Australian Media & Internet Sector - Outlook 2013 - Credit ...

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27 November 2012

Asia Pacific/Australia

Equity Research

Media

Australian Media & Internet Sector - Outlook 2013

INITIATION

The Australian Media and Internet Sector continues to adapt to a new

environment. This paper assesses key themes that are likely to face Australian

Media and Internet companies in 2013 and expectations for how each business

is likely to perform. Companies analysed include FXJ, APN, NWS, SWM, TEN,

PRT, SXL, SEK, CRZ, REA, TME and SGN. Samantha Carleton is initiating

lead coverage of the Australian Media and Internet Sector.

Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

27 November 2012

Australian Media & Internet Sector - Outlook 2013 2

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27 November 2012


Executive Summary Overview

The Australian Media and Internet Sector continues to adapt to a new environment. Businesses facing structural and cyclical pressures are re-engineering their cost bases whilst also looking for additional revenue streams. For print businesses, structural changes are likely to outweigh cyclical impacts over the next 12 months, whilst for television businesses, cyclical fluctuations and changes to ratings and revenue share are likely to have a greater impact in 2013. Digital businesses are likely to continue to report solid growth over the next 12 months.

This paper assesses the key themes that are likely to face Australian Media and Internet companies in 2013 and expectations for how each business is likely to perform. Companies analysed include Fairfax Media (FXJ), APN News & Media (APN), News Corporation (NWS), Seven West Media (SWM), Ten Network (TEN), Prime Media Group (PRT), Southern Cross Media Group (SXL), Seek (SEK), Carsales (CRZ), REA Group (REA), Trade Me (TME) and STW Communications (SGN).

Samantha Carleton has assumed lead coverage of the Australian Media and Internet Sector.

Themes for 2013

The key themes that are likely to face Australian Media and Internet companies in 2013 include:

■ Advertising spend appears set to remain subdued.

■ Digital will overtake FTA Television as the largest advertising medium.

■ The print to digital shift is accelerating.

■ The structural shift in television will be slower.

■ Corporate activity and consolidation is likely to increase.

■ Changes to media ownership rules may spark further consolidation.

Sector positioning

Stocks with the greatest TSR upside in 2013 are SWM, CRZ and SGN, in our view.

SWM appears well positioned in the traditional media space. It is the dominant player in FTA TV and WA newspapers. Structural change is likely to occur at a slower rate in both segments. Cyclical fluctuations and ratings and revenue share, where SWM has strong momentum, are likely to have a greater impact in 2013. We view SWM as good value on 8x FY13 EPS.

CRZ appears well positioned in the digital media space. It is the dominant player in online auto classifieds. Relative to real estate and employment, car sales are less volatile, the auto display ad market is larger and there is greater volume upside from new cars. We view CRZ as good value on 22x FY13 EPS.

Figure 1: Credit Suisse Australian Media Sector Summary Companies Market Net Share CS CS CS Upside Div Total ESG Current Fair val Rating

Cap. Debt EV Price Target SOP DCF to Yield Return TP MSCI MSCI PE PE

A$m A$m A$m $ Price $ Val $ Val $ TP % %** % Impact Rating Outlook 2013 2013

carsales.com.au 1,789 -41 1,748 7.59 8.80 8.80 8.90 16% 4.0% 20% 0% B Positive 21.8 25.2 OUTPERFORM

STW Communications Group 437 75 511 1.10 1.24 1.27 13% 7.4% 20% -2% 8.7 9.8 OUTPERFORM

Seven West Media Ltd 1,639 1,855 3,493 1.64 1.80 1.89 3.00 10% 6.1% 16% -5% BB Neutral 7.7 8.4 OUTPERFORM

News Corporation 57,242 5,829 63,071 23.70 27.00 27.70 32.30 14% 0.9% 15% -10% CCC Neutral 13.8 15.7 NEUTRAL

Prime Media Group 297 117 413 0.81 0.86 1.00 6% 8.0% 14% -3% 9.4 10.0 NEUTRAL

Trade Me Group Ltd 1,724 127 1,851 3.42 3.70 3.82 3.30 8% 3.9% 12% -3% 17.1 18.5 NEUTRAL

Ten Network Holdings 438 180 618 0.31 0.33 0.35 8% 0.0% 8% -5% A Neutral 37.1 40.1 NEUTRAL

REA Group 2,470 -182 2,288 18.75 19.76 20.81 18.23 5% 2.2% 8% -5% 24.8 26.2 NEUTRAL

Seek 2,299 226 2,525 6.82 6.93 6.93 9.00 2% 3.3% 5% 0% A Positive 16.3 16.6 UNDERPERFORM

Southern Cross Media Group 765 610 1,375 1.09 1.00 1.00 1.00 -8% 9.2% 1% 0% BB Neutral 8.1 7.5 UNDERPERFORM

Fairfax Media 1,058 849 1,907 0.45 0.40 0.42 0.60 -11% 3.3% -8% -3% BBB Positive 9.3 8.3 UNDERPERFORM

APN News & Media 198 489 688 0.30 0.23 0.24 0.38 -23% 11.8% -12% -3% BBB Negative 3.2 2.5 UNDERPERFORM Source: Company data, Credit Suisse estimates

27 November 2012


Table of contents Executive Summary 3 Credit Suisse Media Overview 7

Investment Views 7 Ranking 13 Earnings expectations 13 Earnings sensitivities 14 Balance sheet strength 15 Cash generation and utilisation 15 Valuations 16 Stock performance 17 Short interest 17 Media ownership 18 ESG Issues 20 Media through HOLT® 26 Global Benchmarks 35

Media Sector Themes for 2013 40 Advertising spend to remain subdued 40 Digital to become the largest ad medium in 2013 42 Print to digital shift to accelerate 47 Structural shift in Television will be slower 49 Corporate activity and consolidation 51 Potential changes to media ownership rules 52

Fairfax Media (FXJ.AX / FXJ AU) 55 Additional revenue streams needed 55 Metro Media: Assessing the sustainability of the new multi-platform model 57 Regional Media: Will digital have the same impact? 63 New Zealand Media: More regional than metro? 64 Printing scenarios 66 Broadcasting and Trade Me: Non-core asset sales will eliminate debt 66 FXJ Valuation 67 Risks 69 ESG Issues 70 Appendix 72

APN News & Media (APN.AX / APN AU) 79 NZ Strategic Review needs to capture $100mn 79 NZ Strategic Review needs to capture $100mn 81 Australian Publishing – will it be a long term hold? 82 Resilient Radio exposure could be enhanced 82 Reducing exposure to a robust Outdoor industry 85 Increasing risk profile via Digital acquisitions 87 APN Valuation 89 Risks 91 ESG Issues 91 Appendix 94

News Corporation (NWS.AX / NWS AU) 103 Corporate split priced in 103 Corporate Split: Unlocking value 105 The Media & Entertainment business 106 The Publishing business 108 Valuation 110 Risks 111 ESG Issues 112 Appendix 114

27 November 2012


Seven West Media Ltd (SWM.AX / SWM AU) 125 Well positioned with potential to be acquired 125 Leading FTA Television network with strong momentum in ratings and revenue share 127 A slower structural shift facing the print businesses 129 Potential for Seven Group to consolidate ownership 132 Balance sheet assessment 132 Valuation 133 Risks 134 ESG Issues 135 Appendix 137

Ten Network Holdings (TEN.AX / TEN AU) 145 Highly leveraged 145 Highly leveraged to the Advertising cycle 147 Highly leveraged to changes in TV Ratings 148 Balance sheet assessment 149 Valuation 150 Risks 151 ESG Issues 151 Appendix 154

Prime Media Group (PRT.AX / PRT AU) 161 Benefiting from strong ratings at Seven 161 Regional TV: Likely to maintain ratings in flat market 163 Radio: Asset sale likely 165 Valuation 166 Risks 167 ESG Issues 167 Appendix 169

Southern Cross Media Group (SXL.AX / SXL AU) 175 A challenging FY13, upside to FY14 175 Metro Radio: Dominant player in a robust industry 177 Regional Radio: Synergy opportunity with metro 178 Regional TV: At the mercy of Ten 178 Balance sheet assessment 181 Valuation 181 Risks 182 ESG Issues 183 Appendix 185

Seek (SEK.AX / SEK AU) 193 Lower employment to weigh on FY13 193 Dominant player in local and international markets 195 Seek Australia: lower volumes offset by yield growth 197 International Employment: Long term growth potential, short term impacted by fewer

jobs 199 Education: Providing a small offset 201 Valuation 202 Risks 204 ESG Issues 204 Appendix 207

carsales.com.au (CRZ.AX / CRZ AU) 215 Solid and reliable earnings growth 215 Dominant player in an attractive industry 217 Four Auto Pillars: Assessing the growth potential 219 Pillar Five: The rise of non-auto verticals 224 Potential offshore acquisitions 225 Valuation 225 Risks 227

27 November 2012


ESG Issues 228 Appendix 230

REA Group (REA.AX / REA AU) 237 Good business, fair price 237 Dominant player in core market 239 Australia: Yield growth to offset agent consolidation 240 International: Assessing the growth opportunity 241 Valuation 243 Risks 244 ESG Issues 245 Appendix 247

Trade Me Group Limited (TME.AX / TME AU) 253 Fair price for dominant online player in NZ 253 Dominant player in New Zealand 255 Assessing the earnings growth potential 256 International expansion unlikely in near term 261 Valuation 261 Risks 263 ESG Issues 263 Appendix 265

STW Communications Group (SGN.AX / SGN AU) 273 Significant growth opportunity in SE Asia 273 Assessing the earnings growth potential 275 Strong balance sheet 276 Valuation 276 Risks 277 ESG Issues 277 Appendix 280

Explanation of HOLT® 285 Industry Data 286

Advertising 286 Newspapers 293 Magazines 305 Pay TV 311 FTA TV 324 Film 335 Outdoor 346 Radio 347 Digital 353

Disclosures 357

27 November 2012


Credit Suisse Media Overview Investment Views

Fairfax Media (FXJ.AX), UNDERPERFORM, $0.40 TP

Investment Case: Additional revenue streams needed.

Our investment view is shaped by four considerations:

■ We view the sale of FXJ’s Metro Media business as unlikely given synergies between

the Metro, Regional, New Zealand publishing and Digital businesses.

■ Near-term cash flow is likely to be somewhat constrained by higher investment and

Fairfax of the Future transformation cash costs. We expect dividend payout to remain

around 35% and see the sale of non-core assets (Broadcasting and Trade Me) as

likely to strengthen the balance sheet.

■ The existing Metro Media business appears fairly priced. In our view, FXJ needs to

leverage its brand into new areas to generate additional revenue streams and offset

declining circulations. Whilst digital subscriptions may generate some revenue, we

view digital transactions and classifieds as a greater revenue opportunity for FXJ. A

stronger presence in these markets should elicit pricing power, growth, investment and

further growth.

■ Regional Media and New Zealand Media are likely to be impacted to a similar degree

as Metro Media, albeit at a slower pace. A partnership with APN or NWS could create

value, albeit we have not factored this into our forecast.

APN News & Media (APN.AX), UNDERPERFORM, $0.23 TP

Investment Case: Need to capture $100mn cost savings to stabilise earnings.


■ The strategic review of the New Zealand publishing assets is unlikely to result in any

meaningful asset sales, in our view. There is scope for APN to reduce and/or share

costs through partnership with FXJ which would stabilise earnings in this business. We

estimate APN needs to realise $100mn cost savings over five years if publishing

circulations decline 5% CAGR and advertising revenues decline 2.5% CAGR to

maintain its current earnings. Our base case assumes $50mn cost savings over five

years ($0.10 per share).

■ APN is increasing the risk profile of its business through reduced exposure to Outdoor

and increasing exposure to Digital. Digital acquisitions have cost $50mn to date with

an additional $35mn in deferred payments if certain earnings hurdles are met. The

division remains unprofitable. Retaining key talent will be critical for the long-term

sustainability of the digital businesses and inherent brand value. We have not attached

significant value to the digital businesses in our valuation.

■ We expect APN’s business mix to continue to change. There is the potential to gain

full ownership of Radio from Clear Channel in exchange for Outdoor (or vice-versa).

There is also the potential to sell the Australian Publishing business.

■ APN’s increased exposure to volatile earnings streams needs to be matched by a

strong balance sheet. We need to see a significant reduction in APN’s $470mn net

debt (38% ND/ND+E).

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27 November 2012


News Corporation (NWS.AX), NEUTRAL, A$27.00 TP

Investment Case: Corporate split priced in.


■ News Corporation has announced its intention to split the company into a Media &

Entertainment business and a Publishing business. The split will occur towards the

end of FY13. The announcement of a split has already unlocked value to shareholders

and appears priced in, with NWS trading on 9x FY12 EBITDA compared with 7x prior

to the announcement. We value the Media & Entertainment business at ~A$23 per

share and the Publishing business at ~$5 per share.

■ The Publishing business is more interesting than at first glance. Following the

acquisition of Consolidated Media Holdings on 19 November 2012, we estimate the

Publishing business will be split 55/35/10 print/cable/digital. Over time, the earnings

contribution from Foxtel and Fox Sport will likely grow. Any potential sell down of the

Publishing business from US investors following the corporate split may be a buying

opportunity for Australian investors.

■ NWS continues to make solid strategic investments in Cable assets. An acquisition of

49% of YES Network (Yankees Entertainment and Sports Network) is sound given it is

a premium pay-TV asset with strong market position and growth potential.

■ NWS will continue to suffer from governance issues post the split, in our view. We

expect a dual class share structure to remain in place for both entities, which will result

in Murdoch family control over both businesses. We expect Rupert Murdoch to be

Chairman of both companies. Governance issues have resulted in a 10% discount to

our weighted valuation.

Seven West Media (SWM.AX), OUTPERFORM, $1.80 TP

Investment Case: Well positioned with potential to be acquired.


■ SWM has the leading FTA Television business with strong ratings and revenue share.

Momentum in ratings and revenue share is likely to continue with quality content locked

in for 2013. SWM’s sensitivity to a 1% change in commercial revenue share is a 5%

change to EBITDA and 9% change to our DCF. We expect investment in content to be

offset by more efficient news and back office costs. Whilst increasing pay-TV and IPTV

penetration poses some structural impediments, we expect the migration to be gradual

rather than a sudden step change. Cyclical fluctuations are likely to have a greater

impact on SWM, in our view. A 1% change to advertising spend results in a 3% change

to EBITDA and 5% change to our DCF. Television contributes 63% EBITDA.

■ SWM has a strong print business with a virtual monopoly in Western Australia. Whilst

structural impediments exist, the migration to digital is likely to occur at a slower pace

in WA relative to the east coast of Australia, in our view. This would give SWM more

time to reduce costs and create additional revenue streams to offset the structural

impact on earnings. Print contributes 36% EBITDA. SWM’s digital businesses offer a

significant growth opportunity.

■ SWM is improving its balance sheet. Funds raised from the $433mn capital raising will

be used to reduce debt to $1.4bn or 3.0x Net debt / EBITDA.

■ We attach 50% probability of SWM being acquired by SVW. A cash injection to SVW

coupled with an attractive share price for SWM could see SVW acquire 100% of SWM.

A $2.00 per share offer would represent 7.5x FY12 EBITDA.

27 November 2012


Ten Network Holdings (TEN.AX), NEUTRAL, $0.33 TP

Investment Case: Highly leveraged.


■ Ten is the most leveraged listed media stock to changes in advertising spend. A 1%

change in advertising revenue results in a 10% change to television EBITDA and a

3cps change to our DCF valuation. We do not expect material changes in the ad

market in the near term.

■ Ten is highly leveraged to changes in television ratings. A 1% change in Ten’s

commercial revenue share has a $30mn impact on revenue (4%), $25mn impact on

Ten’s EBITDA (40%) and 14cps impact to our DCF valuation. An improvement in

Ten’s revenue share will be determined by its ability to fund quality content from

offshore and deliver good locally produced programs.

■ Ten’s gearing is too high, in our view. Ten has $263mn net debt (post its $200mn

capital raising), of which $210mn is due to be refinanced in March 2013. Whilst the

sale of Eyecorp to Champ Private Equity for $113mn ($98mn upfront, $15mn deferred)

will alleviate some balance sheet pressure, we would like to see TEN move to a more

conservative gearing position.

■ We expect the dividend to remain suspended in FY13.

Prime Media Group (PRT.AX), NEUTRAL, $0.86 TP

Investment Case: Benefiting from strong ratings at Seven.


■ PRT’s regional television business (95% EBITDA) is likely to maintain strong ratings

and revenue share in line with Seven’s investment in quality content. As a sensitivity,

every 1% change in Seven’s commercial revenue share has an $8mn (3%) impact on

sales, an 8% impact on EBITDA and 10cps impact on our DCF valuation.

■ We expect a small escalation in PRT’s affiliate fee in FY13 – a 1% lift will have a 4%

impact on EBITDA and 5cps impact on our DCF valuation.

■ PRT’s Queensland radio business should experience some lift following weak market

conditions in FY12. We expect the radio business to be sold at some point over the

medium term for $30-40mn (cash proceeds likely to be used to reduce debt).

■ On 9x FY13 EPS, PRT looks fair value.

Southern Cross Media Group (SXL.AX), UNDERPERFORM, $1.00 TP

Investment Case: A challenging FY13, upside to FY14.


■ The acquisition of Austereo in 2011 has provided SXL with exposure to the dominant

player in a robust metro radio industry. We expect recent market share erosion to

stabilise in 2H13 as SXL invests in content. We expect stronger metro radio earnings

growth in FY14.

■ There is a $15-20mn p.a. synergy opportunity between regional and metro radio.

Synergies will primarily come from cost reduction in sales, revenue upside as a result

of increased scale and reach and content sharing across networks. We expect

implementation costs to offset synergies in FY13. We see earnings upside from FY14.

27 November 2012


■ Regional TV ratings and revenue share are likely to remain subdued until TEN

increases its investment in quality content. We see risk around the renegotiation of the

television affiliate agreement with TEN in 2013. Every 1% escalation in the affiliate fee

has a 1% impact on EBITDA and 2% impact on our DCF.

■ We view corporate activity as unlikely in the near term due to constrained balance

sheets in the sector. A potential relaxation of the 75% audience reach rule may spark

interest from TEN, however it is in no position to be acquiring assets at this point, in

our view.

Seek (SEK.AX), UNDERPERFORM, $6.93 TP

Investment Case: Lower employment to weigh on FY13.


■ SEK’s share price is highly correlated with Australian employment and online job ads,

with ~80% EBITDA derived from the domestic employment business. The continuation

of subdued corporate investment and growth is likely to result in flat-to-negative job ad

volume growth in SEK’s core employment business in FY13.

■ Lower employment in SEK’s international businesses also appears likely. Chinese GDP

growth has moderated over the past year. We expect SEK to consolidate its current

investments in the near-to-medium term and increase its exposure to international

markets. Further acquisitions are possible over the longer term, in our view.

■ Seek is the dominant player in Australia with proven success offshore. SEK has the

number 1 or 2 position in international markets. This dominant position should enable

pricing power and yield expansion over the medium term. We expect some yield

expansion in FY13, which would provide an offset to weaker volumes.

■ SEK’s Education businesses provide some cyclical diversification, however with the

Education businesses around one-quarter the size of the domestic employment

business, it provides little offset in its current form.

Carsales.com.au (CRZ.AX), OUTPERFORM, $8.80 TP

Investment Case: Solid and reliable earnings growth.


■ Carsales is the dominant player in Australian online automotive classifieds (~80%

share of total online viewership). It has superior traffic and IP in data services and

technology which should enable pricing power. New services and premium offerings to

private consumers and dealers will also support yield expansion.

■ We see a significant volume opportunity in new cars. New car inventories are 48K

compared with 89K for dealer used cars. We expect significant volume growth in new

car inventories and enquiries. Furthermore, the online automotive classifieds industry

is a less volatile industry relative to other online classifieds with the number of car

enquiries remaining robust through the cycle (there is a shift to lower value cars which

do not affect the number of enquiries).

■ Carsales should continue to benefit from the structural migration from print to online.

Display ad spend is significantly higher in auto and finance relative to other categories.

■ Growth in non-auto verticals such as Quicksales as well as potential international

expansion provides further upside. We have not included growth from international

expansion in our forecasts.

27 November 2012


REA Group (REA.AX), NEUTRAL, $19.76 TP

Investment Case: Good business, fair price.


■ In our view, REA is a quality business and on 25x FY13 EPS, is fair value. REA has

delivered 50% TSR over the past 12 months.

■ The core Australian business is likely to continue to grow strongly, albeit at a slower

rate than historically achieved. We forecast 15% EBITDA CAGR over the next five

years (compared with 27% EBITDA CAGR over the past five). REA’s dominant market

position coupled with new services and premium offerings should enable pricing power

and yield expansion. We expect yield expansion to more than offset agent

consolidation.

■ REA has $182mn net cash on its balance sheet. An acquisition or return to

shareholders appears likely. REA’s net cash would increase with a potential sale of

the atHome business (which may be sold due its smaller growth opportunities

geographically and strong competition, particularly in France). An acquisition appears

more likely than a return of capital to shareholders, in our view. An acquisition which

cements REA’s dominant position in Italy is likely to be well received.

■ There is the possibility of a change in shareholding by News Corporation in line with

the split of the business at the end of FY13. News Corporation currently owns 61% of

REA.

Trade Me Group Limited (TME.AX), NEUTRAL, A$3.70 TP

Investment Case: Fair price for dominant online player in New Zealand


■ Trade Me is the leading online Marketplace in New Zealand with ~95% market share.

Its dominant position should enable pricing power and yield expansion over the

medium term. The Channel Advisor partnership is likely to drive growth in new goods,

with software platforms integrated by the important Christmas 2012 shopping season.

■ Trade Me is New Zealand’s leading online Classifieds business with ~50% market

share (#1 Auto, #1 Real Estate, #2 Employment). Strong competitors in REA and SEK

are likely to keep a lid on yield in real estate and employment, however TME’s

dominant position in Auto should provide some offset (particularly following the Auto

Base acquisition).

■ TME’s strong traffic across its suite of websites coupled with continued migration of

advertising online should fuel strong growth in TME’s display revenues. We see further

upside from successful expansion of TME’s digital transaction businesses including

Pay Now, Travel Bug and Find Someone, however, we have not included significant

growth in our forecasts at this point.

■ TME is fairly priced at 22x FY13 PE.

STW Communications Group (SGN.AX), OUTPERFORM, $1.24 TP

Investment Case: Significant growth opportunity in SE Asia.


■ STW Communications Group is a dominant player in its core Australia and New

Zealand market, which represents ~95% group EBITDA. There is a domestic

consolidation opportunity as clients look to integrate their approach to advertising,

market insight and digital offerings and look for an agency that can provide solutions in

all areas.

27 November 2012


■ STW Communications Group appears well positioned to benefit from the structural

shift from print to digital. STW Communications Group is increasing collaboration with

clients including areas such as website design, targeted digital marketing and market

insight.

■ The greatest growth opportunity we see for STW Communications Group over the

medium term is international expansion, particularly in South East Asia. STW

Communications Group should be able to leverage existing relationships in the region

as well as bolt on acquisitions. We expect international EBITDA to grow from ~$4mn

in FY11 to $15-20mn over the next five years.

