serve all these new partners.
It's something of a mystery what the rows and rows of developers it employed for many years have been doing, given how little the most important product has changed over the last decade. Stuff also remains very much text dominated, with its new video and audio partners struggling to generate traffic and therefore revenue. Which is to say that there is a large gap between calling yourself a platform and actually having the attributes of one.
For all that, Stuff ends 2018 in a better position than it has been in a while. Its new chief executive, Sinead Boucher, is herself a former editor, and is well-liked within and without of the organisation. For years its product was a byword for clickbait, cheap one note reporting and appallingly unmoderated comments. Yet it has radically turned around its brand over the past year or two, and poured resource into quality longform reporting lately. The latter almost has the air of altruism, as many of these major projects have little or no advertising. As one rival put it, "I like it. But as a business owner, how on earth is that justified?"
Still, it has changed Stuff's brand, made it compete hard with the Herald on quality, and when the latter puts its best reporting behind a paywall it should significantly benefit (Stuff has no plans for a paywall, though it's apparently a frequent topic of discussion).
The stories emphasised over the past year or so have made the organisation feel more woke than ever. This has been exemplified by a move to end its time as the publisher of racist cartoonist Al Nisbet, while in parallel running some of the best reporting on Māori issues in the mainstream media. It has recruited better than anyone over the past year, and there is a coherence to its business plan which many of the more diversified media would envy.
Its local-centric social network Neighbourly is unlikely to scare Facebook anytime soon, but might be worrying TradeMe somewhat as it evolves into free version of its service. There's a long history of social platforms being weird and low revenue to start with and figuring the rest out later. Black Hands is New Zealand's biggest-ever podcast, and along with Stuff Circuit it suggests that it is relatively well-situated to gain NZ on Air funding for projects in future.
The big unknown is what happens when it's sold. Almost all executives I spoke to referred to the prospect of a mega-merger with MediaWorks without prompting. It's an incredible thought: the giant would have unholy horizontal integration: number one or two in radio, television, print, digital and outdoor. "If there's going to be an arranged marriage, MediaWorks would be far more palatable than the previous one," said one executive of the idea. It's undeniable that the organisations – both scrappy, unpretentious and unashamedly mass market – make a lot of sense together.
There would be huge complexities, and plugging in more shrinking industries for radio to support might give some at MediaWorks a heart attack. But there would be synergies and huge integrated power too. Of all the options on the table for Stuff at the end of 2018, it might well be the best.
Read about this series here, along with the first entry, on TVNZ
Monday December 10: TVNZ
Tuesday December 11: Stuff
Wednesday December 12: Sky
Thursday December 13: MediaWorks
Friday December 14: NZME
Saturday December 15: RNZ
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Sunday December 16: Spark, Bauer, Māori Television
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