■ STW Communications Group has a strong balance sheet and cash flow. Net debt and

deferred payments of $137mn (including $29mn deferred payments) represents 25%

gearing (ND/ND+E) and 1.7x Net debt / rolling 12-month EBITDA.

27 November 2012


Ranking

Figure 2: Credit Suisse Australian Media Sector Summary Companies Market Net Share CS CS CS Upside Div Total ESG Current Fair val Rating

Cap. Debt EV Price Target SOP DCF to Yield Return TP MSCI MSCI PE PE

A$m A$m A$m $ Price $ Val $ Val $ TP % %** % Impact Rating Outlook 2013 2013

carsales.com.au 1,789 -41 1,748 7.59 8.80 8.80 8.90 16% 4.0% 20% 0% B Positive 21.8 25.2 OUTPERFORM

STW Communications Group 437 75 511 1.10 1.24 1.27 13% 7.4% 20% -2% 8.7 9.8 OUTPERFORM

Seven West Media Ltd 1,639 1,855 3,493 1.64 1.80 1.89 3.00 10% 6.1% 16% -5% BB Neutral 7.7 8.4 OUTPERFORM

News Corporation 57,242 5,829 63,071 23.70 27.00 27.70 32.30 14% 0.9% 15% -10% CCC Neutral 13.8 15.7 NEUTRAL

Prime Media Group 297 117 413 0.81 0.86 1.00 6% 8.0% 14% -3% 9.4 10.0 NEUTRAL

Trade Me Group Ltd 1,724 127 1,851 3.42 3.70 3.82 3.30 8% 3.9% 12% -3% 17.1 18.5 NEUTRAL

Ten Network Holdings 438 180 618 0.31 0.33 0.35 8% 0.0% 8% -5% A Neutral 37.1 40.1 NEUTRAL

REA Group 2,470 -182 2,288 18.75 19.76 20.81 18.23 5% 2.2% 8% -5% 24.8 26.2 NEUTRAL

Seek 2,299 226 2,525 6.82 6.93 6.93 9.00 2% 3.3% 5% 0% A Positive 16.3 16.6 UNDERPERFORM

Southern Cross Media Group 765 610 1,375 1.09 1.00 1.00 1.00 -8% 9.2% 1% 0% BB Neutral 8.1 7.5 UNDERPERFORM

Fairfax Media 1,058 849 1,907 0.45 0.40 0.42 0.60 -11% 3.3% -8% -3% BBB Positive 9.3 8.3 UNDERPERFORM

APN News & Media 198 489 688 0.30 0.23 0.24 0.38 -23% 11.8% -12% -3% BBB Negative 3.2 2.5 UNDERPERFORM Source: Company data, Credit Suisse estimates

Figure 3: Australian Media Forecast 12mth TSR Figure 4: Australian Media Forecast 12mth Capital Gain

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Earnings expectations

Figure 5: Australian Media Sales CAGR Figure 6: Australian Media EBITDA CAGR


27 November 2012


Figure 7: Australian Media EBITDA Margin Figure 8: Australian Media EPS CAGR


Earnings sensitivities

Figure 9: Australian Media Sensitivity to a 1% change in

Sales


Advertising Revenue


Figure 11: Australian Television Sensitivity to a 1%

change in Commercial Revenue Share

Figure 12: Australian Media Sensitivity to a 1ppt change

in Affiliate Fee


27 November 2012



Cash Costs


in EBITDA margin


Balance sheet strength

Figure 15: Australian Media Net Debt (A$mn) Figure 16: Australian Media Net Debt / EBITDA

Source: Credit Suisse estimates Source: Credit Suisse estimates

Cash generation and utilisation

Figure 17: Australian Media DPS Figure 18: Australian Media Payout


27 November 2012


Figure 19: Australian Media Dividend Yield Figure 20: Australian Media Free Cash Flow Yield


Valuations

Figure 21: Australian Media PE Multiple Figure 22: Australian Media EPS Growth

Source: Credit Suisse estimates Source: Credit Suisse estimates.

Figure 23: Australian Media EBITDA Multiple Figure 24: Australian Media EBITDA Growth

Source: Credit Suisse estimates Source: Credit Suisse estimates

27 November 2012


Stock performance

Figure 25: Australian Media 3mth TSR Performance Figure 26: Australian Media 12mth TSR Performance

Source: IBES Source: IBES

Short interest

FXJ is the most heavily shorted stock in the Australian Media sector and is the third most

shorted stock on the ASX. TEN is the second most shorted stock in the Australian Media

sector and is the nineteenth most shorted stock on the ASX. CRZ is the third most shorted

stock in the Australian Media sector and is the twenty-sixth most shorted stock on the

ASX.

Figure 27: FXJ short interest as % of shares on issue Figure 28: TEN short interest as % of shares on issue

Source: Bloomberg Source: Bloomberg

Figure 29: CRZ short interest as % of shares on issue Figure 30: SEK short interest as % of shares on issue

Source: Bloomberg Source: Bloomberg

27 November 2012


Figure 31: APN short interest as % of shares on issue

Source: Bloomberg

Media ownership

Figure 32 shows the current ownership structure of the Australian media sector.

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Figure 32: Australian Media Ownership

Source: Company data, IRESS

27 November 2012


ESG Issues

Media stocks impacted by Governance issues

The Australian Media sector has historically and appears set to continue to be impacted by

powerful and wealthy individuals who exert influence over the operation of the companies

they have substantial interests in.

NWS is the most obvious example of this, while SWM has been heavily involved in

corporate activity in recent years in part due to the influence of its major shareholder. We

also have governance concerns around TEN regarding the influence of its Chairman and

major shareholder.

Board structure

There is a lack of independence across Australian Media company boards.

■ Board concerns: The boards of the majority of companies we cover in the Media and

Internet sector suffer from a lack of truly independent directors. We have excluded

directors with family connections or appointed by major shareholders, previous

management or directors with more than 10 years on the Board.

■ Few truly independent boards: Only FXJ, SGN and SXL have a majority of

independent directors, with an independent Chairman. This raises many Governance

concerns with the covered companies, leading to our inclusion of downsides of 1-10%

impact on Target Prices.

■ Sector dominated by individuals/families: The sector is dominated by several

individuals/family structures.

Figure 33: Media sector Board independence

Ticker Company

# of

Directors Independent

Non-

Independent

%

Independent

Independent

Chairman?

APN APN News & Media 10 4 6 40% Yes

CRZ carsales.com.au 6 3 3 50% No

FXJ Fairfax Media 9 8 1 89% Yes

NWS News Corporation 14 7 7 50% No

PRT Prime Media Group 7 2 5 29% No

REA REA Group 8 2 6 25% No

SEK Seek 5 3 2 60% No

SGN STW Communications Group 7 4 3 57% Yes

SWM Seven West Media Ltd 7 3 4 43% No

SXL Southern Cross Media Group 7 5 2 71% Yes

TEN Ten Network Holdings 11 5 6 45% No

TME Trade Me Group Ltd 6 3 3 50% Yes

Source: Company data

Remuneration

There is a significant divide between the remuneration of the ‘digital’ media sector and the

‘traditional’ media sector.

■ Divergence of pay around ‘traditional’ versus ‘digital’ media: The media sector

remuneration is dominated by a divergence between the lean pay structures

(especially base pay) of the ‘digital’ media companies (CRZ, REA, SEK, TME) and the

legacy pay structures of many of the print and TV media companies. With market caps

of $1.6bn–$2.4bn, the digital media companies have base pay structures of $430k–

$880k per annum.

■ FY12 tough on short-term incentives as divergent performance: Short-term

incentives across the sector appear muted to non-existent; not surprising for some of

the media companies that have struggled (APN, SWM, TEN).

27 November 2012


■ TSR and EPS dominate LTI plans: All companies have Long Term Incentive

programs in place. Six of the companies use a TSR type measure, with most of the

companies having a profitability measure, with EPS growth dominating. Most of the

LTI plans have a three-year horizon.

■ Third quartile performance focus: In Figure 36 we examine the vesting hurdles for

LTI plans for the CEO. Most the TSR vesting is based on Relative TSR focused on

third-quartile performance (with all vesting 50% at the 51th percentile and 100%

vesting at the 75th percentile).

■ EPS growth targets of 3%–10%: The EPS growth measures are clustered around a

range of 7%–10% EPS growth over a three-year period. SGN is an outlier with a 3%–

8% EPS growth target and TEN with a 4%–8% growth target.

■ Hurdles out of the money: Our analysis of the hurdles set for the LTIs and our Credit

Suisse forecasts reveals some anomalies. We believe APN, FXJ, SWM and TEN have

EPS growth targets for the CEO’s LTI scheme that are significantly ‘out of the money’.

This raises concerns of what are the long-term drivers, in the absence of revised LTI

schemes.

■ Significantly ‘in the money’: CRZ has an EPS growth target of 4.8%–7.4% per

annum compound with our three-year EPS growth forecast at 14.4%.

Figure 34: CEO latest remuneration

Company name

Market

cap ($mn)

12 month

TSR

Base

Salary

($'000)

STI ($'000)

awarded

LTI ($'000)

grant

Total

($'000) Comments

APN News & Media 198 -43% 1,485 - 750 2,235 FY11 base

carsales.com.au 1,789 34% 874 500 533 1,907 FY11 base

Fairfax Media 1,058 -39% 1,600 420 800 2,820 FY13 plan

News Corporation 57,242 31% 8,100 10,425 3,509 22,034 First strike at FY12 AGM

Prime Media Group 297 3% 739 360 318 1,417

REA Group 2,470 17% 674 257 300 1,231

Seek 2,299 1% 820 - 1,000 1,820 New FY13 plan

STW Communications Group 437 0% 850 300 - 1,150

Seven West Media Ltd 1,639 -47% 2,600 - - 2,600

Southern Cross Media Group 765 -16% 700 230 253 1,183 New FY13 plan

Ten Network Holdings 438 -47% 2,200 - 288 2,488 New FY13 plan

Trade Me Group Ltd 1,724 - 430 114 192 736 Source: Company data

Figure 35: CEO type of long-term incentives used

Company name TSR Profitability Other

APN News & Media RTSR EPS growth

carsales.com.au EPS growth

Fairfax Media RTSR EPS growth

News Corporation RTSR EPS growth

FCF growth

Prime Media Group EPS growth Power ratio

REA Group EPS growth

Revenue growth

Seek Share price+5.8% p.a. Retention

STW Communications Group EPS growth

Seven West Media Ltd RTSR EPS growth

Southern Cross Media Group RTSR

Ten Network Holdings RTSR EPS growth

Trade Me Group Ltd EBITDA Source: Company data

27 November 2012


Figure 36: Hurdles for vesting of LTI for CEO

Company name TSR low end

TSR lower

end

vesting

TSR upper

end RTSR peer benchmark

Profitabilty

lower end

Profitability

upper end

Testing

Period

CS

Forecast 3

year EPS

CAGR

Consensus

Forecast 3

year EPS

CAGR

APN News & Media 51th percentile 50.0% 75th percentile GICS consumer discretionary 7.0% 10.0% 2011-14 -14.4% -8.0%

carsales.com.au 7.6% 9.1% 2012-15 14.4% 13.3%

Fairfax Media 50th percentile 50.0% 75th percentile ASX200 consumer discretionary 7.0% 10.0% 2012-15 -12.8% -12.1%

News Corporation n/a n/a n/a S&P500 n/a n/a 2012-15 15.5% 17.2%

Prime Media Group n/a 9.0%* 2012-15 -1.1% 3.9%

REA Group 10%+ 10%+ 2011-14 19.6% 18.5%

Seek 7.43$ 100.0% 7.43$

STW Communications Group 51th percentile 50.0% 75th percentile 3.0% 13.0% 2011-14 6.4% 5.7%

Seven West Media Ltd 51th percentile 50.0% 75th percentile 30 similar market cap ex-mining n/a 10%* 2012-15 1.8% -5.4%

Southern Cross Media Group 51th percentile 50.0% 75th percentile

Ten Network Holdings 51th Percentile 50.0% 75th percentile ASX200 consumer discretionary 4.0% 8.0% 2011-14 -47.1% -45.2%

Trade Me Group Ltd NZ$110.9mn Source: Company data

Valuation impact for Australian Media companies

We have included a 10% downside ESG impact to valuation for NWS. NWS has been

faced with significant governance issues; most recently the phone hacking controversy

and the failed takeover of BSkyB. The considerable influence that Rupert Murdoch and the

Murdoch family exert over the company through its dual class share structure raises the

risk of further governance issues in the future as well as inhibiting the rights of minority

shareholders. The Murdoch family hold 12% of outstanding shares but 38% of voting

rights for NWS.

We have included a 5% downside ESG impact to our valuation for SWM. The lack of

independence on the Board and influence of Chairman and major shareholder Kerry

Stokes increases the risk to minority shareholders and their interests. Stokes has a 68%

interest in SVW and SVW has a 34% interest in SWM.

We have included a 5% ESG impact to our valuation for TEN. Chairman and substantial

shareholder Lachlan Murdoch has previously shown his willingness to exert his influence

over the company by taking over as Interim CEO prior to the commencement of James

Warburton’s employment. Additionally, less than half of TEN’s Board is independent,

lessening the likelihood of the Board resisting attempts to influence the company by major

shareholders. Lachlan Murdoch has 9% interest in TEN, James Packer 9%, Gina Rinehart

10% and Bruce Gordon 10%.

We have included a 5% ESG impact to our valuation for REA. NWS owns 61% of REA

and has effective Board control, resulting in a low free float and reduced liquidity in

addition to higher risks to minority shareholders.

We have included a 3% ESG impact to our valuation for FXJ. We have included a 3%

ESG impact to our valuation for FXJ. Gina Rinehart has been vocal in her opposition to

parts of the company’s strategic direction and the company’s Board composition.

Increased influence of a major shareholder may also pose problems in relation to editorial

independence. Gina Rinehart has a 15% interest in FXJ.

We have included a 3% ESG impact to our valuation for TME. The board is not fully

independent and there is a risk that minority shareholders' wishes could be ignored by

majority shareholder FXJ. FXJ owns 51% of TME.

We have included a 3% ESG impact to our valuation for APN. The appointment of an

Independent Chairman has reduced governance risk, however APN does not have a

majority of independent Directors and major shareholder INM retains considerable

influence over the company. INM has a 38% interest in APN.

27 November 2012


We have included a 3% ESG impact to our valuation for PRT. Paul Ramsay is Chairman

and major shareholder with a 30% stake in PRT. While we have seen no indication that

Paul Ramsay will try to exert undue influence on the company, there is a lack of

independence on the Board.

We have included a 2% ESG impact to our valuation for SGN. While WPP to date has not

looked to exert undue influence on the company, as SGN expands internationally it is

possible that its interests may conflict with those of WPP. WPP has a 19% interest in SGN.

Additionally, given that the company is increasingly investing in South East Asia where

ESG risks may be more prevalent and harder to measure, this is something that we will be

keeping our eye on.

We have included 0% ESG impact to our valuation for SXL. SXL has encountered

reputational issues within its radio division in the past 12 months caused by controversy

surrounding on-air talent. We have not quantified this risk as it is impossible to predict and

we do not believe it to be an ESG issue.

We have included 0% ESG impact to our valuation for SEK. SEK's increasing expansion

into offshore markets could expose it to higher ESG risk in the future. However given that

the vast majority of value in our DCF-derived Target Price is attributable to its Australian

employment business we do not currently factor any ESG risk into our Target Price.

We have included 0% ESG impact to our valuation for CRZ. We do not foresee any ESG

risks on the horizon for CRZ.

MSCI IVA rating outlook for Australian Media companies

We have a Positive outlook on the MSCI IVA ratings for CRZ, FXJ and SEK

■ As CRZ has a relatively small Environmental footprint we see no reason other than

lack of disclosure that it is scoring poorly on Environmental and Social issues. If the

company were to provide disclosure on these points its rating would likely be higher.

■ FXJ’s overall rating is being negatively impacted by a low Environmental score which

we believe to be related to lack of disclosure. MSCI has penalised FXJ for inadequate

disclosure regarding the origin and environmental impact of its newsprint. However,

FXJ has announced plans to close two large printing plants. As a result we see the

potential for an improvement in FXJ’s MSCI IVA ratings if it improves its disclosure on

Environmental issues.

■ SEK has been downgraded to 'A' from 'AA' despite the company continuing to perform

well across the key issues. We so no reason that SEK should have been downgraded

given that its Social policy and Governance have not materially changed in our view.

We have a Neutral outlook on the MSCI IVA ratings for NWS, SWM, SXL and TEN

■ NWS is rated 'CCC' (the lowest rating) because it continues to face considerable

scrutiny due to allegations of illegal phone hacking that surfaced during July 2011 and

resulted in the closure of its News of the World tabloid. Given the ongoing legal

problems and justified concerns over governance it is unlikely that the negative

perception around NWS from an ESG perspective will abate anytime soon.

■ SWM has maintained its rating of 'BB' because according to MSCI there have been no

material changes to its exposure to or management of the key Environmental, Social,

and Governance risks that it faces. We so no reason apart from lack of disclosure why

SWM should have such a low Environmental score given that it does not partake in

any potentially harmful activities. However, we see downside to its high Governance

rating due to the lack of independence on the board and influence of Chairman and

major shareholder Kerry Stokes. As a result we have a Neutral outlook overall.

27 November 2012


■ SXL has faced issues over high profile employees in its metro radio division which has

resulted in its MSCI IVA rating being downgraded from ‘A’ to ‘BB’. Further issues could

impact future ratings or incur legal costs, however we believe that these risks are

already incorporated into the current rating.

■ TEN has been downgraded to 'A' from 'AAA' due to high risk of work stoppages,

exacerbated by layoffs since 2011. While we see the likelihood of any strike action as

minimal, TEN continues to restructure its cost base through substantial workforce

redundancies. We see any change to TEN’s MSCI rating as unlikely in the short term.

We have a Negative outlook on the MSCI IVA rating for APN

■ APN's governance has improved following the appointment of an independent

Chairman, lessening the risk of interference from major shareholder Independent

News and Media. However, MSCI has not previously taken Governance risk into

consideration, reducing scope for an uplift in rating as a result. The lack of

independence on the Board (only four out of 10 Directors are independent) could

result in a reduction in the Governance score.

Note: PRT, REA, SGN and TME are not currently rated by MSCI

Figure 37: MSCI IVA rating for FXJ: BBB Figure 38: MSCI IVA rating for APN: BBB

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Environment Social Governance

Stock Local Sector Country Global Sector

3.0

4.0

5.0

6.0

7.0

8.0

9.0



Source: MSCI IVA Ratings Source: MSCI IVA Ratings

Figure 39: MSCI IVA rating for NWS: CCC Figure 40: MSCI IVA rating for SWM: BB

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0




27 November 2012


Figure 41: MSCI IVA rating for TEN: A Figure 42: MSCI IVA rating for SXL: BB

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0




Figure 43: MSCI IVA rating for SEK: A Figure 44: MSCI IVA rating for CRZ: B


27 November 2012


Media through HOLT®

Credit Suisse HOLT® Valuations for Australian Media Companies

Credit Suisse’s HOLT® valuation tool calculates corporate performance in terms of cash

flow return on investment. Simply stated, HOLT® takes accounting information, converts it

to cash, and then values that cash. (Refer to appendix for detailed explanation of Credit

Suisse HOLT® valuation).

Figure 45 highlights Credit Suisse’s HOLT® valuations using Credit Suisse assumptions

and HOLT® default settings compared to our DCF and Sum of the Parts valuations.

Key points to consider when assessing the HOLT® valuations:

■ HOLT® uses CFROI® to determine company fade rates. Given digital businesses are

asset light in nature and generate very high CFROI® (relative to traditional media

peers), the HOLT® default valuations for the digital media companies (SEK, CRZ,

REA, TME) are impacted by higher fade rates.

■ A material benefit of fade is that it explicitly avoids estimating a terminal multiple.

Terminal multiples are subject to manipulation and can contribute to outsized valuation

effects. Instead, economic profits and losses are forecast to eventually earn the cost of

capital over time.

■ HOLT® default valuations are also somewhat impacted by associate entities. The

standard investment treatment is to remove equity investments and associated income

from gross investment and gross cash flows respectively in order to more accurately

measure the CFROI® of the company. They are excluded from CFROI® because they

represent strategic, unconsolidated investments that are not part of the company's

core business. Instead, their balances are valued separately and added to the

enterprise value with any gain or loss after-tax.

Figure 45: Credit Suisse HOLT® Media Valuations

Companies Share CS CS CS HOLT®

Price TP SOP DCF CS Media

A$ A$ Valn A$ Valn A$ Valn A$

News Corporation 23.70 27.00 27.70 32.30 27.06

Fairfax Media 0.45 0.40 0.42 0.60 0.48

APN News & Media 0.30 0.23 0.24 0.38 0.75

Seven West Media Ltd 1.64 1.80 1.89 3.00 1.39

Ten Network Holdings 0.31 0.33 na 0.35 0.48

Prime Media Group 0.81 0.86 na 1.00 0.73

Southern Cross Media Group 1.09 1.00 1.00 1.00 1.46

Seek 6.82 6.93 6.93 9.00 4.07

carsales.com.au 7.59 8.80 8.80 8.90 5.66

REA Group 18.75 19.76 20.81 18.23 12.21

Trade Me Group Ltd 3.42 3.70 3.82 3.30 2.23

STW Communications Group 1.10 1.24 na 1.27 1.23

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT® Valuation. Prices as at 26

November 2012. Note: HOLT® is not as effective in determining high growth internet stock valuations.

HOLT® Comparison of Australian Media to Global Peers – Traditional Media

CFROI®

Australian Traditional Media Company economic returns are lower than global peers.

In the chart below, the blue bar represents the returns achieved for the past fiscal year.

The pink bar represents the forecasted returns for the next fiscal year, while the green dot

represents the future level of economic returns given the current price. The green dot can

be thought of as the market’s expected level of return for this company.

27 November 2012


Figure 46: Traditional Media Company CFROI through Credit Suisse HOLT®

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT® Valuation

Operating Margin

Australian Traditional Media Company operating margins are in line with global peers.

HOLT’s operating margin represents the firm's profitability defined as the ratio of operating

income to net sales. Unlike traditional EBITDA, HOLT's Operating Margin is not reduced

by expenses for Stock Options, R&D or Rent, to better reflect the cash generation of the

operating entity.

Figure 47: Traditional Media Company Operating Margin through Credit Suisse HOLT®


Valuation Metrics

The charts below compare the key HOLT valuation metrics: HOLT Price/Book

(Value/Cost), and Economic PE. When used together these metrics provide an estimate of

a firm's relative current and future value. The HOLT Price/Book and Economic PE metrics

provide an indication of the value of each firm given its current level of returns – higher

values suggest more expensive stocks or at least stocks with higher investor expectations.

HOLT’s Price to Book is calculated as price divided by inflation adjusted net assets (where

net assets includes leased assets, capitalised R&D).

HOLT’s Economic PE is calculated as Enterprise Value over net assets divided by CFROI.

Australian Traditional Media Company valuations are lower than global peers on a

Price/Book and Economic PE basis.

27 November 2012


Figure 48: Traditional Media Company Price to Book through Credit Suisse HOLT®


Figure 49: Traditional Media Company Economic PE through Credit Suisse HOLT®


Momentum Factors

The charts below provide the CFROI revisions for Traditional Media companies.

CFROI Revisions measure the impact on the firm's CFROI from a change in the

consensus earnings estimates. In other words, positive revisions results from positive

changes to the firm's EPS estimates. The top chart shows the 13-week change in CFROI,

while the bottom chart shows the change in the past four weeks.

Australian Traditional Media Company momentum factors are negative and below global

peers.

Figure 50: Traditional Media Company CFROI Revisions (13 wks) through Credit Suisse HOLT®


27 November 2012


Figure 51: Traditional Media Company CFROI Revisions (4 wks) through Credit Suisse HOLT®


Companies

Figure 52: Traditional Media Companies used in the above Credit Suisse HOLT® Valuation analysis


HOLT® Comparison of Australian Media to Global Peers – Digital Media

CFROI

Australian Digital Media Company economic returns are higher than global peers.





Figure 53: Digital Media Company CFROI through Credit Suisse HOLT®


27 November 2012


Operating Margin

Australian Digital Media Company operating margins are higher than global peers.




operating entity.

Figure 54: Digital Media Company Operating Margin through Credit Suisse HOLT®


Valuation Metrics









Australian Digital Media Company valuations are higher than global peers on a Price/Book

basis and in line with global peers on an Economic PE basis.

Figure 55: Digital Media Company Price to Book through Credit Suisse HOLT®


27 November 2012


Figure 56: Digital Media Company Economic PE through Credit Suisse HOLT®


Momentum Factors

The charts below provide the CFROI revisions for Digital Media companies.





Australian Digital Media Company momentum factors are positive and above global peers

over 13 weeks, however are negative and below global peers over four weeks.

Figure 57: Digital Media Company CFROI Revisions (13 wks) through Credit Suisse HOLT®


Figure 58: Digital Media Company CFROI Revisions (4 wks) through Credit Suisse HOLT®


27 November 2012


Companies

Figure 59: Digital Media Companies used in the above Credit Suisse HOLT® Valuation analysis

Source: Credit Suisse HOLT® Valuation

HOLT® Comparison of Australian Media to Global Peers – Advertising Companies

CFROI

Australian Advertising Company economic returns are higher than global peers.





Figure 60: Advertising Company CFROI through Credit Suisse HOLT®


Operating Margin

Australian Advertising Company operating margins are higher than global peers.




operating entity.

27 November 2012


Figure 61: Advertising Company Operating Margin through Credit Suisse HOLT®


Valuation Metrics









Australian Advertising Company valuations are in line with global peers on a Price/Book

basis and below global peers on an Economic PE basis.

Figure 62: Advertising Company Price to Book through Credit Suisse HOLT®


Figure 63: Advertising Company Economic PE through Credit Suisse HOLT®


Momentum Factors

The charts below provide the CFROI revisions for Traditional Media companies.

27 November 2012






Australian Advertising Company momentum factors are positive and above global peers.

Figure 64: Advertising Company CFROI Revisions (13 wks) through Credit Suisse HOLT®


Figure 65: Advertising Company CFROI Revisions (4 wks) through Credit Suisse HOLT®


Companies

Figure 66: Advertising Companies used in the above Credit Suisse HOLT® Valuation analysis

Source: Credit Suisse HOLT® Valuation

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Global Benchmarks

Figure 67: Global Media Sector Valuations

Code Rating Curr Price Target Uside/ Mkt CapEV/EBITDA (x) PE (x)

Price Dside US$M 2011 2012F 2013F 2011 2012F 2013F 1W 1M 3M 12M

Agencies

Americas

Interpublic Group * IPG NR USD 10.32 NR NA 4,452 4.9x 4.7x 4.3x 13.6x 13.1x 11.1x 4.1% 0.3% -3.1% 22.7%

Omnicom Group Inc. * OMC NR USD 47.46 NR NA 12,538 7.4x 7.0x 6.6x 14.3x 13.2x 12.0x 1.4% -1.4% -7.1% 18.6%

Aimia AER.TO O CAD 15.12 20.00 32.3% 2,624 8.7x 7.8x 7.3x 14.5x 10.8x 9.8x 2.1% 1.7% 6.5% 26.7%

Asia

Charm Communication CHRM.OQ O USD 4.45 6.50 46.1% 173 1.5x 23.0x 3.5x 4.0x 49.9x 10.0x -3.5% -0.4% -17.0% -52.9%

STW Communications Group SGN.AX O AUD 1.05 1.08 NA 434 6.9x 5.6x 5.0x 9.2x 9.4x 8.2x 3.0% 0.0% -2.3% 33.1%

Asatsu-DK * 9747 NR JPY 1922 NR NA 995 17.0x 15.9x 18.1x 35.4x 27.4x 26.4x 4.1% 3.8% -7.1% 3.3%

Dentsu * 4324 NR JPY 2030 NR NA 6,852 8.5x 7.8x 7.4x 18.3x 16.5x 15.0x 3.6% 7.6% 1.2% -6.8%

Hakuhodo DY Hldg * 2433 NR JPY 5080 NR NA 2,395 9.4x 7.8x 7.3x 25.5x 17.4x 15.3x 3.4% 4.4% -2.3% 23.3%

Cheil Worldwide 030000.KS U KRW 22100 20400 -7.7% 2,343 15.8x 13.5x 12.4x 26.6x 23.7x 21.7x 3.8% 4.7% 6.5% 21.4%

Europe

Aegis Group AEGS.L U GBP 235.30 240.00 2.0% 4,425 12.3x 11.6x 9.9x 24.3x 19.1x 17.6x 0.0% -0.2% -0.9% 91.1%

Havas EURC.PA U EUR 4.10 3.20 -22.0% 2,032 8.4x 7.2x 6.9x 14.7x 11.7x 10.6x 6.3% 5.2% 1.5% 47.9%

Publicis PUBP.PA O EUR 43.61 46.50 6.6% 11,882 9.3x 8.3x 7.6x 14.7x 13.7x 13.0x 3.3% 5.8% 4.4% 33.6%

WPP WPP.L O GBP 848.00 950.00 12.0% 17,177 8.5x 7.8x 7.2x 12.5x 11.4x 10.3x 4.0% 5.9% 1.4% 37.6%

Average Agencies 9.9% 68,322 8.8x 8.1x 7.5x 16.0x 14.2x 12.9x 3.0% 3.6% -0.1% 29.5%

Cable/Satellite

Americas

Charter CHTR O USD 70.00 90.00 28.6% 7,033 7.4x 7.4x 7.4x NM NM 58.7x 2.0% -8.6% -8.8% 35.0%

Comcast CMCSA N USD 36.91 40.00 8.4% 100,089 6.1x 5.8x 5.5x 24.6x 16.3x 15.0x 2.5% -1.7% 8.7% 75.8%

Cablevision * CVC NR USD 13.98 NR NA 3,679 6.3x 6.8x 6.6x 13.7x 20.9x 16.7x 0.6% -21.9% -5.7% -3.5%

DISH Network Corp. DISH O USD 35.75 38.00 6.3% 16,139 6.0x 7.2x 7.0x 10.5x 24.4x 17.2x 2.1% 0.6% 12.3% 50.0%

The Directv Group Inc DTV N USD 49.49 58.00 17.2% 29,899 6.5x 6.1x 5.6x 14.3x 11.9x 9.6x 0.8% -3.5% -5.4% 9.8%

Liberty Global LBTYA.OQ O USD 57.03 65.00 14.0% 8,223 6.8x 6.2x 5.6x NM NM 53.5x 0.4% -5.6% 3.5% 45.9%

Time Warner Cable TWC O USD 93.55 92.00 -1.7% 28,231 6.7x 6.2x 5.9x 18.8x 13.7x 13.1x 1.3% -6.0% 4.1% 62.3%

Sirius XM * SIRI NR USD 2.78 NR NA 10,822 13.2x 12.6x 10.4x 39.7x 5.2x 27.0x 2.8% -1.4% 9.9% 58.9%

Quebecor, Inc. QBRb.TO O CAD 37.42 48.00 28.3% 1,629 5.9x 5.6x 5.2x 12.5x 11.2x 8.9x 1.5% 7.2% 5.9% 18.4%

Rogers Communications (NVS) RCIb.TO O CAD 43.46 46.00 5.8% 22,590 7.3x 7.2x 6.7x 13.5x 13.2x 12.4x 1.5% -1.6% 8.9% 18.9%

Shaw Communications (NVS) SJRb.TO N CAD 21.64 21.00 -3.0% 9,193 6.8x 6.6x 6.4x 13.6x 13.9x 13.2x 0.4% 2.8% 7.2% 5.6%Asia

Consolidated Media Holdings * CMJ.AX NR AUD 3.44 NR NA 2,021 NM NM NM 20.2x 20.0x 18.9x 0.0% 0.3% 0.0% 41.6%

SKY Network SKT.NZ N NZD 5.05 5.75 13.9% 1,618 7.3x 7.1x 6.8x 16.2x 15.9x 14.9x -0.4% -4.9% 2.0% -7.0%

KT Skylife 053210.KS N KRW 32900 32500 -1.2% 1,445 17.6x 12.0x 8.5x 49.1x 25.4x 16.5x 10.0% 15.4% 26.5% 36.8%

Dish TV India DSTV.BO O INR 73.40 82.00 11.7% 1,410 20.1x 15.5x 11.3x NM NM 104.1x -2.5% 1.2% 7.5% 17.6%Europe

British Sky Broadcasting BSY.L N GBP 777.50 610.00 -21.5% 20,422 9.4x 8.5x 8.1x 16.7x 14.9x 14.1x 3.2% 8.3% 1.8% 7.1%

Cyfrowy Polsat S.A * CPSM.WA NR PLN 15.49 NR NA 1,705 10.2x 8.0x 7.8x 15.2x 11.4x 11.7x 4.7% 7.0% 6.8% 20.5%

Sky Deutschland AG SKYDn.DE U EUR 3.91 1.00 -74.4% 3,949 NM NM 30.9x NM NM 215.3x 7.6% 19.4% 37.6% 145.3%

Virgin Media VMED.OQ O USD 34.01 23.71 -30.3% 9,129 7.2x 6.9x 6.5x 42.3x 31.8x 19.1x 1.1% 4.6% 25.5% 52.9%Rest of World

Grupo Clarin * GCLA NR USD 2.49 NR NA 358 NM NM NM NM NM NM 0.0% -0.4% -34.5% -50.2%

Megacable Holdings MEGACPO N MXN 32.38 2.32 -92.8% 3,567 12.6x 11.7x 9.9x 188.3x 197.3x 170.7x 0.1% -4.5% 12.6% 11.7%

Net Servicos de Comunicacao * NETC NR BRL 27.39 NR NA 4,514 NM NM NM NM NM NM 0.1% 1.0% 1.7% 55.6%

Naspers NPNJn.J O ZAR 539.85 500.00 -7.4% 24,291 8.9x 8.7x 7.3x 44.6x 32.5x 23.1x 0.0% -2.3% 9.6% 55.1%

Average Cable/Satellite -5.8% 311,955 7.1x 6.7x 6.6x 23.0x 17.8x 21.8x 1.8% -1.3% 6.8% 48.7%

Performance

Source: Company data, Credit Suisse estimates, IBES estimates.

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ExhibitionAmericas

Cinemark Holdings, Inc * CNK NR USD 26.11 NR NA 3,000 7.5x 6.8x 6.4x 20.9x 16.5x 14.7x -0.1% 7.6% 12.8% 40.7%

Cineplex Galaxy Income Fund CGX_u.TO N CAD 30.40 29.00 -4.6% 1,901 12.1x 10.5x 10.0x 35.5x 15.8x 17.8x -1.3% -0.5% 0.8% 22.1%

National CineMedia NCMI O USD 13.28 17.00 28.0% 746 6.6x 6.7x 6.2x 23.0x 23.2x 20.6x -0.4% -14.0% -6.1% 11.4%

Regal Entertainment Group * RGC NR USD 15.27 NR NA 2,374 9.0x 7.1x 6.8x 46.3x 18.0x 16.6x -0.1% -0.7% 10.4% 12.0%

Average Exhibition 11.7% 8,021 8.9x 7.8x 7.4x 32.1x 17.4x 16.5x -0.4% 1.2% 7.5% 25.1%

Internet

Americas

comScore * SCOR NR USD 13.43 NA 479 9.2x 10.0x 11.3x NM NM NM 2.3% -4.8% -3.6% -25.0%

Dice Holdings Inc. * DHX NR USD 8.50 NA 507 6.8x 6.2x 5.7x 17.3x 14.5x 13.2x 1.1% -3.3% 6.3% 20.6%

Google, Inc. GOOG O USD 667.97 847.00 26.8% 219,491 11.1x 9.4x 7.9x 18.5x 16.2x 13.5x 0.0% -1.1% -1.4% 19.0%

InterActiveCorp IACI O USD 42.85 66.00 54.0% 3,790 12.0x 7.8x 5.3x 19.0x 14.6x 10.3x -0.7% -12.9% -17.9% 9.9%

Monster Worldwide Inc. * MWW NR USD 5.62 NA 658 4.2x 5.0x 4.3x 15.2x 17.9x 12.3x 2.7% -9.5% -19.8% -14.7%

Netflix, Inc. NFLX O USD 82.95 80.00 -3.6% 4,608 10.7x 67.6x 63.9x 16.7x 100.7x 93.8x 1.9% 19.2% 31.8% 29.9%

Yahoo Inc. YHOO N USD 18.57 19.00 2.3% 21,963 10.9x 12.3x 12.1x 22.7x 5.5x 16.3x 1.2% 10.6% 26.2% 22.9%

Asia

carsales.com.au CRZ.AX O AUD 7.59 8.80 15.9% 1,871 18.8x 15.9x 13.4x 27.3x 23.2x 19.8x 0.3% 3.8% 6.3% 67.4%

REA Group REA.AX U AUD 17.99 17.10 -4.9% 2,478 19.0x 15.8x 13.5x 30.4x 25.4x 21.9x 1.8% 4.3% 13.1% 46.1%

Seek SEK.AX U AUD 6.75 6.89 2.1% 2,380 14.4x 11.3x 9.7x 19.7x 17.0x 14.5x 4.5% 0.0% -5.6% 18.8%

Trade Me Group Ltd TME.AX N AUD 3.41 4.70 37.8% 1,412 NA 12.9x 11.5x NA 17.8x 16.0x 2.4% -3.1% 15.2% -

Baidu Inc BIDU.OQ U USD 96.22 82.00 -14.8% 33,607 23.5x 15.8x 13.4x 31.6x 20.0x 18.2x 4.1% -15.5% -20.2% -19.8%

Renren Inc. RENN.N N USD 3.40 4.23 24.4% 1,339 NM NM NM 24.0x NM NM -0.6% -0.3% -11.7% -8.4%

Sina Corporation SINA.OQ O USD 47.08 78.00 65.7% 3,132 NM NM 43.1x NM NM 148.8x -3.3% -16.1% -16.0% -25.5%

Sohu.com SOHU.OQ R USD 37.88 NA 1,439 R R R R R R 3.9% -1.8% -7.4% -21.3%

Taomee Holdings Ltd TAOM.N O USD 3.41 17.40 410.3% 125 -1.2x -0.8x -0.5x 5.8x 5.9x 4.0x -2.8% -2.6% -9.1% -32.7%

Tencent Holdings 0700.HK O HKD 256.40 295.00 15.1% 61,230 26.2x 20.1x 15.0x 46.7x 36.8x 27.6x 4.2% -3.9% 5.7% 69.8%

Daum Communications Corp 035720.KQ N KRW 88200 107000 21.3% 1,098 6.9x 7.1x 6.4x 11.4x 12.7x 11.6x 3.8% -3.0% -17.1% -38.2%

NHN Corp 035420.KS O KRW 265500 320000 20.5% 11,821 17.2x 16.3x 12.9x 28.3x 25.2x 19.7x 7.5% 6.6% 1.7% 8.1%

SK Communications Co Ltd 066270.KQ U KRW 7650 5100 -33.3% 306 12.2x NM NM 78.0x NM NM 7.6% -13.6% -11.9% -46.7%

Yahoo Japan 4689 O JPY 27010 33000 22.2% 19,015 7.2x 6.6x 5.9x 15.9x 14.5x 12.9x 0.2% -2.5% 0.9% 19.7%

Europe

Moneysupermarket.com MONY.L O GBP 156.00 R NA 1,344 16.5x 13.4x 10.2x 20.1x 19.4x 13.8x 1.1% 11.1% 12.1% 52.9%

Perform Group Plc PER.L O GBP 395 435 10.1% 1,513 49.4x 25.0x 16.8x 63.1x 35.1x 24.1x 0.0% -7.7% 5.6% 97.5%

Rest of World

Mail.Ru MAILRq.L O USD 30.79 55.00 78.6% 6,436 9.1x 7.5x 5.9x 30.8x 25.2x 18.8x -2.5% -5.8% -4.5% 6.2%

Yandex YNDX.OQ O USD 22.44 30.26 34.8% 7,311 -1.6x -1.1x -0.9x 1.3x 0.9x 0.7x 1.2% -2.7% 6.0% 13.6%

Average Internet 20.7% 409,352 14.1x 12.2x 10.4x 24.1x 19.9x 18.1x 1.3% -2.0% 0.1% 22.9%

Performance


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Newspapers

Americas

A. H. Belo * AHC.N NR USD 4.70 NR NA 110 2.3x 2.8x 2.6x NM 117.5x 32.4x 0.2% -5.1% -0.8% 19.3%

Gannett * GCI NR USD 17.83 NR NA 4,225 4.8x 4.8x 4.8x 8.4x 7.9x 8.0x 2.6% 6.4% 18.6% 69.8%

Journal * JRN NR USD 5.50 NR NA 278 4.2x 3.2x 3.8x 14.5x NM NM 1.9% -0.2% -0.5% 42.9%

Lee Enterprises * LEE NR USD 1.25 NR NA 49 NM NM NM NM NM NM 5.0% -16.1% -16.1% 108.3%

Media General * MEG NR USD 4.08 NR NA 114 NM NM NM NM NM NM 1.5% -0.5% -14.5% 19.3%

McClatchy * MNI NR USD 3.05 NR NA 262 0.8x NM NM 4.4x 4.5x 4.8x 3.0% 16.4% 87.1% 172.3%

New York Times * NYT NR USD 8.18 NR NA 1,215 4.0x 5.1x 5.2x 12.2x 15.6x 15.7x 1.4% -0.1% -10.9% 25.7%

EW Scripps * SSP NR USD 9.63 NR NA 529 13.8x 3.8x 6.1x 240.8x NM NM 2.0% -10.4% -7.6% 26.7%

Torstar Corporation (NVS) TSb.TO N CAD 7.21 9.00 24.8% 507 2.7x 3.0x 3.1x 4.0x 4.7x 5.0x -4.8% -17.1% -18.0% -16.5%

Asia

APN News & Media APN.AX U AUD 0.30 0.23 NA 205 3.4x 4.0x 3.8x 2.3x 3.1x 3.2x -1.0% -15.1% -23.8% -61.7%

Fairfax Media FXJ.AX N AUD 0.44 0.40 NA 1,082 3.2x 3.8x 4.2x 4.4x 6.5x 8.7x 8.6% 14.3% -2.2% -42.9%

Singapore Press Holdings SPRM.SI N SGD 4.08 4.50 10.3% 5,330 13.3x 13.5x 13.2x 17.5x 17.2x 16.7x 0.7% 0.0% 2.0% 6.0%

Star Publications * STAR.KL NR MYR 2.99 NR NA 722 6.8x 7.0x 6.5x 11.8x 13.2x 11.9x -2.9% -5.1% -7.1% -6.9%

Deccan Chronicle * DCHL.BO NR INR 5.59 NR NA 21 NM NM 0.2x NM NM 1.5x 6.7% -32.7% -56.0% -88.3%

HT Media * HTML.BO NR INR 95.15 NR NA 403 7.8x 8.6x 7.4x 13.2x 13.6x 11.6x -5.1% -5.7% 2.1% -18.1%

Jagran Prakshan * JAGP.BO NR INR 101.45 NR NA 579 11.2x 11.4x 10.0x 17.1x 15.9x 14.2x -0.6% 0.9% 10.3% -0.6%

Europe

Daily Mail & General Trust DMGOa.L O GBP 519.50 500.00 -3.8% 3,021 7.8x 7.7x 7.9x 10.9x 10.7x 10.0x 10.1% 9.9% 9.4% 33.9%

Edipresse * EDI.S NR CHF 650.00 NR NA 592 NM NM NM NM NM NM - - - -

Johnston Press * JPR.L NR GBP 12.75 NR NA 131 4.5x 5.3x 5.5x 3.6x 4.6x 5.0x -1.9% 29.1% 117.9% 177.2%

Trinity Mirror * TNI.L NR GBP 81.50 NR NA 337 2.6x 2.6x 2.8x 3.0x 2.9x 3.1x 4.2% 59.0% 115.9% 79.1%

Schibsted * SBST.OL NR NOK 225.10 NR NA 4,302 12.1x 12.5x 10.8x 25.7x 24.7x 20.2x 0.8% 6.7% 11.9% 78.5%

Rest of World

Dogan Yayin Holding * DYHOL.IS NR TRY 0.82 NR NA 914 44.5x 7.1x 6.0x NM 25.6x 21.0x 10.8% 28.1% 22.4% 57.7%

Hurriyet Gazeteclik * HURGZ.IS NR TRY 0.91 NR NA 280 25.5x 6.7x 5.6x NM 10.1x 16.0x 4.6% 12.3% 7.1% 28.2%

Average Newspapers 10.5% 25,208 9.9x 8.3x 8.0x 17.9x 14.2x 12.8x 2.7% 5.3% 9.2% 36.0%

OutdoorAmericas

Clear Channel * CCO NR USD 6.56 NR NA 4,410 11.6x 12.7x 11.9x 50.5x NM NM -0.2% -0.6% 28.6% -37.6%

Lamar Advertising * LAMR NR USD 40.20 NR NA 3,765 12.0x 11.5x 10.9x NM NM 69.2x -1.2% 2.4% 22.4% 79.4%Asia

Clear Media * 0100.HK NR HKD 4.00 NR NA 273 3.9x NM NM 11.4x 10.5x 8.9x 3.9% -2.0% -4.3% 27.0%

Focus Media FMCN.OQ R USD 24.52 NA 3,170 R R R R R R 1.1% 3.0% 0.2% 38.8%

Vision China * VISN.OQ NR USD 0.22 NR NA 22 -3.1x NM NM NM NM NM 7.5% 1.9% -12.2% -80.8%Europe

Affichage * AFFN.S NR CHF 166.00 NR NA 537 5.8x 5.3x 5.8x 11.7x 11.6x 11.3x - - - -

JCDecaux S.A. JCDX.PA N EUR 17.28 18.00 4.2% 4,980 7.3x 7.5x 7.0x 17.5x 17.6x 15.9x 4.5% 6.7% -4.5% -1.3%

Average Outdoor 4.2% 17,157 8.0x 8.1x 7.7x 18.6x 5.6x 20.3x 1.3% 2.8% 10.9% 14.9%

Performance


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Radio BroadcastingAmericas

Cumulus Media * CMLS NR USD 2.19 NR NA 382 NM 7.7x 7.2x NM NM NM 0.0% -12.4% -21.5% -25.0%

Emmis Comm * EMMS NR USD 1.85 NR NA 72 NM NM NM NM NM NM 2.2% -3.1% -8.0% 122.6%

Entercom * ETM NR USD 6.55 NR NA 252 9.3x 7.8x 8.0x 3.6x 8.9x 8.5x 4.1% -0.6% 4.1% 26.2%

Entravision * EVC NR USD 1.20 NR NA 103 7.8x 5.8x 6.8x NM 7.6x 10.9x -5.5% -9.1% -4.8% -4.0%

Radio One * ROIAK NR USD 0.75 NR NA 31 NM NM NM NM NM NM 3.5% -6.5% -14.0% -38.2%

Saga * SGA NR USD 44.07 NR NA 187 6.9x 6.0x 6.2x 14.8x NM NM 5.7% 7.2% 8.9% 41.1%

Salem * SALM NR USD 5.19 NR NA 127 7.4x 7.5x 7.1x 20.0x 22.1x 11.2x 6.8% -10.1% 4.2% 117.2%Asia

Southern Cross Media Group SXL.AX U AUD 1.09 1.00 NA 800 7.2x 6.3x 6.6x 8.2x 8.1x 8.0x 0.9% 5.9% -12.9% -4.4%

Average Radio NA 1,954 5.7x 6.5x 6.5x 6.5x 6.3x 5.7x 1.8% -0.8% -8.6% 11.9%

Television (FTA)Americas

Belo * BLC NR USD 7.15 NR NA 632 7.4x 5.1x 6.1x 13.0x 7.1x 9.4x 1.4% -7.4% -3.5% 34.7%

CBS Corp * CBS NR USD 35.53 NR NA 21,040 8.4x 7.4x 6.9x 18.3x 13.8x 12.2x 2.2% 8.1% -1.8% 45.7%Asia

Seven West Media Ltd SWM.AX O AUD 1.64 1.80 NA 1,714 8.4x 6.7x 6.9x 4.5x 6.8x 7.4x 8.3% 35.5% 9.3% -45.6%

Ten Network Holdings TEN.AX N AUD 0.31 0.33 NA 458 4.5x 7.2x 8.1x 7.7x 36.0x 32.5x 1.7% 10.9% -22.8% -62.7%

Prime Media Group PRT.AX N AUD 0.81 0.86 NA 310 6.4x 6.2x 6.5x 9.8x 9.2x 9.3x 2.5% 3.8% 18.2% 24.6%

Fuji Media Holding * 4676 NR JPY 117900 NR NA 3,397 5.2x 4.6x 4.4x 5.7x 7.4x 9.9x 0.5% -0.6% -6.2% 12.5%

TBS Holdings * 9401 NR JPY 815 NR NA 1,891 5.8x 5.5x 5.3x 14.5x 34.8x 21.0x 0.9% 10.1% -3.0% -9.8%

Nippon Tv Hldg * 9404 NR JPY 1064 NR NA 3,421 7.1x 6.6x 5.9x 11.7x 11.0x 10.2x 2.0% 2.7% -3.7% 2.9%

TV Asahi * 9409 NR JPY 1099 NR NA 1,347 5.7x 5.5x 5.2x 15.0x 14.7x 13.6x 2.6% 3.3% -2.7% -4.8%

Sun TV network * SUTV.BO NR INR 379.65 NR NA 2,690 9.0x 10.4x 10.5x 19.4x 21.5x 21.2x 1.0% 19.1% 33.1% 41.1%

Zee Entertainment Enterprise * ZEE.BO NR INR 202.20 NR NA 3,468 20.8x 25.6x 21.0x 31.9x 33.3x 28.3x 7.8% 9.8% 22.7% 66.5%

ZNL * ZEEN.BO NR INR 18.07 NR NA 78 10.7x 8.6x 8.2x 26.6x 15.4x 17.3x NM NM NM NM

BEC World * BEC.BK NR THB 60.50 NR NA 3,948 16.6x 14.4x 13.0x 34.2x 25.6x 21.9x 3.9% 1.3% 17.5% 69.2%

MCOT Public Company Limited * MCOT.BK NR THB 34.75 NR NA 779 8.6x 7.9x 7.5x 17.6x 14.2x 13.2x 0.7% 6.9% 19.8% 35.0%Europe

Antena 3 A3TV.MC N EUR 3.03 4.10 35.3% 830 5.2x 5.6x 5.0x 7.2x 7.8x 6.7x -0.3% 0.7% -10.4% -27.0%

ITV ITV.L O GBP 96.80 110.00 13.6% 6,067 7.4x 6.7x 6.5x 12.3x 10.8x 10.3x 2.2% 12.5% 14.6% 56.6%

Mediaset MS.MI U EUR 1.29 2.00 54.8% 1,980 4.3x 4.8x 4.2x 4.5x 5.2x 4.1x 5.6% -3.4% -18.5% -35.7%

ProSiebenSat.1 PSMG_p.DE O EUR 21.64 26.00 20.1% 3,071 4.9x 4.7x 4.5x 6.0x 10.6x 9.7x 1.8% 0.7% 15.1% 57.8%

TF1 TFFP.PA U EUR 7.48 5.50 -26.4% 2,046 4.5x 6.2x 6.5x 8.7x 12.4x 12.5x 2.2% 13.6% 0.2% -1.2%

Mediaset Espana Comunicacion TL5.MC U EUR 4.25 3.70 -12.8% 2,240 8.6x 11.3x 8.8x 10.9x 12.6x 9.5x -4.7% 2.0% 0.1% 6.8%

TVN S.A. * TVNN.WA NR PLN 6.00 NR NA 653 6.1x 7.2x 8.1x NM 18.2x 13.2x 0.0% 0.0% -14.4% -38.1%Rest of World

Central European Media Enterprises* CETV.OQ NR USD 4.78 NR NA 369 NM NM NM NM NM NM 2.8% -27.8% -14.8% -37.8%

CTC Media CTCM.OQ U USD 8.68 7.10 -18.2% 1,373 5.1x 5.5x 5.4x 9.0x 10.1x 9.8x 2.2% -1.0% 2.6% -5.3%

Average Television 9.5% 63,802 8.5x 8.3x 7.7x 15.5x 15.0x 13.3x 2.3% 7.1% 4.1% 30.5%

Performance


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Prof/Educ/Finan PublishingAmericas

Thomson Reuters Corporation TRI N USD 27.48 30.00 9.2% 22,697 8.0x 8.1x 7.9x 14.0x 13.0x 13.1x 0.8% -3.1% -5.5% 5.0%Europe

Lagardere LAGA.PA O EUR 22.35 30.00 NA 3,803 5.4x 6.2x 5.5x 12.6x 10.3x 8.4x 3.7% 6.5% -0.3% 37.1%

Reed Elsevier PLC REL.L N GBP 624.50 620.00 -0.7% 12,034 8.7x 8.0x 7.7x 12.3x 12.6x 11.9x 3.2% 4.0% 8.0% 25.4%

Reed Elsevier NV ELSN.AS N EUR 10.77 11.60 7.8% 10,127 8.8x 7.6x 7.1x 12.0x 11.5x 10.9x 3.1% 4.4% 6.7% 30.5%

Pearson PSON.L O GBP 1189.00 1210.00 1.8% 15,572 10.1x 9.9x 9.2x 13.9x 14.1x 12.9x -0.2% -2.6% -1.7% 10.0%

Wolters Kluwer WLSNc.AS U EUR 14.51 12.60 -13.2% 5,684 8.0x 7.4x 7.2x 9.9x 9.4x 9.0x 3.3% -1.4% 1.5% 24.5%

UBM plc UBM.L O GBP 733.00 800.00 9.1% 2,884 10.8x 10.2x 9.2x 12.9x 12.0x 10.3x 2.8% 6.1% 7.2% 60.1%

Average Publishing 2.3% 72,800 8.7x 8.3x 7.9x 13.0x 12.5x 11.9x 1.7% 0.2% 0.6% 18.4%

ContentAmericas

Astral Media ACMa.TO N CAD 46.30 44.00 -5.0% 2,479 8.2x 8.0x 7.9x 13.1x 12.4x 12.0x 1.1% 14.4% -2.9% 41.7%

Corus Entertainment Inc (NVS) CJRb.TO N CAD 23.29 23.00 -1.2% 1,876 8.0x 7.8x 7.6x 13.2x 12.8x 12.5x 3.1% 4.2% 2.7% 26.6%

Walt Disney Company DIS O USD 49.26 58.00 17.7% 87,295 9.1x 8.2x 7.5x 18.4x 15.6x 13.9x 2.8% -1.6% -0.7% 47.0%

Discovery Communications DISCA U USD 58.20 55.00 -5.5% 8,437 5.9x 5.3x 4.8x 20.9x 21.7x 17.3x 2.4% 0.0% 8.7% 48.3%

DreamWorks * DWA NR USD 18.05 NR NA 1,523 13.3x 13.4x 12.0x 17.7x 19.1x 16.9x -6.1% -9.1% 5.9% 7.2%

Liberty Media * LCAPA NR USD 109.04 NR NA 12,030 11.0x 24.1x 24.6x 16.4x 15.8x 31.9x 3.6% -2.3% 4.8% 46.1%

Lions Gate * LGF NR USD 16.14 NR NA 2,358 NM NM NM NM NM NM 3.2% 0.3% 13.6% 92.1%

News Corporation NWSA N USD 24.30 28.00 15.2% 37,568 5.2x 4.7x 4.3x 18.8x 15.5x 13.3x 1.4% 2.2% 4.4% 52.3%

Scripps Networks * SNI.N NR USD 60.40 NR NA 9,051 10.3x 9.5x 8.7x 21.0x 17.9x 16.0x 0.4% -1.2% 1.5% 59.5%

Time Warner, Inc TWX O USD 46.15 53.00 14.8% 43,697 8.9x 9.0x 8.0x 16.0x 14.4x 12.5x 1.9% 5.8% 11.1% 42.6%

Viacom VIAb.N N USD 50.48 55.00 9.0% 22,768 7.3x 7.3x 7.0x 13.0x 11.6x 10.2x 0.2% -3.9% 0.4% 21.3%

Televisa TV O USD 23.38 27.50 17.6% 13,353 9.0x 7.8x 7.1x 25.5x 19.7x 19.1x 1.8% 3.2% 0.9% 25.0%

TV Azteca TVAZTCACPO O MXN 8.30 12.00 44.6% 1,912 64.7x 59.7x 55.2x 144.1x 117.1x 100.4x 0.9% -2.6% -1.4% -1.3%

Europe

Vivendi VIV.PA O EUR 16.59 17.60 6.1% 28,490 3.7x 4.3x 4.3x 7.0x 8.1x 8.3x 2.9% 3.7% 7.0% 10.7%

Average Content 11.1% 272,838 8.2x 8.3x 7.8x 17.5x 15.3x 14.4x 2.1% 0.9% 3.6% 40.1%

Performance


27 November 2012


Media Sector Themes for 2013 Advertising spend to remain subdued

Sluggish retail sales to continue

There is strong correlation between advertising spend and retail sales. Retail, retail-related

categories and FMCG comprise ~55% of total agency advertising spend. As Figure 72 and

Figure 73 show, retail sales lead retail and total advertising spend by approximately six

months. This makes intuitive sense given advertising budgets are set with current market

conditions in mind.

Figure 72: Retail sales leads total advertising spend by ~

six months

Figure 73: Retail sales leads retail, retail-related and

FMCG advertising spend by ~ six months

Source: SMI, ABS. Note: Retail sales (RHS), Ad spend (LHS). Source: SMI, ABS. Note: Retail sales (RHS), Ad spend (LHS).

With a cautious and savvy consumer, an uncertain political environment, rising costs of

living and little stimulus from the RBA, we expect retail sales to remain subdued for the

next six months.

Traditional retail relationship may break down slightly in 2013

The traditional relationship may break down slightly in 2013, due to:

■ Higher proportion of international and online retailers that spend less on Australia-

specific advertising. For advertisers, increased competition in the discretionary retail

sector from international entrants and online competitors is also likely to negatively

impact ad spend. First, international entrants and online competitors have not and are

unlikely to advertise in Australia in a material way. Their strong brand awareness

coupled with clever public relations and word-of-mouth has and will be enough to

create excitement around a new retail concept. Secondly, a shift in retail spending

away from domestic retailers to international and online retailers would negatively

impact domestic retailers which in turn is likely to result in lower advertising budgets.

■ Australian retailers shifting ad spend internally to build websites. As domestic retailers

attempt to become more competitive in a global marketplace, it is likely that a greater

portion of advertising spend is shifted ‘internally’ – particularly towards building

websites and mining customer data. SGN is well positioned to assist companies with

their digital strategy.

■ Increased supermarket competition putting pressure on supplier ad spend. Increased

competition between the incumbent supermarket chains; Woolworths and Coles; is

also likely to negatively impact the advertising market. FMCG companies have and are

likely to continue to cut ad spend to fund promotions and shelf space at the

supermarkets. This is likely to be partially offset by higher advertising spend at

Woolworths and Coles. For Television networks, we expect ad buyers to have a

TH

EM

ES

27 November 2012


greater focus on the 25–54 demographic as this represents the key household grocery

shopper. SWM appears well positioned to benefit from a greater proportion of ad

spend in the television market. TEN continues to partner with Coles through

Masterchef and will partner with Woolworths in 2013 with Recipe to Riches.

■ Price harmonisation funding may come at expense of ad spend. Greater focus around

price harmonisation – particularly in the cosmetics and sporting goods space, is likely

to have a similar dampening effect on ad spend by global suppliers. Price investment

will inevitably come at the expense of advertising spend in the short term. L’Oreal

recently announced it is going to significantly reduce its marketing and advertising

budget from $60mn to as little as $30mn p.a.

Figure 74: Monthly Agency Advertising Revenue A$mn Figure 75: Advertising Revenue Mix 2011

Source: SMI Source: SMI

Federal election may spur consumer confidence

A Federal election which must be held by 30 November 2013 may provide some political

stability and in turn improve consumer confidence and spending.

Implications for Media and Internet stocks

A 1% change in total advertising spend would have the greatest impact on TEN, SWM,

FXJ, APN and SGN.


Advertising Revenue

Source: Company data, Credit Suisse estimates

27 November 2012


Digital to become the largest ad medium in 2013

Digital to overtake FTA TV as the largest advertising medium

We expect digital advertising spend to remain the growth engine of the advertising market

in 2013. Over the past five years, digital advertising spend has more than doubled, whilst

the total advertising market excluding digital has declined 6%. The majority of market

share has come from print, however FTA TV, radio and cinema have also been impacted.

According to CEASA data, Digital passed Newspapers as the second largest advertising

medium in early CY2012, with FTA Television remaining the largest medium. We expect

digital advertising to overtake FTA Television as the largest advertising medium in 2013

(see Figure 78).

Figure 77: Agency Ad Spend YoY Growth by Medium Figure 78: Advertising Revenue Mix A$bn 2013F

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%2008 2009

2010 2011

$0.0 bn

$0.5 bn

$1.0 bn

$1.5 bn

$2.0 bn

$2.5 bn

$3.0 bn

$3.5 bn

$4.0 bn

Source: CEASA Source: CEASA, Credit Suisse estimates

The strong growth in share of Digital in Australia replicates trends seen in other digitally

advanced economies over the past decade. Digital advertising is expected to be the

largest medium in the US this year, having surpassed Pay-TV in 2008 and Newspapers in

2010 (see Figure 79). Digital has been the largest advertising medium in the UK, which

has a very weak commercial FTA television sector, since 2009.

Figure 79: US Advertising Revenue Mix US$bn Figure 80: UK Advertising Revenue Mix £bn

$0 bn

$10 bn

$20 bn

$30 bn

$40 bn

$50 bn

$60 bn

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers Magazines FTA TV Pay TV

Radio Other Digital

£0.0 bn

£0.5 bn

£1.0 bn

£1.5 bn

£2.0 bn

£2.5 bn

£3.0 bn

£3.5 bn

£4.0 bn

£4.5 bn

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers Magazines FTA TV Pay-TV

Radio Other Digital

Source: Universal McCann, NAA, OAAA, RAB, IAB, BEA, US Census

Bureau, FactSet

Source: ZenithOptimedia, WARC

Within digital advertising, we expect varying levels of growth from each type of digital

platform. The rate of growth in display and classified advertising is likely to slow in the

near-to-medium term, whilst growth in search, social media, video and mobile is likely to

accelerate. We have already seen these trends emerge over the past few years. Search

now represents more than half of digital ad spend. Refer Figure 81 and Figure 82.

27 November 2012


Figure 81: Breakdown of online ad spend (FY05) Figure 82: Breakdown of online ad spend (FY12)

Source: IAB, SMI, CEASA Source: IAB, SMI, CEASA

Figure 83: Digital ad spend Figure 84: Digital advertising growth by category

Source: IAB, SMI, Credit Suisse estimates Source: IAB, SMI, Credit Suisse estimates

Search to remain the engine of growth

We expect Search to continue to be the key growth engine for digital advertising. Search is

ideally placed to benefit from the transition towards measurable, performance-based ad

spend as well as higher usage of mobile devices. From 2002-2011, Search achieved 47%

CAGR in Australia and now represents over half of digital ad spend.

While we expect Search’s growth to slow in line with other digitally advanced nations, we

still forecast that it will outgrow Classifieds and Display. We forecast 18% growth in 2013,

moderating to 12% in 2015.

Figure 85: Search Revenue and Growth – Australia Figure 86: Global Comparables – Search Advertising as %

of total digital advertising

0%

10%

20%

30%

40%

50%

60%

0

500

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Revenue ($m) % change

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US Aus

UK NZ

Source: IAB, CEASA, Credit Suisse estimates Source: IAB, CEASA, ZenithOptimedia

Google dominates the Search market in Australia, with 94% market share of the desktop

search market by number of searches. This compares to 66% market share in the US in

2012 (up from 37% in 2005). We expect the number of searches to increase, albeit at a

lower growth rate.

27 November 2012


Figure 87: Monthly US Core Searches and % Change on pcp

0m

4,000m

8,000m

12,000m

16,000m

20,000m

Sep-

05

Mar-

06

Sep-

06

Mar-

07

Sep-

07

Mar-

08

Sep-

08

Mar-

09

Sep-

09

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10

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12

0.0%

10.0%

20.0%

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40.0%

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60.0%

% Growth (RHS)

Searches (LHS)

Source: ComScore

Plenty of growth left in online Classifieds

The shift from print to digital in classified advertising has had a material impact on

traditional media companies. Print classified advertising revenues have declined at a 13%

CAGR from 2007 to 2011 (from 50% to 30% of total print advertising revenues) according

to CEASA data.

We expect the conversion from print to digital to accelerate. Print is still responsible for

over half of total classified advertising revenue. Refer Figure 88. This conversion will likely

occur in areas outside of employment and auto given the high penetration in these areas.

Refer Figure 89.

Over time we expect a narrowing in the price differential between print and digital

classified advertisements. Premium digital services and unique offerings are likely to result

in yield expansion in digital classifieds.

Figure 88: Online vs. Print: Australian Classifieds

Revenue

Figure 89: Online vs. Print: Australian New Job Ads

$0m

$200m

$400m

$600m

$800m

$1,000m

$1,200m

$1,400m

$1,600m

$1,800mOnline Print

0

50,000

100,000

150,000

200,000

250,000

300,000

Online Print

Source: CEASA, IAB, Credit Suisse estimates Source: ANZ

27 November 2012


Figure 90: Australian Online Classifieds Revenue by

Vertical

Figure 91: New Zealand Online Classifieds Revenue

$0m

$50m

$100m

$150m

$200m

$250m

$300m

$350mAuto

Employment

Real Estate

Other

-3%

0%

3%

6%

9%

12%

15%

18%

0

25

50

75

100

125

150

FY08 FY09 FY10 FY11 FY12F FY13F FY14F FY15F


Source: IAB, CEASA, Credit Suisse estimates Source: IAB, Credit Suisse estimates

Figure 92: Global Comparison – Online Classifieds as %

Total Classifieds

Figure 93: Global Comparison - Online Classifieds %

Change Over pcp

0%

5%

10%

15%

20%

25%

30%

35%

40%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US Aus

UK NZ

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

2005 2006 2007 2008 2009 2010 2011

US UK

Aus NZ

Source: IAB, CEASA, ZenithOptimedia Source: IAB, CEASA, ZenithOptimedia

Digital display growth to slow

Total digital display advertising growth slowed to 5% in 2011 to $634mn. Excluding new

high growth areas such as online video, social media and mobile, it appears that traditional

digital display advertising was stable for the year, with branded display (responsible for the

bulk of online display ad spend) reporting negative growth – in line with softer advertising

market conditions. Refer Figure 94 and Figure 95.

The weakness in traditional display was most likely driven by: 1) lower growth in desktop

usage as broadband penetration matures; 2) some cannibalisation from new platforms

such as mobile, tablet, online video and search; 3) lower advertising budgets; and

4) leakage to FTA TV as a result of excess inventory at discounted yields.

We expect moderate growth in traditional digital display advertising in 2013 as inventory

and yield normalise. More advanced data overlays and ad exchangers should provide

upside to yield. We expect strong growth in new platforms (particularly mobile and online

video). We forecast 11% CAGR 2012–16.

27 November 2012


Figure 94: Online Display Revenue and Growth - Australia Figure 95: Online Display Growth by Sub segment

0%

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200

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-4%

15%

31%

25%

333%340%

320%

40%

-10%

0%

Brand Performance Online Video Social Mobile

Source: IAB compiled by Credit Suisse Source: IAB, SMI, Credit Suisse estimates

Figure 96: Global Comparison – Online Display

Advertising Growth v pcp

Figure 97: Global Comparison – Online Display

Advertising as a % of total digital advertising

0%

10%

20%

30%

40%

50%

60%

70%

2005 2006 2007 2008 2009 2010 2011

US Aus

UK NZ

0%

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70%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US Aus

UK NZ

Source: IAB, CEASA, ZenithOptimedia Source: IAB, CEASA, ZenithOptimedia

The number of media participants in the digital display advertising market is likely to

continue to fragment. The four largest display publishers (NineMSN, FXJ, NWS and

Yahoo!7) accounted for 60% of total display advertising in FY07 and 40% in FY12. The

portals (NineMSN and Yahoo!7) have suffered greater market share declines (NineMSN’s

market share was 24% in FY07) – likely the result of volumes shift to Google and a

decrease in yield.

All of the listed online stocks with the exception of SEK (CRZ, REA, TME) derive

significant and growing revenues from Display. In our view, these companies are better

placed within Display than the traditional publishers due to their market dominance within

each vertical (or country in the case of TME), ability to offer better targeting to advertisers

and greater technical innovation and flexibility.

Figure 98: Online Display Market Share (FY12) Figure 99: Major Publishers Share of Online Display

NineMSN, 13.1%

FXJ, 11.6%

Yahoo!7, 10.2%

NWS, 8.4%

Other, 56.7%

0%

10%

20%

30%

40%

50%

60%

70%

Source: SMI Source: SMI. Major Publishers: Fairfax Digital, News Digital,

NineMSN, Yahoo!7

27 November 2012


Implications for Internet stocks

Continued growth in classifieds will have varying impacts on the Australian Internet stocks.

We expect the strongest growth in online automotive classifieds relative to real estate and

employment given there is the potential for new car sales to migrate from dealers to online.

CRZ has ~65% revenue exposure to online automotive classifieds via dealers and private

customers (~75% including data services). REA has ~80% revenue exposure to online

real estate classifieds via listing or subscription revenue. We estimate SEK has ~70%

revenue exposure to Australia and New Zealand online employment classifieds. TME has

~40% revenue exposure to all classifieds (including automotive, real estate and

employment).

We expect digital display to continue to grow. Display advertising revenues are significant

in Auto and Finance relative to real estate and employment. CRZ has ~25% revenue

exposure to digital display, REA has ~20% revenue exposure to digital display and TME

has ~12% revenue exposure to digital display. We estimate SEK has ~10% revenue

exposure to Australia and New Zealand digital display.

TME has ~40% revenue exposure to its Marketplace business. We expect strong growth

in marketplace as consumers continue to increase their online retail spending. TME’s

Chanel Advisor partnership should further support strong marketplace growth.

Figure 100: Australian Internet revenue exposure to

online classifieds and online display


Print to digital shift to accelerate

Print circulation declines to accelerate

The decline in Australian newspaper circulations is accelerating, with a -6% decline in

metro newspapers during the June 2012 quarter. Refer Figure 101. The decline in

Australian circulations appears to be several years behind the US and UK, where

circulations are declining at a faster rate. We expect the decline in print circulations to

accelerate in 2013.

The decline in circulations has coincided with a decline in advertising revenues. Refer

Figure 104. However the decline in advertising dollars has come from a decline in print

classifieds revenue, rather than print display revenue. Print classified advertising dollars

have declined -4% CAGR over the past decade, versus +4% CAGR for print display

advertising dollars over the same period.

27 November 2012


Figure 101: Australian Metropolitan Quarterly Newspaper

Circulation

Figure 102: Print Circulations Australia, UK, USA

180,000,000

190,000,000

200,000,000

210,000,000

220,000,000

230,000,000

240,000,000

Source: Audit Bureau of Circulations. Note: Print only. Includes

national titles.

Source: Audit Bureau of Circulations

Figure 103: Global Comparison – Newspapers as a % of

Total Ad Spend

Figure 104: Newspaper Ad Spend by Type $mn

10%

15%

20%

25%

30%

35%

40%

45%

Aus US UK NZ

0

500

1,000

1,500

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4,500

Metro Display Metro Classifieds Regional Display Regional Classifieds


Additional revenue streams needed for traditional publishing companies

Traditional publishing companies need to find a strong revenue stream to offset continued

declines in circulation. We see four potential options:

■ The first option is implementing a paywall or subscription model to access to content.

This has had varying degrees of success globally.

■ The second option is to drive growth in classifieds – particularly in the non-core areas

as opposed to the highly penetrated employment and auto markets.

■ The third option is to drive additional offerings and premium services to advertisers in

digital, to reduce the price differential and impact from converting from print to digital.

■ The fourth option is to find another revenue stream (another media platform or another

business entirely) which would benefit from a strong brand name and national reach

and be able to fund the editorial content.

Implications for Print stocks

FXJ and APN are likely to continue to be negatively impacted by the structural migration

from print to digital in 2013. Additional revenue streams will be necessary to sustain the

businesses over the longer period.

27 November 2012


Figure 105: FXJ and APN Sensitivities


Structural shift in Television will be slower

Shift to Pay-TV will be slower in Australia

Australia has relatively low Pay-TV penetration compared with the US and UK. As such,

Pay-TV ad spend represents only 10% of total TV ad spend. This compares to 36% in the

UK and 45% in the US.

As Pay TV penetration gradually increases in Australia, ad spend is likely to shift from the

FTA channels to Foxtel.

However we expect the rate of migration to be slower in Australia due to Foxtel’s focus on

ARPU rather than advertising revenue. We also expect the rate of migration to be

materially slower than seen from print to digital.

Figure 106: Global Comparison – Pay-TV as a % of TV Ad

Spend

Figure 107: Global Comparison – Pay-TV Penetration

0%

10%

20%

30%

40%

50%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

Source: CEASA, MagnaGlobal, WARC Source: Credit Suisse estimates

Figure 108: Australian Metro TV Viewing (All People) Figure 109: YoY Television Advertising Growth by

Platform

0

500

1,000

1,500

2,000

2,500

3,000

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pay TV

Commercial FTA

-10%

-5%

0%

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10%

15%

20%

25%

30%

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40%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD

Metro FTA

Regional FTA

Pay TV

Source: OzTam. Note: 2012 numbers have been seasonally adjusted Source: CEASA, SMI, Credit Suisse estimates

27 November 2012


Free-to-air TV advertising pricing environment to stabilise

Following the introduction of the FTA multi-channels, increased inventory and lower yields

on the non-primary channels have negatively impacted ad revenues for the FTA players.

We do expect the pricing environment to worsen over 2013. A stabilisation or improvement

appears more likely.

Figure 110: FTA TV Advertising Revenue Forecasts Figure 111: Pay TV Advertising Revenue Forecasts

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

0

500

1,000

1,500

2,000

2,500

3,000

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FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F


0%

5%

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30%

0

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FY08 FY09 FY10 FY11 FY12 FY13F FY14F FY15F


Source: CEASA, Credit Suisse estimates Source: CEASA, Credit Suisse estimates

The impact of online video is likely to be small in the near term

Online video streaming is growing quickly in Australia, albeit off a low base. Online video

advertising amounted to ~$80mn in FY12 (compared with $3.9bn in total television ad

spend). Whilst strong growth is likely to continue, we expect online video ad spend to have

a relatively small impact on total television ad spend in the near term.

Figure 112: Australian Online Video– Average Monthly

Time Spent Viewing (Hours, Long Form Only)

Figure 113: Online Video Ad Spend - % Change Over pcp

2:00

2:30

3:00

3:30

4:00

1Q11 2Q11 3Q11 4Q11

0%

50%

100%

150%

200%

250%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011 2012

Source: Nielsen Source: SMI

Implications for TV stocks

We expect the structural migration to pay-TV to occur at a gradual pace. Cyclical

fluctuations are likely to have a greater impact on the TV stocks in 2013, in our view.

SWM has strong ratings and commercial revenue share momentum. We expect this to

continue over the coming months. A 1% improvement in commercial revenue share would

improve SWM’s EBITDA 5% and DCF 9%, whilst it would improve TEN’s EBITDA 40%

and DCF 40%.

Potential changes in the affiliate fee that PRT pays Seven or SXL pays Ten are also likely

to have a greater impact than structural change in 2013. A 1ppt increase in the affiliate fee

would have a greater impact on PRT relative to SXL. We expect a small increase in PRT’s

affiliate fee in 2013. SXL’s affiliate agreement expires in 2013 and has the potential of

increasing >1%.

27 November 2012


Figure 114: Australian Television Sensitivity to a 1%

change in Commercial Revenue Share


in Affiliate Fee


Corporate activity and consolidation

Acquisitions

There is the potential for the following companies to be acquired or to acquire another

business at some stage over the next 12 months, in our view:

■ Seven West Media (SWM.AX) – a depressed share price, a large cash injection to the

majority shareholder Seven Group Holdings (SVW.AX) and recent management

changes could result in a potential takeover of SWM by SVW.

■ Seven West Media (SWM.AX) – we see the possibility of SWM strengthening its

dominant market position in Western Australian newspapers through an acquisition of

NWS’ Perth Sunday paper.

■ Carsales.com.au (CRZ.AX) has a strong balance sheet with $41mn net cash. The

company has indicated its desire to expand in global markets. In 2012 it assessed

Torpedo 7 in New Zealand. An acquisition in a market with strong used car sales

appears likely.

■ REA Group (REA.AX) also has a strong balance sheet with $182mn net cash. An

acquisition appears more likely than a return of capital to shareholders, in our view.

■ STW Communications (SGN.AX) has indicated its intention to expand into South East

Asia. Acquisitions have been flagged by the company.

■ Seek (SEK.AX) is likely to increase its shareholdings in global markets – particularly in

Brazil Online and OCC Mexico.

■ Ten Network (TEN.AX) – a depressed share price, stretched balance sheet and a pure

FTA TV media company make TEN a potential takeover target.

■ News Corporation (NWS.AX) has recently acquired Consolidated Media Holdings

(CMJ.AX).

Disposals

There is the potential for the following companies to dispose of one or several assets at

some stage over the next 12 months, in our view:

■ Fairfax Media (FXJ.AX) owns 51% of Trade Me (TME.AX). We do not expect this to be

a long-term shareholding. Funds raised would most likely to be used to reduce debt. A

sale of FXJ’s broadcasting assets also appears feasible.

27 November 2012


■ We believe REA Group (REA.AX) is likely to sell its atHome business at some stage in

the near-to-medium term. Funds raised could be used to fuel another acquisition or

returned to shareholders.

■ APN News and Media (APN.AX) has several Joint Ventures with Clear Channel – in

radio and outdoor. A sale of one of these businesses and an acquisition of the other is

feasible at some stage in the near-to-medium term, in our view. A sale of the

Australian Publishing business would also be feasible.

Potential changes to media ownership rules

Two high profile reviews of media regulation have recently been completed. The

Convergence Review was announced in December 2010, involving a wide-ranging review

of media and content regulation, currently governed largely by the Broadcasting Services

Act (1992) and the Radio communications Act (1992). Concurrently, the Government

ordered the Independent Media Inquiry (“Finkelstein review”), headed by former General

Court judge Raymond Finkelstein, in September 2011. The findings and recommendations

arising from the Finkelstein Review were announced in February 2012 and were taken into

account by the authors of the Convergence Review, which was completed in March 2012

(interim findings were released for discussion in late 2011).

Existing restrictions

Existing media restrictions can be broadly categorised into six areas:

■ Media Diversity: No less than five “points” in a metropolitan licence area or four

“points” in a regional licence area.

■ Three Way Control: Can only exercise “control” over two of FTA, radio and

newspapers in metro and regional areas. Control is generally defined as 15% but can

exist at lower levels where there is a “power of exercise or restraint”.

■ Audience Reach: Cannot control FTA licences where the population in the relevant

licence areas exceeds 75% of the total population.

■ Concentration: Radio and FTA broadcasters prohibited from controlling more than

one FTA licence or two radio licenses in any area. There are no specific prescriptions

regarding print concentration, however any potential takeovers would be subject to

ACCC review.

■ FIRB: Media is classified as a prescribed sensitive sector. All direct foreign

investments and all portfolio investments over 5% require FIRB approval.

■ ACCC: Media is classified as a prescribed sensitive sector. Competition rules prohibit

mergers or acquisitions which would substantially lessen competition in a market for

goods or services in Australia, including media consumption.

Independent Media Inquiry (Finkelstein Review)

The Finkelstein Review, ostensibly in response to the News of the World phone hacking

scandal in Britain, examined the Australian media industry's regulatory framework, with

Finkelstein reporting his findings to the Government in February 2012.

The major recommendation made as part of the Finkelstein Review is the suggestion for a

Government-funded statutory body (the “News Media Council”) with power across all

media (including bloggers and potentially even social networking sites) to set journalistic

standards, deal with complaints and order apologies and / or retractions and rights of reply

when deemed necessary by the council. The News Media Council would replace the

current self-regulating Press Council.

27 November 2012


There have been suggestions of political motivation in response to Fairfax and (especially)

News Limited’s coverage of politics.

Convergence Review

The Convergence Review rejected Finkelstein’s recommendation of a News Media

Council, however it did recommend two new media bodies addressing media content

standards which would replace the Press Council and the Australian Communications and

Media Authority (ACMA).

Changes proposed as a result of the convergence review include:

■ Media ownership and audience reach rules will revert to two key tests: a “minimum

number of owners” rule (similar to the current media diversity regulations) and a public

interest test.

■ An industry led body to be created to replace the Press Council. The new body would

be charged with overseeing journalistic standards for news and commentary across all

platforms, with membership compulsory for major content providers (“content service

providers”, or CSEs).

■ A statutory body to be created in place of the ACMA to regulate media content

standards and classification. The body would lack many of the ACMA’s administrative

functions which are seen as outdated. The proposal reflected the findings of the

Australian Law Reform Commission review of the National Classification Scheme.

■ Local content to be protected by a "uniform content scheme", with all qualifying CSEs

with significant revenues from TV-like content being forced to invest a percentage of

their revenue in Australian drama, documentary and children's programs. For FTA

broadcasters, the sub-quota is to be increased by 50% although Australian content

shown on the digital multi-channels will now count towards meeting the expanded

obligations. The rewritten rules would also apply to Pay-TV for the first time, with a

10% minimum expenditure requirement. CSEs could alternatively choose to contribute

a proportion of its revenue to a “converged content production fund”. The Review

recommends raising the so-called producer offset from 20 per cent to 40 per cent for

TV drama and the establishment of an interactive entertainment offset, reflecting the

higher cost of local production.

■ TV licence fees to be replaced by a market-based approach in pricing TV broadcasting

spectrum similar to the arrangements for radio. Current licensees would have the

opportunity to develop new channels, lease channel capacity, or sell their spectrum

licence. Spectrum for a “sixth” channel would not be allocated to create a full fourth

commercial FTA network, with channel capacity instead being allocated to a range of

providers to maximise diversity.

The abolition of the audience reach rule would enable the metro FTA broadcasters who

have reached or are close to reaching the 75% limit to bid for their regional affiliates (or

vice versa). Such an amendment would enable SWM to bid for PRT, or for corporate

activity between SXL and TEN. The scrapping of cross media ownership rules likewise

enables media proprietors to own print, FTA and radio licences.

Industry response

Industry response to the two reviews has been mixed, with the proposal for an industry

super-regulator heavily criticised. Of particular concern was that a press complaints body

answerable to the Government has the potential to impact journalistic integrity, particularly

in political matters, and is incompatible with the notion of free speech. News Limited CEO

Kim Williams has been a particularly vocal critic of the proposed reforms of the Finkelstein

Review, declaring them unconstitutional and threatening to challenge them in the High

Court if they are introduced. While the Convergence Review’s recommendation for an

industry led body adds an additional layer of regulation on non-print media, the possibility

of political interference has been lessened.

27 November 2012


The relaxation of media ownership rules was expected and largely welcomed by the

industry, however a proposal to replace cross media ownership rules with a “public

interest” test has been considerably less so. Both the Opposition and industry figures have

voiced concerns that the test is by its very nature subjective and potentially subject to

political interference.

The proposal for a journalistic standards body has also been criticised for its prescriptions

regarding which content providers would be subject to it. With scale defined in terms of

Australian revenue and audience thresholds, large industry players such as Apple, Google

and Telstra would not qualify and thus escape regulation.

The proposed reduction in TV licence fees had been demanded by the FTA networks as a

trade-off for the obligation to produce local content for the multi-channels.

Timing

A first tranche of recommendations resulting from the Convergence Review had been

expected to be introduced into Parliament before the end of the calendar year, however

this is yet to occur. Recent press reports have indicated that the proposed reforms could

be introduced as one package to the Cabinet by year end. While some parts of the

package may be introduced this year, other proposals (such as the new super regulator)

are likely to take longer and may be subject to more discussion.

Implications for Media stocks

The proposed changes to audience reach and cross media ownership rules is likely to be

a precursor to industry consolidation.

Abolishing audience reach restrictions opens the door to combinations of the regional and

metropolitan FTA TV networks:

■ SWM and PRT: In our view SWM is unlikely to acquire PRT in the near to medium

term for several reasons: 1) SWM’s balance sheet is constrained; 2) As a pure play

regional television business, PRT is already run very leanly and while some synergies

may exist in regards to sales, savings are likely to be small; 3) SWM already has direct

exposure to PRT through the affiliate fee it pays to SWM – this represents ~100%

EBITDA margin revenue. Offsetting these reasons somewhat is the higher commercial

share and ratings achieved by SWM-owned Sunshine Broadcasting in regional

Queensland compared to PRT. While the majority of this gap is due to demographic

differences and regional preferences, SWM may be able to attract a greater

commercial share in PRT’s markets.

■ TEN and SXL: A combination of TEN and SXL’s regional TV division has merit from an

operational perspective, with the metropolitan network increasing exposure to the

more robust regional television market and the regional network gaining a seat at the

programming table. However, a transaction is unlikely in the short term. Separating

SXL’s radio and TV businesses makes little sense given the significant cost and

revenue synergies between the two, meaning that a merger or takeover is the only

realistic option. At current market value TEN is around half the size of SXL, making an

SXL takeover of TEN more likely; funding such a large acquisition is unlikely to be

possible in the current environment. Additionally, SXL is still integrating Austereo.

The replacement of the “three-way control” rule with a public interest test would allow

greater scope for the combination of broadcast and print media (subject to ACCC scrutiny).

A recapitalised (and potentially re-floated) Nine could be a potential suitor for FXJ.

Regardless of the final form of the new rules, NWS is unlikely to be able to buy into the

Australian FTA industry given its stake in Foxtel and the ACCC’s opposition to the

combination of Pay and FTA television assets (e.g. SVW’s proposed acquisition of CMJ

being blocked due to SVW’s stake in SWM).

27 November 2012


Asia Pacific / Australia

Fairfax Media (FXJ.AX / FXJ AU)

Additional revenue streams needed

■ We initiate coverage of Fairfax Media (FXJ.AX) with an

UNDERPERFORM rating and $0.40 per share target price.

■ Investment Case: Additional revenue streams needed. Our investment

view is shaped by four considerations: 1) We view the sale of FXJ’s Metro

Media business as unlikely given synergies between the Metro, Regional,

New Zealand publishing and Digital businesses. 2) Near-term cash flow is

likely to be somewhat constrained by higher investment and Fairfax of the

Future transformation cash costs. We expect dividend payout to remain

around 35% and see the sale of non-core assets (Broadcasting and Trade

Me) as likely to strengthen the balance sheet. 3) The existing Metro Media

business appears fairly priced. In our view, FXJ needs to leverage its brand

into new areas to generate additional revenue streams and offset declining

circulations. Whilst digital subscriptions may generate some revenue, we

view digital transactions and classifieds as a greater revenue opportunity for

FXJ. A stronger presence in these markets should elicit pricing power,

growth, investment and further growth. 4) Regional Media and New Zealand

Media are likely to be impacted to a similar degree as Metro Media, albeit at

a slower pace. A partnership with APN or NWS could create value, albeit we

have not factored this into our forecast.

■ Catalyst: Metro Paywall March 2013. FXJ needs to create a strong

revenue stream (outside advertising) which will support publishing over the

medium term. The impact from the metro metered paywall in March 2013 will

be critical in assessing FXJ’s ability to monetise its content and support its

overheads. Digital transactions or classifieds offer other potential revenue

streams, albeit we have not factored significant growth in our forecasts.

■ Valuation: We have a $0.40 per share target price. This is based on our

most likely Sum of the Parts valuation of $0.42 per share. We apply a 3%

discount to our SOTP valuation due to governance issues.

Share price performance

20

70

120

0

1

2

3

4

Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the S&P

ASX 200 Index which closed at 4452.9 on 26/11/12

On 26/11/12 the spot exchange rate was A$.96/US$1

Performance Over 1M 3M 12M

Absolute (%) 16.9 — -41.6

Relative (%) 18.0 -1.5 -52.6

Financial and valuation metrics

Year 06/12A 06/13E 06/14E 06/15E

Revenue (A$mn) 2,310.9 2,226.6 2,172.4 2,147.4

EBITDA (A$mn) 504.3 424.5 424.7 439.4

EBIT (A$mn) 396.8 278.4 289.7 304.4

Net income (A$mn) 205.4 113.9 122.9 136.2

EPS (CS adj.) (Ac) 8.73 4.84 5.23 5.79

Change from previous EPS (%) n.a. — — —

Consensus EPS (Ac) n.a. 6.00 5.80 5.90

EPS growth (%) -22.5 -44.6 7.9 10.8

P/E (x) 5.2 9.3 8.6 7.8

Dividend (Ac) 3.00 1.50 1.50 2.00

Dividend yield (%) 6.7 3.3 3.3 4.4

P/B (x) 0.59 0.65 0.74 0.86

Net debt/equity (%) 41.6 29.1 20.2 3.3

Source: Company data, ASX, Credit Suisse estimates, * Adj. for goodwill, notional interest and unusual items. Relative P/E against

ASX/S&P200 based on pre GW in AUD. Company PE calculation is based on displayed EPS Currency

Rating UNDERPERFORM*

Price (26 Nov 12, A$) 0.45

Target price (A$) 0.40¹

Market cap. (A$mn) 1,058.38

Yr avg. mthly trading (A$mn) 157

Last month's trading (A$mn) 168

Projected return:

Capital gain (%) -11.1

Dividend yield (net %) 3.3

Total return (%) -7.8

52-week price range 0.85 - 0.36

* Stock ratings are relative to the relevant country benchmark.

¹Target price is for 12 months.

Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

FX

J.A

X

27 November 2012


Figure 116: Financial Summary

Fairfax Media (FXJ) Year ending 24 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$0.45 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating UNDERPERFORM c_EPS_SHARESEquiv. FPO (period avg.) mn 2,518.5 2,352.0 2,352.0 2,352.0 2,352.0

Target Price A$ 0.40 c_EPS*100EPS (Normalised) c 11.3 8.7 4.8 5.2 5.8

vs Share price % -11.11 EPS_GROWTH*100EPS Growth % -22.5 -44.6 7.9 10.8

DCF A$ 0.60 c_EBITDA_MARGIN*100EBITDA Margin % 24.5 21.8 19.1 19.5 20.5

c_DPS*100DPS c 3.0 3.0 1.5 1.5 2.0

c_PAYOUT*100Payout % 26.6 34.3 31.0 28.7 34.5

FRANKING*100Franking % 100.0 100.0 100.0 100.0 100.0

c_FCF_PS*100Free CFPS c 14.8 9.6 7.4 8.9 9.6

Profit & Loss 06/11A 06/12A 06/13E 06/14E 06/15E c_TAX_RATE*100Effective tax rate % 26.2 26.2 27.6 27.6 27.6

Sales revenue 2,463.4 2,310.9 2,226.6 2,172.4 2,147.4 Valuation

EBITDA 604.1 504.3 424.5 424.7 439.4 c_PE P/E x 4.0 5.2 9.3 8.6 7.8

Depr. & Amort. (114.4) (107.5) (146.1) (135.0) (135.0) c_EBIT_MULTIPLE_CURREV/EBIT x 4.9 4.8 6.1 5.3 3.7

EBIT 489.7 396.8 278.4 289.7 304.4 c_EBITDA_MULTIPLE_CUEV/EBITDA x 3.9 3.8 4.0 3.6 2.6

Associates 0.0 0.0 0.0 0.0 0.0 c_DIV_YIELD*100Dividend Yield % 6.7 6.7 3.3 3.3 4.4

Net interest Exp. (108.0) (111.7) (83.7) (78.3) (70.0) c_FCF_YIELD*100FCF Yield % 33.0 21.2 16.4 19.8 21.3

Other 0.0 0.0 0.0 0.0 0.0 c_PB Price to Book x 0.3 0.6 0.6 0.7 0.9

Profit before tax 381.7 285.0 194.6 211.4 234.4 ReturnsIncome tax (100.0) (74.8) (53.8) (58.3) (64.6) c_ROE*100Return on Equity % 6.4 11.4 6.9 8.6 11.1

Profit after tax 281.6 210.3 140.9 153.1 169.8 c_I_NPAT/c_I_SALES*100Profit Margin % 11.5 8.9 5.1 5.7 6.3

Minorities 3.4 1.7 2.0 2.0 2.0 c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.4 0.6 0.5 0.5 0.5

Preferred dividends 0.0 0.0 0.0 0.0 0.0 c_ASSETS/c_EQ_COMMONEquity Multiplier x 1.5 2.2 2.5 3.0 3.6

Associates & Other (1.2) (6.6) (29.0) (32.2) (35.7) c_ROA*100Return on Assets % 4.2 5.1 2.8 2.9 3.1

Normalised NPAT 283.8 205.4 113.9 122.9 136.2 c_ROIC*100Return on Invested Cap. % 6.3 10.1 7.0 7.5 8.6

Unusual item after tax (674.7) (2,937.8) (70.0) (98.0) (173.6) Gearing

Reported NPAT (390.9) (2,732.4) 43.9 24.9 (37.4) c_GEARING*100Net Debt to Net debt + Equity % 23.0 29.4 22.6 16.8 3.2

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 2.2 1.7 1.5 1.1 0.2

Balance Sheet 06/11A 06/12A 06/13E 06/14E 06/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x 5.6 4.5 5.1 5.4 6.3

Cash & equivalents 207.1 358.4 561.8 736.1 1,126.7 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 4.5 3.6 3.3 3.7 4.4

Inventories 39.0 36.6 34.5 34.0 33.6 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales % 2.3 1.9 4.5 3.7 3.7

Receivables 371.7 334.5 293.9 289.6 286.5 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 71.9 59.0 90.0 80.0 80.0

Other current assets 8.7 32.3 32.3 32.3 32.3

Current assets 626.5 761.8 922.5 1,092.0 1,479.1 MSCI IVA (ESG) Rating BBB

Property, plant & equip. 722.3 547.0 535.9 515.9 295.9 TP ESG Risk (%): -3

Intangibles 1,799.0 1,009.1 1,009.1 1,009.1 1,009.1

Other non-current assets 3,552.8 1,688.7 1,655.8 1,622.8 1,589.8

Non-current assets 6,074.1 3,244.8 3,200.7 3,147.8 2,894.8

Total assets 6,700.6 4,006.6 4,123.2 4,239.8 4,374.0

Payables 359.9 282.6 226.5 223.2 220.8

Interest bearing debt 1,532.0 1,207.4 1,207.4 1,207.4 1,207.4

Other liabilities 370.0 473.9 473.9 473.9 473.9 MSCI IVA Risk: Positive

Total liabilities 2,261.9 1,963.9 1,907.8 1,904.5 1,902.1

Net assets 4,438.7 2,042.7 2,215.5 2,335.3 2,471.9

Ordinary equity 4,431.7 1,795.2 1,639.0 1,426.7 1,227.6

Minority interests 0.0 0.0 0.0 0.0 0.0

Preferred capital 0.0 0.0 0.0 0.0 0.0

Total shareholder funds 4,438.7 2,042.7 2,215.5 2,335.3 2,471.9

Net debt 1,324.9 849.0 645.5 471.3 80.7 Source: MSCI IVA Rating

Cashflow 06/11A 06/12A 06/13E 06/14E 06/15E Share Price Performance

EBIT 489.7 396.8 278.4 289.7 304.4

Net interest -110.9 -117.6 -83.7 -78.3 -70.0

Depr & Amort 114.4 107.5 146.1 135.0 135.0

Tax paid -82.0 -110.7 -53.8 -58.3 -64.6

Working capital 0.0 42.6 -13.4 1.5 1.1

Other 20.2 -50.9 0.0 0.0 0.0

Operating cashflow 431.4 267.6 273.5 289.5 305.9

Capex -57.5 -42.8 -100.0 -80.0 -80.0

Capex - expansionary

Capex - maintenance

Acquisitions & Invest -11.9 1.9 0.0 0.0 200.0

Asset sale proceeds 0.0 0.0 0.0 0.0 0.0

Other -28.6 9.9 77.0 0.0 0.0

Investing cashflow -98.0 -31.1 -23.0 -80.0 120.0

Dividends paid -85.5 -82.3 -47.0 -35.3 -35.3

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings 158.4 -435.7 0.0 0.0 0.0

Other -313.6 421.3 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow -240.7 -96.7 -47.0 -35.3 -35.3 Absolute 16.9% 0.0% -41.6%

Total cashflow 92.7 139.9 203.5 174.3 390.6 Relative 18.0% -1.5% -52.6%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 92.7 139.9 203.5 174.3 390.6 Source: Reuters 52 week trading range: 0.36-0.85

MSCI IVA Risk Comment: MSCI has penalised FXJ for

inadequate disclosure regarding the origin and environmental

impact of its newsprint. In our view, these concerns have been

thoroughly addressed in FXJ’s FY12 annual report.

Additionally, FXJ has announced plans to close two large,

underutilised printing plants.

26/11/2012 21:35

Fairfax Media Limited is an Australian multi-platform media group with a broad range of

activities including publishing of news, information and entertainment, advertising sales in

newspaper, magazine and online formats, and radio broadcasting.

Credit Suisse View

TP Risk Comment: Gina Rinehart has been vocal in her

opposition to parts of the company’s strategic direction and

the company’s Board composition. Increased influence of a

major shareholder may also pose problems in relation to

editorial independence.

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FXJ.AX XJO

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27 November 2012


Metro Media: Assessing the sustainability of the new

multi-platform model

Three questions posed

As Fairfax Media transitions its metro media business to digital, the key query is whether

the new multi-platform model will be sustainable.

Our analysis centres around three questions: 1) At what rate and conversion will readers

migrate to digital in Australia? 2) What impact will a metered pay-wall have on circulation

and advertising revenue? 3) What level of editorial resources is necessary to sustain a

unique and desired level of content? We also assess the financial impact of FXJ moving to

a digital only model.

In assessing these questions, we look to international content providers which have

commenced the transition to a multi-platform model.

Insights from International Content Providers

International content providers have had varying approaches to the level of digital content

provided and extent of monetisation of digital audiences.

1. Digital migration – assessing the rate and conversion of various models

Digital migration will be impacted by company-specific factors such as content provided

and pay-for-content as well as external factors such as broadband penetration. In the

below charts we can see print circulations declined 4%–12% p.a. on average over the past

five years whilst digital circulation grew 20%–30% p.a. on average over the past five years.

Not surprisingly, the rate of digital migration is highest for the Guardian Media Group in the

UK, which offers free access to digital content across its website Guardian. Print

circulations have declined 12% p.a. on average over the past five years. With no

subscription revenue, the Guardian is entirely reliant on digital advertising. The Guardian

Media Group has reported a net loss of -£75.6mn in FY12 and -£75.6mn in FY11.

At the other end of the spectrum, NWS’ The Times has seen lower digital conversion.

NWS instituted a strict paywall around The Times website and apps, with users needing to

pay a subscription fee to access content. Print circulations have declined 10% p.a. on

average over the past five years. Digital subscriptions grew 14% in the last year and now

represent 25% of daily circulation. Advertising revenue has declined in line with the digital

pay-wall and lower traffic. NWS recently announced that it was relaxing the paywall slightly

to allow limited content to appear on Google.

The New York Times and Financial Times have shown a 6%–7% decline in print

circulations p.a. on average over the past five years and 25% growth in digital p.a. on

average over the past five years. Digital subscriptions represent 40% and 50% of daily

circulation for the New York Times and Financial Times, respectively. These publications

use a metered pay-wall where users sign up for a limited number of free articles per month,

after which they must become a paying subscriber to access further content. The New

York Times did not institute a paywall until March 2011.

FXJ announced in its ‘Fairfax of the Future’ strategy presentation that it will implement a

metered paywall to its main Metro Mastheads in early CY2013. The Australian Financial

Review is currently behind a paywall.

27 November 2012


Figure 117: Print Circulation Growth Rates Figure 118: Digital Subscribers and Growth Rates

Source: Company data, Audit Bureau of Circulations. Average Daily

Print Circulations.

Source: Company data, Audit Bureau of Circulations. Paying

subscribers.

2. Metered paywall – impact on revenue and earnings

The Financial Times and the New York Times offer examples of mass-market print

publications that have adapted to the digital age via a metered paywall.

The Financial Times has successfully replaced print circulation volume with digital

subscription volume and has delivered revenue growth over the past few years. Refer

Figure 119 and Figure 120. The pace of transition has likely been influenced by the

paper’s target audience of busy, tech-savvy professionals, and is therefore a better

comparison for the Australian Financial Review rather than FXJ Metro Media’s mainstream

mastheads.

The FT.com model offers free access upon registration to eight articles per month, in

addition to email alerts. Thereafter digital subscriptions (excluding bundles) cost £5.19 to

£6.79 per week. Digital subscribers have grown 25% p.a. on average over the past five

years to 300K. This has more than offset the decline in print circulations from 440K to

297K over the past five years (-7% p.a. on average over the period). Total revenue for the

FT Group (which also owns Mergermarket and 50% of The Economist Group) has grown

5% p.a. on average over the past five years to £430mn.

Figure 119: Financial Times M-F circulation Figure 120: FT Group pro forma revenue and margins

Source: Company data, Audit Bureau of Circulations Source: Company data, Credit Suisse estimates. Note: EBIT excludes

income from 50% FTSE stake (sold 2011)

27 November 2012


The New York Times is a more mass-market paper than the Financial Times. Subscription

costs are lower ($220 p.a. on average for a New York Times subscriber is approximately

half of the cheapest subscription option for the FT.com) and advertising revenues make a

greater contribution to group revenues.

The New York Times allows access to 10 free articles on the masthead’s website per

month (reduced from 20 in March 2012), after which users must pay a monthly

subscription of $15–$35 depending on their chosen platforms. The New York Times did

not institute a paywall until March 2011, in order to build traffic ahead of the paywall’s

installation. Total circulations reached 1.28mn in 2012 (refer Figure 121), up from 860K in

2010. Decline in print circulation has moderated from -20% between 2007 and 2010 to

-8% between 2010 and 2012. Including digital subscriptions, total circulation rose 51%

over the same period. Total revenue has declined -9% p.a. on average over the past five

years to £2.0bn.

Figure 121: New York Times M-F circulation Figure 122: New York Times Co revenue and margins

Source: Company data, Audit Bureau of Circulations Source: Company data, Credit Suisse estimates. Note: News Media

Group only (excludes About.com)

Whilst the Financial Times has some similarities to the Australian Financial Review, the

majority of FXJ’s Metro Media publications more closely reflect the New York Times, in our

view. The below charts show the digital contribution and revenue mix of the Financial Times,

New York Times, and FXJ Metro Media business. It is important to note FXJ Metro Media’s

reliance on advertising revenue – which is a clear distinction from the New York Times.

Figure 123: Digital as a % of total revenue Figure 124: Revenue split

0%

10%

20%

30%

40%

50%

FT Group NYT Co FXJ Metro

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20%

40%

60%

80%

100%

FT Group NYT Co FXJ Metro

Other Advertising Content

Source: Company data. Note: Most recent reporting period Source: Company data. Note: Most recent reporting period

27 November 2012


3. Editorial resources – what level is necessary to sustain unique and desired content?

The below table highlights the number of journalists at each publisher and circulation

revenue per journalist.

Figure 125: Journalists per content provider

Publisher Circulation

Revenue ($mn)

Number of

Journalists

Circ Rev per

Journalist ($‘000)

Circ Rev per

Journalist (%)

Financial Times UK 419 600 698 0.17%

New York Times 690 1500 460 0.07%

Wall Street Journal 400 750 533 0.13%

USA Today 500 1200 417 0.08%

Current FXJ Metro Publications 189 1000 189 0.10%

FXJ Metro Publications post FOTF* 161 600 268 0.17%

Source: Company data, Audit Bureau of Circulations, Credit Suisse estimates. *FOTF = Fairfax of the

Future

Australian Historic Trends

Australian print circulations have declined 3% p.a. on average over the past five years (in

metro and regional). Refer Figure 126. Australian newspaper advertising revenues have

declined 3% p.a. on average over the past five years (-3.6% in metro and -2.5% in

regional). Refer Figure 128.

Figure 126: Australian Print Circulations Figure 127: Print Circulations Australia, UK, USA

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Regional Metro

Source: Audit Bureau of Circulations. Source: Audit Bureau of Circulations.

Figure 128: Australian Newspaper Advertising Revenues

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Regional Metro

Source: SMI.

27 November 2012


FXJ Metro Media Scenarios – assessing the breakeven point of a multi-platform

model

Revenue Scenarios

For FXJ Metro Media, we pose three revenue scenarios. Refer Figure 129. We make the

following assumptions:

■ Print circulations decline 3%, 5%, 10% p.a. for five years (in line with global peers)

with the average weighted cover price remaining constant. Print advertising revenues

fall in line with the decline in print circulation. Conversion to compact format has no

material impact with a decline in price per ad (smaller facing) offset by more pages.

■ Digital subscriptions grow 20%–30% p.a. for five years (in line with global peers) with

the average weighted subscription price of $25 per month. Digital advertising,

transactions and other revenues grow 7%–15% p.a. for five years.

Figure 129: Metro Revenue Scenarios

Five Year Forecast

FY12A Low Mid High

Print Circulation Revenue A$mn 187 110 145 161

Digital Circulation Revenue A$mn 2 2 3 3

Total Circulation Revenues A$mn 189 113 147 164

Print Advertising Revenue A$mn 640 378 495 550

Digital Advertising Revenue A$mn 165 231 266 332

Total Advertising Revenues A$mn 805 609 761 882

Total Other / Digital

Transaction Revenues

A$mn 136 175 194 232

TOTAL METRO REVENUES A$mn 1131 897 1103 1278

Five year CAGR % -5% 0% 2%

Mix:

Circulations % 17% 13% 13% 13%

Advertising % 71% 68% 69% 69%

Other % 12% 19% 18% 18%

Digital revenues A$mn 262 367 422 526

Digital mix % 23% 41% 38% 41%


Cost scenarios

In Figure 130 we make the following assumptions:

■ The number of employees falls by 900 from 3100 to 2200 through the implementation

of ‘Fairfax of the Future’.

■ Print production and distribution costs fall in line with the decline in print circulations.

We assume 15% wastage. Digital costs increase in line with digital sales. Other costs

grow in line with CPI.

27 November 2012


Figure 130: Metro Cost Scenarios

Five Year Forecast

FY12A Low Mid High

# Journalists # 1000 600 600 600

# Sales # 650 650 650 650

# Production # 400 250 250 250

# Admin / Contact Centres # 1050 700 700 700

Total Employees # 3100 2200 2200 2200

Employee costs A$mn 380 270 270 270

Print costs A$mn 300 218 255 272

Digital costs A$mn 50 71 80 100

Production & Distribution Costs A$mn 350 289 335 371

Other costs A$mn 299 338 338 338

TOTAL METRO COSTS A$mn 1028 896 942 979

Five year CAGR % -3% -2% -1%


Enterprise Value

Our mid-case scenario produces FY17F EBITDA of $161mn and an enterprise value of

$400mn.

Figure 131: Metro Enterprise Value Scenarios

Five Year Forecast

FY12A Low Mid High

Revenue A$mn 1131 897 1103 1278

Costs A$mn 1028 896 942 979

EBITDA A$mn 103 0 161 299

Five year CAGR % -67% 9% 24%

EBITDA Margin % 9% 0% 15% 23%

PV EBITDA A$mn 103 0 100 186

Multiple x 4.0 4.0 4.0 4.0

Enterprise Value A$mn 410 0 400 743


FXJ Metro Media Scenarios – assessing the breakeven point of a digital only model

If FXJ move to a ‘digital only’ model, strong digital revenue growth will be necessary to

break even. Strong growth in subscription revenue, advertising revenue and/or classifieds

would be needed to offset content costs.

In Figure 132 we have assumed digital subscription revenue growth of 20%–30% p.a. for

five years (in line with global peers) and digital advertising, transactions and other revenue

growth of 10%–20% p.a. for five years (as above). We assume 5% growth in digital costs

p.a. for five years and a significant reduction in employee costs to 600 people.

This produces a breakeven result in our ‘mid-case’ scenario.

27 November 2012


Figure 132: Metro 'Digital Only' Model

Five Year Forecast

FY12A Low Mid High

Digital Subscription Revenue A$mn 2 2 3 3

Digital Advertising Revenue A$mn 165 266 332 411

Digital Transaction/Other A$mn 136 153 191 236

Total Metro Revenues A$mn 1131 421 526 650

Total Employees # 3100 600 600 600


Digital production costs A$mn 50 63 63 63

Digital other costs A$mn 299 381 381 381

Total Metro Costs A$mn 1028 518 518 518

EBITDA A$mn 103 -97 8 133

EBITDA Margin % 9% -23% 2% 20%

PV EBITDA A$mn 103 -60 5 82

Multiple x 4.0 4.0 4.0 4.0

Enterprise Value A$mn 410 -240 20 329


Regional Media: Will digital have the same impact?

Expectations for digital migration in regional areas

There appear few structural impediments to digital migration in regional areas. Surprisingly,

Australian regional print circulations have declined at a similar rate to metro print circulations

over the past five years (3% p.a. on average, refer Figure 131). Broadband penetration has

increased rapidly to 74% in regional areas, compared with 82% in metro areas (refer Figure

134). Whilst demography and lifestyle could slow the rate of digital migration in regional

areas, we do not expect significantly different trends to metro areas.

Figure 133: Australian Print Circulations Figure 134: Australian Broadband Penetration

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Regional Metro

Source: Audit Bureau of Circulations. Source: Australian Bureau of Statistic

Regional Media Scenarios

Figure 135 highlights various valuation scenarios for FXJ’s Regional Media business. Our

mid-case valuation scenario produces FY17 EBITDA of $121mn and an enterprise value

of $301mn (based on 4x multiple).

In our scenarios we assume total circulation declines 3%–5% p.a. on average over the

next five years, total advertising revenue declines 0%–5% p.a. on average over the next

five years, the number of employees falls by 300 to 2900 and print costs decline in line

with circulation declines.

27 November 2012


Figure 135: Regional Media Scenarios

Five Year Forecast

FY12A Low Mid High

Circulation Revenues A$mn 101 78 83 87

Advertising Revenues A$mn 448 346 394 448

Other Revenues A$mn 23 23 23 23

TOTAL REGIONAL REVENUES A$mn 572 447 500 557

# Employees # 3200 2900 2900 2900


Print Costs A$mn 90 70 74 78

Other Costs A$mn 137 137 137 137

TOTAL REGIONAL COSTS A$mn 413 375 378 382

REGIONAL EBITDA A$mn 159 73 121 175

Five year CAGR % -14% -5% 2%

EBITDA Margin % 28% 16% 24% 31%

PV EBITDA A$mn 159 45 75 109

Multiple x 4.0 4.0 4.0 4.0



New Zealand Media: More regional than metro?

The New Zealand market appears similar to Australia

New Zealand print circulations have declined 2.4% p.a. on average over the past five

years, compared to -3.0% in Australia. Metro and Regional print circulations have declined

at a similar rate.

Figure 136: Print Circulations Australia and New Zealand Figure 137: NZ Metro & Regional Print Circulations

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Australia NZ

-10%

-8%

-6%

-4%

-2%

0%

Regional Metro

Source: Audit Bureau of Circulations. Source: Audit Bureau of Circulations.

27 November 2012


Figure 138: New Zealand Newspaper Advertising

Revenues

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

100

200

300

400

500

600

700

800

900

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Revenue ($m)

Share of total adspend

Source: ZenithOptimedia

New Zealand Media Scenarios

With APN undertaking a strategic review of its New Zealand print assets, a partnership

between FXJ and APN in New Zealand appears feasible to us. However there is likely to

be regulatory and political concerns with the concentration of content (particularly in

Auckland). We have not assumed material cost savings from a partnership with APN in

our analysis.

Our mid-case valuation scenario in Figure 139 produces FY17 EBITDA of $44mn and an

enterprise value of $109mn (based on 4x multiple).

We assume total circulation declines 2%–10% p.a. on average over the next five years,

total advertising revenue declines 0%–5% p.a. on average over the next five years, the

number of employees falls by 200 to 1800 and print costs decline in line with circulation

declines.

Figure 139: New Zealand Media Scenarios

Five Year Forecast

FY12A Low Mid High




TOTAL NZ REVENUES A$mn 345 251 295 335

# Employees # 2000 1800 1800 1800


Print Costs A$mn 57 33 44 51

Other Costs A$mn 28 28 28 28

TOTAL NZ COSTS A$mn 283 240 251 258

NZ EBITDA A$mn 62 11 44 77



PV EBITDA A$mn 62 7 27 48

Multiple x 4.0 4.0 4.0 4.0



27 November 2012


Printing scenarios


enterprise value of $106mn (based on 4x multiple). We assume revenue declines in line

with print cost reductions at each of the publishing businesses. Chullora and Tullamarine

are closed, resulting in $23mn less EBITDA p.a.

Figure 140: Printing Scenarios

Five Year Forecast

FY12A Low Mid High

Printing Revenue A$mn 538 386 449 485

Printing Costs A$mn 459 330 383 414

Chullora & Tullamarine EBITDA A$mn 23 23 23 23

Printing EBITDA A$mn 56 34 43 48

Five year CAGR % -10% -5% -3%


Multiple x 4.0 4.0 4.0 4.0



Broadcasting and Trade Me: Non-core asset sales

will eliminate debt

We have an enterprise value for Fairfax Media’s non-core assets (Trade Me and

Broadcasting) of $851mn. This offset’s FXJ’s net debt (excluding TME debt) of $787mn.

Broadcasting


enterprise value of $89mn (based on 8x multiple).

We assume 5%–10% EBITDA growth p.a. on average over the next five years.

This compares to the $480mn FXJ paid for the Radio business.

Figure 141: Broadcasting Scenarios

Five Year Forecast

FY12A Low Mid High

EBITDA A$mn 14 16 18 20

Five year CAGR % 3% 5% 7%


Multiple x 8 8 8 8



Trade Me

FXJ owns 51% of TME. At its current market capitalisation, FXJ’s shareholding is worth

$686mn. The market implied enterprise value is $1,472mn or $751mn for FXJ’s stake.

This implies 20%–25% EBITDA growth on average p.a. over the next five years and a 10x

EBITDA multiple. Refer Figure 142.

27 November 2012


Figure 142: TME Valuation

Five Year Forecast

FY12A Low Mid High

Consolidated EBITDA A$mn 86 173 214 262


PV EBITDA A$mn 86 107 133 163

Multiple x 10 10 10 10

Consolidated EV A$mn 860 1074 1329 1630

TME Market Cap A$mn 1346 1346 1346 1346

Consolidated Net Debt A$mn 126 126 126 126

Consolidated market based EV A$mn 1472 1472 1472 1472

FXJ's 51% share of equity A$mn 686 686 686 686

FXJ's 51% share of debt A$mn 64 64 64 64

FXJ's 51% share of EV A$mn 751 751 751 751


Non-core asset sales will eliminate debt

Our mid-case enterprise value for Fairfax Media’s non-core assets (Trade Me and

Broadcasting) of $851mn offset’s FXJ’s net debt (excluding TME debt) of $787mn. Refer

Figure 143.

Figure 143: Non-core assets offset net debt

Five Year Forecast

FY12A Low Mid High

Broadcasting EV A$mn 112 89 100 112

TME EV (51% stake) A$mn 751 751 751 751

Non-core Enterprise Value A$mn 863 839 851 863

Less FXJ Net Debt (ex TME debt) A$mn 787 787 787 787

Net value A$mn 75 52 63 75


FXJ Valuation

Sum of the Parts

Our mid-case scenario produces an enterprise value for FXJ of $1.8bn and a valuation of

$0.42 per share.

FXJ would need to generate an additional $500mn EBITDA above our base case to

produce a valuation above $1.00 per share.

27 November 2012


Figure 144: FXJ Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

Metro Media A$mn 410 - 400 743

Regional Media A$mn 636 181 301 434

New Zealand Media A$mn 246 27 109 192

Printing A$mn 223 84 106 120

Core Enterprise Value * A$mn 1,516 291 916 1,489

Broadcasting A$mn 112 89 100 112

Trade Me (51% stake) A$mn 751 751 751 751

Non-core Enterprise Value A$mn 863 839 851 863

Total Enterprise Value A$mn 2,378 1,131 1,767 2,352

Net Debt (ex TME debt) A$mn 787 787 787 787

Equity Value A$mn 1,591 343 979 1,564

SOI mn 2,352 2,352 2,352 2,352

Value per share $ / share $ 0.68 $ 0.15 $ 0.42 $ 0.67

ESG discount % 3% 3% 3% 3%

Target price $ / share $ 0.66 $ 0.14 $ 0.40 $ 0.65

PV FOTF Implementation

Costs **

A$mn - 186 - 186 - 186

Source: Company data, Credit Suisse estimates. * Core Enterprise Value Scenarios include $235mn

annualised cost savings from the 'Fairfax of the Future' strategy. ** We have excluded the $248mn

implementation costs associated with Fairfax of the Future in FY15 from our valuation as they are non-

recurring costs.

Figure 145: FXJ Publishing Comparable Companies

P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F

Torstar 4.3x 4.8x 5.0x 3.1x 3.4x 3.4x

Trinity Mirror 3.0x 3.0x 3.1x 2.6x 2.7x 2.9x

Gannett 8.1x 7.9x 7.4x 4.8x 4.8x 4.7x

New York Times Co 13.7x 15.6x 16.0x 4.5x 5.1x 5.2x

Average 7.3x 7.9x 7.9x 3.8x 4.0x 4.0x

Source: Company data, Bloomberg, Credit Suisse estimates

The figure below highlights the implementation costs and expected annualised savings

associated with the ‘Fairfax of the Future’ strategy. The company has noted that

implementation costs could be $200mn higher if FXJ moves to Digital only model.

Figure 146: Fairfax of the Future Implementation Costs and Annualised Savings


27 November 2012


DCF Valuation

We have a $0.60 per share DCF valuation for FXJ (WACC 10%, terminal growth rate 1%).

Figure 147: FXJ DCF Valuation

PV of FCF 1,585

Terminal value 624

PV of minorities 0.0

Valuation adjustments 0.0

Enterprise valuation 2209

Net debt 787

Equity valuation 1422

Number of shares 2352

Value per share $ 0.60


Credit Suisse HOLT® Valuation





Applying Credit Suisse assumptions through the Credit Suisse HOLT® valuation tool

results in a $0.48 per share valuation for FXJ.

PE Multiple

Figure 148: FXJ one year forward PE Figure 149: FXJ PE relative to All Ords Index (ex

Insurance, Banks and Property)


Potential for further impairments of mastheads and other intangibles

FXJ has $2.5bn intangibles on its balance sheet. This follows a $2.8bn impairment to

FXJ’s mastheads, goodwill, customer relationships and software. There is the potential for

further impairments in our view.

Risks

The key risks to our investment thesis for FXJ are as follows:

■ Changes to advertising spend in Australia. Approximately 70% of FXJ’s total revenues

are derived from advertising. A 1% change in advertising revenue results in a 4%

change to EBITDA, a 10% change in EPS and a 7% change to our DCF valuation.

27 November 2012


■ Potential new revenue streams.

■ Potential asset sales or break-up.

■ Potential partnership or merger with APN or NWS to reduce costs.

■ Greater-than-expected migration to digital and impact of FXJ’s metered paywall which

will be introduced early CY2013.

■ Governance issues (refer ESG Issues section below).

ESG Issues

Environment issues

■ In our view there are no material environmental issues facing FXJ.

Social issues

■ In our view there are no material social issues facing FXJ.

Governance issues

■ Potential issues relating to editorial freedom, Board composition and corporate

strategy following Gina Rinehart's highly publicised investment have been speculated.

Remuneration

■ Base salary: Fixed remuneration for executives earning an annual salary of $150,000

or above has been frozen for FY13 unless the company has pre-existing contractual

commitments including in Enterprise Bargaining Agreements. CEO Greg Hywood

received a base salary of $1.6m in FY12.

■ Short-term incentives: The CEO and his direct reports received some STI bonus in

FY12 for performance targets relating to the achievement of objectively measured cost

savings over the year. The STI targets set by the Board for the CEO and his direct

reports for FY12 were weighted toward EBIT, revenue and costs. Costs were broken

out as a key target because of the importance the Board placed on the restructuring of

the business for the on-going financial health of the company. CEO Greg Hywood

achieved a bonus of $840,000 for the year (35% of his maximum STI) due to the cost

savings achieved during the course of the year. Mr Hywood subsequently waived half

of his bonus.

■ Long-term incentives: From the 2013 financial year onwards the Fairfax Long Term

Incentive (“LTI”) Plan will operate using performance right allocations rather than

shares. 50% of LTI performance rights will vest based on the achievement of a relative

TSR compared to the ASX 300 Consumer Discretionary Index (50% vesting at a

relative TSR of 50%, increasing on a straight line basis to 100% of the target award at

a relative TSR of 75%). The remainder of the performance rights will vest at

compound EPS growth of 7% or above (25% of target award at 7% up to a maximum

award at an EPS CAGR of 10% on a straight line basis). From 2013, allocations of LTI

rights will be tested at the end of a three-year period. Mr Hywood was awarded

$800,000 worth of performance rights for FY13.

■ At FXJ’s AGM in October 2012, the company received a 34.4% vote against its

remuneration report, giving it its first ‘strike’. FXJ’s largest shareholder, Gina Rinehart,

voted against the remuneration report. Ms Rinehart objected to Mr Hywood’s $800,000

in performance rights granted for FY13 and also voted against the election of James

Millar and abstained from voting on the re-election of Michael Anderson, both of whom

were (re)appointed as directors.

27 November 2012


Board

■ FXJ’s Board has extensive executive and Board-level experience in retail, media and

financial services

■ Eight of the nine directors are independent.

Figure 150: Board skill analysis for FXJ

Name Position

Tenure

(Years) Financial Retail Media

Former

CEO

ASX 200

Board exp. Independent

Fees / pay

($k)

Roger Corbet Non Exec, Chairman 9.7 X X X Yes 433

Gregory Hywood CEO & MD 1.7 X X No 2,020

Sandra Mcphee Non Exec 2.7 X X Yes 191

Sam Morgan Non Exec 2.7 X X X Yes 142

Linda Nicholls Non Exec 2.7 X X Yes 190

Peter Young Non Exec 7.1 X X Yes 223

Michael Anderson Non Exec 2.2 X Yes 435

James Millar Non Exec 0.3 X X X Yes N/A

Jack Cowin Non Exec 0.3 X X Yes N/A


Valuation impact

■ We have included a 3% ESG impact to our valuation for FXJ. Gina Rinehart has been

vocal in her opposition to parts of the company’s strategic direction and the company’s

Board composition. Increased influence of a major shareholder may also pose problems in

relation to editorial independence. Gina Rinehart has a 15% interest in FXJ.

MSCI IVA rating outlook

■ We have a Positive outlook on the MSCI IVA rating for FXJ. FXJ’s overall rating is

being negatively impacted by a low Environmental score which we believe to be

related to lack of disclosure. MSCI has penalised FXJ for inadequate disclosure

regarding the origin of its newsprint. However, FXJ has announced plans to close two

large printing plants. As a result we see the potential for an improvement in FXJ’s

MSCI IVA ratings if it improves its disclosure on Environmental issues.

Figure 151: MSCI IVA rating for FXJ: BBB

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0



Source: MSCI IVA ratings

27 November 2012


Appendix

Company Overview

Fairfax Media Limited is one of Australia's largest diversified media companies. FXJ’s

main business is newspaper publishing in metropolitan and regional areas of Australia and

New Zealand. FXJ also has interests in printing, radio broadcasting and digital media in

addition to a majority stake in New Zealand online classifieds business Trade Me

(TME.AX). FXJ’s major publications include the Sydney Morning Herald, The Age and the

Australian Financial Review.

FXJ’s composition was altered significantly over the past decade through a series of

acquisitions. Prior to the 2003 purchase of INL the company was entirely dependent on its

metropolitan papers for earnings (although the company did own some small internet and

directories operations). Today, FXJ is a geographically and operationally more diverse

business.

Figure 152: Earnings mix (FY02) Figure 153: Earnings mix (FY12)

Source: Company data. Source: Company data.

Market Position

Publishing – Australia

The Australian metropolitan newspaper industry was worth approximately A$2.9bn in

FY11, with a ~70/30 split between advertising and circulation revenue. However, that total

has fallen from a peak of over $3.3bn in 2008 and the rate of decline is accelerating in the

current advertising downturn. The market is a duopoly between FXJ and NWS in most

geographies, with the exception of Perth where SWM’s the West Australian is the only

mass market newspaper published Monday to Saturday. NWS’ publications typically have

higher circulation and cater for a broader demographic, while FXJ’s flagship mastheads

primarily target the ‘quality’ end of the market and are more reliant on advertising.

The Australian regional newspaper industry is a A$1.8bn industry. This compares with

>$2bn in 2008. FXJ is the largest player in the Australian regional newspaper market by

circulation ahead of APN and NWS. The market is highly concentrated, with the top three

controlling around 80% of the market. Head-to head-competition is limited, with the

majority of regional and rural areas having only one local newspaper.

27 November 2012


Figure 154: Australian metropolitan newspaper circulation

market share

Figure 155: Australian regional newspaper circulation

market share

Source: Audit Bureau of Circulations Source: Audit Bureau of Circulations

Publishing – New Zealand

The New Zealand newspaper industry is a A$700m industry. The New Zealand newspaper

industry is dominated by two players, APN and FXJ, which between them control roughly

three-quarters of the market by circulation. Although APN is the market leader by total paid

circulation, FXJ’s business in New Zealand is significantly larger due to its higher exposure

to metropolitan markets (where the ratio of advertising revenue to circulation is higher).

Figure 156: New Zealand newspaper circulation market

share


Radio

The Australian Metropolitan Radio industry is a A$680mn industry. APN has a ~20%

overall audience share nationwide, although this is far from uniform with a ~30% share in

Melbourne and Perth compared with only a ~10% share in Sydney. The market leader in

metropolitan commercial radio is SXL (formerly Austereo), although FXJ’s primary

competitors in talk radio are MRN and the ABC. With a skew towards older demographics,

FXJ’s revenue share is well below its total audience share. In revenue terms, FXJ is the

fourth largest player in the market, behind SXL, DMG and APN.

27 November 2012


Figure 157: Australian metropolitan radio audience share

2011 (10+)

Figure 158: Australian metropolitan radio market share by

agency revenue 2011


History

Figure 159: FXJ Key Milestones

Date Event

1993 Re-listed on the ASX following receivership

2003 Acquired the New Zealand publishing assets of Independent Newspapers Limited for

NZ$1.2bn

2006 Acquired Trade Me for NZ$700m

2007 Acquired Rural Press for $2.3bn. Acquired radio assets from Southern Cross

Broadcasting for $480m. Then-CEO David Kirk replaced by former Rural Press CEO

Brian McCarthy

2009 $680m equity raising

2010 Brian McCarthy resigned as CEO. Replaced by current CEO Greg Hywood

2011 Fairfax family sells its remaining 10% stake in the company. TME lists on the ASX

and NZX, with FXJ retaining a 66% stake

2012 Gina Rinehart acquired a substantial shareholding and pushed for board

representation. FXJ sold down a further 15% of TME and announced a major

restructuring (“Fairfax of the Future”) in which it would close two printing facilities and

eliminate ~1,900 staff among other measures designed to generate annual savings

of $235m by 2015. US agricultural publishing business sold for US$80m.


Financial Performance

Figure 160: Historic Sales Growth Figure 161: Historic EBITDA Margin

-15%

-10%

-5%

0%

5%

10%

15%

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

Actual Pro forma

15%

18%

21%

24%

27%

30%

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

Actual Pro forma


27 November 2012


Figure 162: Historic Normalised NPAT and EPS Growth Figure 163: Historic Operating Leverage

-60%

-40%

-20%

0%

20%

40%

60%

80%


NPAT EPS

-30%

-20%

-10%

0%

10%

20%


Sales growth EBITDA growth

Source: Company data. EPS pre-non-recurring items Source: Company data

Figure 164: Historic Return on Invested Capital Figure 165: Historic Return on Assets / Equity

0%

2%

4%

6%

8%

10%

12%

14%

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

0%

5%

10%

15%

20%

25%


ROA ROE

Source: Company data Source: Company data

Figure 166: Historic Payout Ratio Figure 167: Historic Capex / Depreciation

0%

20%

40%

60%

80%

100%

120%


0%

50%

100%

150%

200%

250%

300%

350%



27 November 2012


Figure 168: Historic Cash Conversion (Gross OCF pre

interest / EBITDA)

Figure 169: Historic Net Working Capital

0%

20%

40%

60%

80%

100%

120%

$0m

$50m

$100m

$150m

$200m

$250m

Source: Company data Source: Company data. Net working capital defined as Trade

Receivables + Inventories – Trade Creditors

Figure 170: Historic Net Debt / EBITDA Figure 171: FY12 Gearing Comparison: ASX-Listed

Traditional Media Companies

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

Source: Company data Source: Company data, Credit Suisse estimates. Note: Financial year

ends have not been calendarised

SWOT and Porter Analysis

Figure 172: SWOT Analysis

Strengths Weaknesses Opportunities Threats

Broad content portfolio and

extensive reach

Exposed to weak publishing

markets

Growth in online revenue Declining newspaper circulation

Strong, nationally recognised

brands

Significant restructuring costs to be

incurred over next three years

Potential partnership with APN in

publishing

Continued digital migration for

news, classifieds and other content

Integrated multi-platform offering Liquid, highly saleable asset in

TME stake

Subdued ad market

Source: Credit Suisse estimates

Figure 173: Porter Analysis

Business Barriers to Entry Competition Buyer Power Supplier Power Substitution

Aus Metro Publishing High Medium High Low High

Aus Regional Publishing High Low High Low High

NZ Publishing High Low-Medium High Low High

Australian Radio High Medium High Low Medium

Printing High Medium Medium Medium Medium

Digital Low High High Medium High


27 November 2012


Board and Management

Roger Corbett (Chairman). Independent.

Mr Corbett was elected Chairman of the Board in October 2009. He has been involved in

the retail industry for more than 40 years. In 1984, Mr Corbett joined the Board of David

Jones Australia as Director of Operations. In 1990, he was appointed to the Board of

Woolworths Limited and to the position of Managing Director of BIG W. In 1999, Mr

Corbett was appointed Chief Executive Officer of Woolworths Limited. He retired from that

position in 2006. Mr Corbett is a Director of the Reserve Bank of Australia, a Director of

Wal-Mart Stores, Chairman of PrimeAg Australia Limited and Chairman of Mayne Pharma

Group Limited.

Greg Hywood (CEO and Managing Director). Non-Independent.

Mr Hywood was appointed as a Non-Executive Director in October 2010 and appointed as

CEO and Managing Director in February 2011. Prior to his current role, Mr Hywood held a

number of senior management positions at Fairfax including Publisher and Editor-in-Chief

of each of The Australian Financial Review, The Sydney Morning Herald/Sun-Herald and

The Age. He also held the position of Group Publisher Fairfax magazines. He was

Executive Director Policy and Cabinet in the Victorian Premier’s Department between

2004 and 2006, and from 2006 to 2010 was Chief Executive of Tourism Victoria.

Michael Anderson (Non-Executive Director). Independent.

Mr Anderson has had a long career in the radio industry including as Chief Executive of

Austereo Limited from 2003 until January 2010. Prior to becoming Chief Executive he was

Chief Operating Officer and from 1997 till early 2003 he was Executive Director of Sales

and Marketing. He began his career in sales at Austereo in 1990.

Jack Cowin (Non-Executive Director). Independent.

Mr Cowin is the Founder and Executive Chairman of Competitive Foods Australia Pty Ltd.

The company was founded in 1969. Competitive Foods owns and operates over 350 fast

food restaurants in Australia, it also operates several food manufacturing plants for the

supermarket and food service industries exporting to 29 countries. Mr Cowin is a Director

of Network Ten Holdings Ltd, Director of BridgeClimb and Chandler Macleod Group Ltd,

and is on the Board of Directors of Sydney Olympic Park Authority. Mr Cowin is a close

associate of major shareholder Gina Rinehart but has maintained that he is on the board

as an independent director.

Sandra McPhee (Non-Executive Director). Independent.

Ms McPhee is a Director of AGL Energy Limited, Kathmandu Holdings Limited, Westfield

Retail Trust and Tourism Australia. Her previous directorships include Australia Post,

Coles Group Limited and Perpetual Limited. Prior to becoming a Non-Executive Director,

Ms McPhee held senior executive positions in a range of consumer oriented industries

including retail, tourism and aviation, most recently with Qantas Airways Limited.

James Millar (Non-Executive Director). Independent.

Mr Millar is an experienced Corporate Executive, Advisor and Director of a number of

companies and organisations including Mirvac Ltd, Jetset Travelworld Ltd and Fantastic

Holdings Ltd. He is the former Chief Executive Officer and Oceania Area Managing

Partner of Ernst & Young and was a member of the Ernst & Young Global Board.

Sam Morgan (Non-Executive Director). Non-Independent.

Mr Morgan is the founder and former CEO of New Zealand’s largest online transaction site

Trade Me, which was purchased by Fairfax Media in 2006. He is the Chairman of software

company Visfleet and a Director of online business Xero. Mr Morgan was previously a

Director of Sonar6.

27 November 2012


Linda Nicholls (Non-Executive Director). Independent.

Ms Nicholls is a Corporate Advisor and Director of a number of leading Australian

companies and organisations. She is Chair of KDR (Yarra Trams) and a Director of Sigma

Pharmaceutical Group, the Walter and Eliza Hall Institute of Biomedical Science and Low

Carbon Australia Pty Limited. She is also on the Harvard Business School Alumni Board.

She is a former Chair of Australia Post, former Chair of Healthscope Limited and former

Director of St. George Bank Limited.

Peter Young (Non-Executive Director). Independent.

Mr Young has been an investment banking Executive in Australia, New Zealand and the

U.S.A. He is a member of the Royal Bank of Scotland’s Advisory Council in Australia. He

served as Chairman of Investment Banking for ABN AMRO in Australia and New Zealand.

From 1998 to 2002, Mr Young was Executive Vice Chairman, ABN AMRO Group

(Australia and New Zealand) and Head of Telecommunications, Media & Technology

Client Management for Asia Pacific.

Brian Cassell (Chief Financial Officer)

Mr Cassell has been Chief Financial Officer at Fairfax Media Limited since May 2009. Mr

Cassell had been General Manager of Finance of Rural Press since 1992. He is also a

Director of Fairfax New Zealand.

Allan Browne (CEO Australian Regional Publishing)

Mr Browne was appointed to his current role in 2007 following the Rural Press acquisition.

He was previously General Manager of Regional Operations for New South Wales,

Victoria & Queensland at Rural Press.

Jack Matthews (CEO Metropolitan Media)

Jack Matthews was appointed to his current role in February 2011 following the company’s

reorganisation. He was previously the head of FXJ’s digital operations.

Substantial shareholders

Figure 174: FXJ Substantial Shareholders

Shareholder Shareholding

Gina Rinehart 15.0%

Allan Gray 10.4%

National Australia Bank 11.2%

Colonial / CBA 7.5%

Lazard 6.2%

Maple Brown Abbott 5.8%

AXA 5.2%

Source: Bloomberg

27 November 2012



APN News & Media (APN.AX / APN AU)

NZ Strategic Review needs to capture $100mn

■ We initiate coverage of APN News & Media (APN.AX) with an Underperform rating and $0.23 per share target price.

■ Investment Case: Need to capture $100mn cost savings to stabilise earnings. Our investment view is shaped by four considerations: 1) The strategic review of the New Zealand publishing assets is unlikely to result in any meaningful asset sales, in our view. There is scope for APN to reduce and/or share costs through partnership with FXJ which would stabilise earnings in this business. We estimate APN needs to realise $100mn cost savings over five years if publishing circulations decline 5% CAGR and advertising revenues decline 2.5% CAGR to maintain its current earnings. Our base case assumes $50mn cost savings over five years ($0.10 per share). 2) APN is increasing the risk profile of its business through reduced exposure to Outdoor and increasing exposure to Digital. Digital acquisitions have cost $50mn to date with an additional $35mn in deferred payments if certain earnings hurdles are met. The division remains unprofitable. Retaining key talent will be critical for the long term sustainability of the digital businesses and inherent brand value. We have not attached significant value to the digital businesses in our valuation. 3) We expect APN’s business mix to continue to change. There is the potential to gain full ownership of Radio from Clear Channel in exchange for Outdoor (or vice-versa). There is also the potential to sell the Australian Publishing business. 4) APN’s increased exposure to volatile earnings streams needs to be matched by a strong balance sheet. We need to see a significant reduction in APN’s $470mn net debt (38% ND/ND+E).

■ Catalyst: New Zealand Publishing strategic review. We do not expect any meaningful asset sales from the strategic review. Cost savings initiatives or a potential partnership or JV with FXJ appear more likely. Reduction in debt and improving returns from digital will be the key catalysts for APN.

■ Valuation: We have a $0.23 per share target price. This is based on our Sum of the Parts valuation of $0.24 per share. We apply a 3% discount to our SOTP valuation due to governance issues.


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Performance Over 1M 3M 12M

Absolute (%) -14.3 -23.1 -61.3

Relative (%) -13.2 -24.6 -72.3


Year 12/11A 12/12E 12/13E 12/14E

Revenue (A$mn) 1,095.6 851.9 855.0 842.8

EBITDA (A$mn) 203.2 169.4 179.1 168.6

EBIT (A$mn) 165.6 134.0 139.8 129.7

Net income (A$mn) 78.2 61.4 63.5 57.2

EPS (CS adj.) (Ac) 12.65 9.49 9.28 7.93

Change from previous EPS (%) n.a. — — —

Consensus EPS (Ac) n.a. 9.20 9.60 9.80

EPS growth (%) -26.4 -25.0 -2.1 -14.5

P/E (x) 2.4 3.2 3.2 3.8

Dividend (Ac) 9.00 4.00 3.50 4.50

Dividend yield (%) 30.0 13.3 11.7 15.0

P/B (x) 0.21 0.34 0.33 0.32

Net debt/equity (%) 57.3 59.4 48.7 40.8




Price (26 Nov 12, A$) 0.30


Market cap. (A$mn) 198.46



Projected return:



Total return (%) -11.5




[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

AP

N.A

X

27 November 2012



APN News & Media (APN) Year ending 31 Dec In AUDmn, unless otherwise stated2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

Share Price: A$0.30 Earnings 12/10A 12/11A 12/12E 12/13E 12/14ERating UNDERPERFORM c_EPS_SHARESEquiv. FPO (period avg.) mn 599.8 618.5 647.4 684.2 721.2


vs Share price % -23.33 EPS_GROWTH*100EPS Growth % -26.4 -25.0 -2.1 -14.5


c_DPS*100DPS c 12.0 9.0 4.0 3.5 4.5

c_PAYOUT*100Payout % 69.8 71.2 42.2 37.7 56.7




Sales revenue 1,063.1 1,095.6 851.9 855.0 842.8 Valuation

EBITDA 241.3 203.2 169.4 179.1 168.6 c_PE P/E x 1.7 2.4 3.2 3.2 3.8





Other (3.0) (5.8) (5.4) (8.3) (8.8) c_PB Price to Book x 0.2 0.2 0.3 0.3 0.3







Unusual item after tax (9.3) (123.3) (338.5) 0.0 0.0 Gearing

Reported NPAT 93.8 (45.1) (277.1) 63.5 57.2 c_GEARING*100Net Debt to Net debt + Equity % 35.6 36.4 37.3 32.7 29.0



Cash & equivalents 63.5 23.9 11.6 62.9 105.4 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 4.1 3.0 3.2 3.6 3.5




Current assets 271.8 230.5 204.4 257.4 297.7 MSCI IVA (ESG) Rating BBB


Intangibles 1,574.0 1,457.0 928.5 948.0 969.1

Other non-current assets 73.8 77.5 187.4 195.7 204.5


Total assets 2,162.9 1,998.0 1,508.1 1,585.6 1,652.5

Payables 119.7 135.7 108.8 110.1 108.4

Interest bearing debt 720.1 661.0 501.0 501.0 501.0

Other liabilities 134.9 88.5 74.8 74.8 74.8 MSCI IVA Risk: Negative

Total liabilities 974.7 885.2 684.6 685.9 684.2

Net assets 1,188.2 1,112.8 823.5 899.7 968.2

Ordinary equity 962.0 879.0 578.3 629.1 670.6



Total shareholder funds 1,188.2 1,112.8 823.9 900.0 968.6

Net debt 656.6 637.1 489.4 438.1 395.6 Source: MSCI IVA Rating


EBIT 202.4 165.6 134.0 139.8 129.7

Net interest -46.5 -51.5 -43.4 -39.2 -37.2

Depr & Amort 38.9 37.5 35.4 39.2 38.9

Tax paid -15.9 -22.6 -21.0 -20.0 -17.1

Working capital 6.0 19.4 8.4 -0.4 0.5

Other -19.8 -25.4 -53.0 0.0 0.0


Capex -21.3 -31.7 -24.4 -30.0 -29.7


Capex - maintenance

Acquisitions & Invest

Asset sale proceeds 0.0 -0.8 180.8 0.0 0.0

Other -24.4 -6.0 -13.3 0.0 0.0

Investing cashflow -45.6 -38.5 143.2 -30.0 -29.7

Dividends paid -32.6 -36.0 -22.0 -12.7 -15.7

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings -42.0 -62.5 -168.9 0.0 0.0

Other -12.4 -25.8 -25.0 -25.4 -27.0 1 Month 3 Month 12 Month

Financing cashflow -87.0 -124.3 -215.9 -38.1 -42.7 Absolute -14.3% -24.1% -61.3%

Total cashflow 32.6 -39.8 -12.2 51.3 42.5 Relative -13.2% -25.6% -70.3%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 32.6 -39.8 -12.2 51.3 42.5 Source: Reuters 52 week trading range: 0.28-0.95

MSCI IVA Risk Comment: The lack of independence on the

Board (only 4 out of 10 Directors are independent) could result

in a reduction in the Governance score.

27/11/2012 10:00

APN News and Media Limited is involved in publishing, radio broadcasting, online, transit &

outdoor advertising in Australia and New Zealand.

Credit Suisse View

TP Risk Comment: Independent Chairman has reduced

governance risk, however APN does not have a majority of

independent Directors and major shareholder INM retains

considerable influence over the company.

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27 November 2012


NZ Strategic Review needs to capture $100mn

Strategic review unlikely to result in material asset sales. Potential partnership or

cost reduction initiatives to stabilise earnings appear the likely outcome

APN is undertaking two major strategic reviews: 1) a major rejuvenation program to

reduce costs and stabilise earnings in New Zealand Media; and 2) a strategic review of

APN’s New Zealand Media assets.

A partnership or merger with FXJ in New Zealand publishing appears feasible, however

there would likely be regulatory and political concerns with the concentration of content

(particularly in Auckland). Partial asset sales are possible, albeit we would not expect APN

to receive a material amount.

In the absence of a sale or merger, APN’s New Zealand Media business will need to

deliver significant cost savings and operational efficiencies to stabilise earnings.

We expect APN to reduce annual costs by $10mn p.a. through its rejuvenation program.

Initiatives to reduce costs include moving the New Zealand Herald to compact form (re-

launched in September 2012), converting regional titles to compact form and morning

delivery, creating a cross-platform multi-media sales team, creating a centralised news

service – sharing content across websites and daily titles (enabling reduction in editorial

headcount), integrating the Herald and Herald on Sunday content teams, moving to a

single circulation system for all titles, moving to an advertising self-service model for

classifieds and outsourcing where possible (editorial production, circulation logistics and

some printing).

New Zealand Publishing Scenarios

Our mid-case scenario assumes 5% decline in circulation p.a., 2.5% decline in advertising

revenue and $50mn cost savings over five years. This produces FY17 EBITDA of $40mn

and an enterprise value of $100mn (based on 4x multiple).

$100mn cost savings over five years would produce a mid-case scenario of $89mn FY17F

EBITDA and $221mn enterprise value. This represents an additional $49mn EBITDA and

$0.18 per share.

Figure 176: New Zealand Publishing Scenarios

Five Year Forecast

FY12F Low Mid High




Total Revenues A$mn 290 216 250 280

Total Costs A$mn 236 210 210 210

EBITDA A$mn 54 6 40 70



Multiple x 4.0 4.0 4.0 4.0


Source: Company data, Credit Suisse estimates. Revenue assumptions based on 2%, 5%, 10% decline in

circulation pa, 0%,2.5%,5% decline in advertising revenue pa, 2% underlying cost growth p.a. with $10mn

cost savings pa.

27 November 2012


Australian Publishing – will it be a long-term hold?

Potential external interest in Australian Regional Publishing

APN’s Australian Regional Publishing business primarily operates publications from Coffs

Harbour to Mackay. FXJ’s Regional Publishing business primarily operates publications

south of Coffs Harbour. Given the lack of competition between the two players in Australia,

we see an acquisition or merger without regulatory concerns as plausible. This would give

the combined FXJ/APN regional publications a circulation market share of 60% (FXJ 40%,

APN 20%), with NWS’ circulation market share of 20%.

Australian Publishing Scenarios

The figure below highlights various valuation scenarios for APN’s Australian Regional

Publishing business. Our mid-case valuation scenario (refer Figure 177) produces FY17

EBITDA of $18mn and an enterprise value of $45mn (based on 4x multiple).

Figure 177: Australian Publishing Scenarios

Five Year Forecast

FY12F Low Mid High



Total Revenues A$mn 253 196 207 218

Total Costs A$mn 203 188 188 188

EBITDA A$mn 50 8 18 29



Multiple x 4.0 4.0 4.0 4.0


Source: Company data, Credit Suisse estimates. Revenue assumptions based on 3-5% decline in revenue

pa and $5mn cost savings pa.

Resilient Radio exposure could be enhanced

The Radio Industry

The Australian Metropolitan Radio industry is a A$680mn industry. The New Zealand radio

industry is a A$200mn industry. APN is well positioned with ~20% market share in

Australia and ~45% market share in New Zealand.

APN is involved in the metropolitan radio sector through its 50% ownership of Australian

Radio Network (the other 50% is held by Clear Channel Communications). APN is the

second largest player in metropolitan radio behind SXL by audience share.

APN’s New Zealand radio operations are also part of the joint venture with Clear Channel,

known as The Radio Network of New Zealand (TRN). The station has three of the top five

national networks and is the number one player in what is essentially a duopoly with Media

Works.

27 November 2012



2011 (10+)


agency revenue 2011


Figure 180: NZ radio market share by total revenue

APN48%

MediaWorks42%

Other10%

Source: Company data, Advertising Standards Authority, Credit

Suisse estimates

Australian radio advertising has been relatively resilient in comparison to other forms of

traditional media. By comparison, New Zealand radio advertising has proven less resilient

over the past year due to natural disasters and an oversaturated market.

Figure 181: Australian Radio Advertising Revenue Figure 182: NZ Radio Advertising Revenue

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Source: CEASA Source: Advertising Standards Authority

ARN, which owns the Mix FM and Classic Hits brands, has an approximate 22% commercial

ratings share (see Figure 183). SXL, which owns the Today FM and Triple M brands, has the

highest commercial ratings share – its scale and appeal to younger listeners has enabled it to

command a substantial premium. However over the past year ARN has taken audience share

from SXL and has reduced the ratings-to-revenue share gap, picking up 2 points of market

share in revenue terms in 1H12. This has enabled it to outperform the market (see Figure 184).

27 November 2012


Figure 183: Metro commercial radio share Figure 184: Australian radio YoY % growth (APN vs.

market)

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012

APN SXL FXJ DMG MRN

-20%

-10%

0%

10%

20%

30%

40%

50%

Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12

APN

Market

Source: Nielsen. NB: 5 city revenue weighted average. Source: SMI

The Radio Network of New Zealand (TRN) has three of the top five national networks and

is the number one player in what is essentially a duopoly with Media Works. TRN’s 2011

revenue growth of 4% was double that of the overall market, however the business has

been losing share in the key 25–54 demographic in 2012.

Radio is likely to remain a resilient industry

We expect radio advertising spend to remain resilient. Radio remains the easiest and most

effective method of reaching car drivers and passengers. With increasing commuting

times, radio is likely to remain a popular advertising medium. Furthermore, radio

broadcasting is less reliant on agencies and national advertising, making it less

susceptible than print and television to changes in corporate advertising budgets.

While free commercial radio has been negatively impacted by the rise of online streaming

services and satellite radio in the US and UK, the impact has thus far been limited in

Australia. While part of this can be attributed to the generally slower adoption of new

media formats in Australia, it is also reflective of a smaller and remote population offering

less incentive for disruptive technologies to expand into the country. As a result, we do not

expect significant substitution of broadcast radio in the near term.

Scenarios for APN’s Radio business

APN’s radio assets provide relatively stable growth and cash flow. 100% ownership of

ARN and TRN would be positive in our view (depending on price paid for the additional

50%).

Our mid-case valuation scenario (refer Figure 185) produces Radio FY17 EBITDA of

$105mn. On 8x multiple this represents $522mn enterprise value.

27 November 2012


Figure 185: Radio Scenarios

Five year Forecast

FY12F Low Mid High

Revenues

Australia A$mn 142 157 173 191

New Zealand A$mn 88 97 107 118

Total Revenue A$mn 231 254 280 308

EBITDA

Australia A$mn 52 55 71 88

New Zealand A$mn 24 25 35 45

Total EBITDA A$mn 76 79 105 133


Multiple x 8 8 8 8


50% EV A$mn 302 197 261 331

Source: Company data, Credit Suisse estimates. Revenue assumptions based on 2%, 4%, 6% growth pa.

Cost growth 2.5% pa.

Reducing exposure to a robust Outdoor industry

The Outdoor Market

The Outdoor market is a A$630mn industry in Australia, A$65mn industry in New Zealand

and A$320mn industry in Hong Kong. APN is well positioned with ~45% market share in

Australia (including Adshel), ~50% market share in New Zealand (including Adshel) and

~10% market share in Hong Kong. APN Outdoor has a small exposure to Indonesia.

The Australian Outdoor industry is currently consolidating, with Champ Private Equity

(which owns oOh!Media) buying Eyecorp from TEN. APN Outdoor, oOh!Media and

Eyecorp compete directly in the billboard market. Adshel and JCDecaux compete directly

in the street furniture market.

In Hong Kong, JCDecaux is the market leader. APN owns Buspak, which is the leader in

transit, and Cody, which derives the majority of its revenue from two toll-roads.

Figure 186: Australian Outdoor Market A$630mn Figure 187: Hong Kong Outdoor Market A$320mn

APN Outdoor

26%

Adshel19%

JCDecaux9%

oOh! Media16%

eyeCorp15%

Other15%

JCDecaux50%

APN10%

POAD*12%

Other28%

Source: SMI, CEASA, Credit Suisse estimates Source: ZenithOptimedia, Company data, Credit Suisse estimates.

*49% owned by JCDecaux

Growth in the Outdoor market has been resilient despite a strong shift to digital (refer

Figure 188 and Figure 189).

27 November 2012


In Australia, the introduction of the MOVE audience measurement system and new

advertising formats has been successful in delivering growth ahead of the broader

advertising market since 2010. This outperformance has continued through the current

advertising downturn.

In Hong Kong, the Outdoor market has grown rapidly (29% CAGR 2007–2011), outpacing

the total market (7% CAGR 2007–2011) and now represents approximately 16% of total

ad spend (refer Figure 190). This is the likely result of a highly concentrated and urbanised

population, high public transport usage and large international airport.

Figure 188: Australian Outdoor Ad Spend YoY Growth % Figure 189: Hong Kong Outdoor Ad Spend YoY Growth %

-15%

-10%

-5%

0%

5%

10%

15%

20%Outdoor All Media

-20%

-10%

0%

10%

20%

30%

40%

50%Outdoor All Media

Source: CEASA Source: ZenithOptimedia

Figure 190: Outdoor share of Ad spend in key markets

0%

3%

6%

9%

12%

15%

18%

Australia Hong Kong New Zealand

Source: CEASA, ZenithOptimedia, Advertising Standards Authority

Consolidation in the Australian market is likely to lead to more rational behaviour between

incumbents. As such, we do not expect margins to be as volatile as they have been

historically (refer Figure 191 and Figure 192).

Figure 191: APN Outdoor Margins Figure 192: EyeCorp Margins

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27 November 2012


APN’s exposure to Outdoor has reduced

In May 2012, APN sold 50% of APN Outdoor to Quadrant Private Equity. The JV, which

retains the APN Outdoor name, includes both APN’s previously wholly owned outdoor

business (primarily operating in Australia and New Zealand) and its 50% stake in Rainbow

Premium Outdoor in Indonesia. APN’s existing joint ventures Adshel, Buspak and Cody

(all with Clear Channel) did not form part of the transaction. The transaction valued APN

Outdoor at $272mn (7.7x FY11 EBITDA) and generated cash proceeds for APN of

approximately $190mn.

Whilst the transaction enabled APN to reduce debt, it moved APN’s exposure from a

strong business in a robust, concentrated industry toward a riskier digital business in a

high growth but extremely fragmented industry. Quadrant Private Equity will be able to

support the necessary investment in technology in Australia (move to digital billboards)

and offers exposure to the broader Asia-Pacific region, however we do not expect growth

from these areas to offset the 50% asset sale in the medium term.

Scenarios for APN’s Outdoor business

Our mid-case valuation scenario (refer Figure 193) produces Outdoor FY17 EBITDA of

$87mn. On 8x multiple this represents $434mn enterprise value.

Figure 193: Outdoor Scenarios

Five year Forecast

FY12F Low Mid High

Revenues

APN Outdoor A$mn 208 229 253 278

Adshel A$mn 134 148 163 180

Hong Kong Outdoor A$mn 39 43 47 52

Total Revenue A$mn 381 420 463 509

EBITDA

APN Outdoor A$mn 16 12 36 61

Adshel A$mn 27 27 42 58

Hong Kong Outdoor A$mn 6 5 10 14

Total EBITDA A$mn 49 44 87 134


Multiple x 8 8 8 8


50% EV A$mn 194 110 217 332

Source: Company data, Credit Suisse estimates. Revenue assumptions based on 2%, 4%, 6% growth pa.

Cost growth 2.5% pa.

Increasing risk profile via Digital acquisitions

New mandate for new management team

Mr Brett Chenoweth was appointed CEO on 1 January, 2011. He was mandated to drive

APN’s expansion of its multi-media and integrated audiences in both existing and new

markets. Since his appointment, APN has made several digital acquisitions, sold 50% of

APN Outdoor to Quadrant Private Equity and is in the process of undertaking a strategic

review of the New Zealand media assets.

Whilst the shift toward digital revenue streams provides the possibility of higher returns, it

also increases the risk profile of APN. Retaining talent (particularly the founding

entrepreneurs) over the medium term will be critical to ensure the success of APN’s digital

businesses.

27 November 2012


Digital Acquisitions

APN has acquired or provided seed capital for four digital businesses over the past three

years (excluding Finda which was closed in 2011 and the 25% stake in e-commerce

software provider Soprano Design acquired in 1999). Refer Figure 194. These acquisitions

have cost approximately $50mn or $0.08/share to date with up to an additional $35mn or

$0.05/share in deferred consideration if certain earnings targets are achieved. APN has

provisioned for an additional $20mn in deferred payment. We expect deferred payments to

be finalised and paid by the end of FY15.

The division is currently unprofitable although we expect it to reach breakeven in the first

half of FY13.

Figure 194: Digital Businesses

FY12F

EBITDA

(A$mn)

Ownership Price

Paid

(A$mn)

Deferred

Settlement

(A$mn)

Date

Acquired

Comment

Grab One 3.0 100% 10* 8* 2010 Daily Deals NZ, Aus, Ireland. Acquired 50% IdeaHQ then

moved to 75% and 100%

CC Media 2.0 79% 8 5 2011 Catalogue Central (catalogue distributor) and iNC (retail

advertising network)

Brands Exclusive -4.0 82% 36 30 2012 Online retail shopping. Acqn price includes $6mn working

capital injection

Soprano nm 25% 6 1999 Online software provider

Jimungo nm 100% 1 2011 NZ sports tipping platform

Sella (reclassified

in NZ Publishing)

0 100% 2010 Classifieds and auction site. Part of IdeaHQ

Adhub (reclassified

in NZ Publishing)

0 100% 2010 Online advertising and marketing network. Part of IdeaHQ

Flicks (sold) 0 0% 2010 Movie information. Part of IdeaHQ

Finder (closed) 0 0% 2010 Comparison website

Unallocated costs -3.0

Total -2.0 51 35

Source: Company data, Credit Suisse estimates. * Acquisition price for IdeaHQ (Grab One, Sella, Adhub, Flicks).

Assessing potential digital earnings

Grab One, CC Media and Brands Exclusive are the key digital businesses APN appears

focused on growing aggressively. In assessing the potential earnings of these businesses,

we make the following assumptions:

■ Grab One is currently generating a run rate of $18mn revenue and $5mn EBITDA. Its

main competitor is Treat Me (owned by TME). Grab One is the market leader in New

Zealand with approximately 70% market share. Aided by its dominant market position

and the ability to advertise across APN’s media properties, Grab One is profitable (in

contrast to the majority of daily deals and/or group buying websites globally).

However, future growth is constrained by the small size of the New Zealand market.

International expansion in more competitive global markets (where Grab One does not

have first mover advantage) is likely to prove challenging. Due to the small size of its

home market and high subscriber churn rate within the sector, Grab One is unlikely to

significantly grow its current subscriber base. While lower subscriber acquisition costs

as the business matures provide potential upside, we do not see EBITDA contribution

as substantially exceeding the current $5m p.a. run rate in the near term.

■ CC Media is the owner of Catalogue Central, Australia’s leading online catalogue

distributor, and retail advertising network iNC. The business is currently generating a

run rate of ~$7mn in revenue and $2mn EBITDA. CC Media is a scalable and

profitable business with a strong position in a niche but growing market. Our base

27 November 2012


case assumes that the business is able to double its current earnings run rate within

the next three years. However, due to higher competition from competing platforms

and the rate of technological innovation in mobile e-commerce, CC Media is subject to

greater earnings uncertainty than Grab One.

■ Brands Exclusive is an online discount shopping club acquired in May 2012. The

business has a revenue run rate of $70mn and is currently loss making. Brands

Exclusive has in excess of 1.8mn members and strong revenue growth is likely to

continue in the near to medium term. However, with considerable competition in the

space from Oz Sale, The Shop Spot and Buy Invite, acquisition costs are also likely to

remain high. Additionally, while the “no inventory” model reduces the working capital

commitments faced by Oz Sale, long lead times and heavy reliance on suppliers can

adversely affect customer satisfaction. Our base case assumes that Brands Exclusive

will become profitable in two to three years.

Digital scenarios

Our scenarios (refer Figure 195) produce Digital FY17 EBITDA of $0mn–$19mn. On 10x

multiple this represents $0mn–$118mn enterprise value.

Figure 195: Digital Scenarios

Five year Forecast

FY12F Low Mid High

Grab One NZ$mn 3.0 1.0 7.0 10.0

CC Media NZ$mn 2.0 1.0 4.0 6.0

Brands Exclusive NZ$mn -4.0 1.0 3.0 6.0

Other/Unallocated costs NZ$mn -3.0 -3.0 -3.0 -3.0

Total EBITDA NZ$mn -2.0 0.0 11.0 19.0

PV EBITDA NZ$mn -2.0 0.0 6.8 11.8

Multiple x 10 10 10 10

Enterprise Value NZ$mn -20 0 68 118


APN Valuation

APN Valuation Scenarios

Our mid-case and most likely valuation scenario (refer Figure 196) produces an enterprise

value of $641mn for APN or $0.24 per share.

27 November 2012


Figure 196: APN Valuation Scenarios

Five Year Forecast

FY12F Low Mid High

Australian Publishing EV A$mn 200 19 45 73

NZ Publishing EV A$mn 216 16 100 175

Radio EV (50%) A$mn 302 197 261 331

Outdoor EV (50%) A$mn 194 110 217 332

Digital EV A$mn - 20 - 68 118

Corporate costs EV A$mn - 50 - 50 - 50 - 50

Total EV A$mn 842 292 641 978

Net Debt A$mn 486 486 486 486

Equity Value A$mn 357 - 194 156 492

SOI mn 657 657 657 657

Value per share $ / share $ 0.54 -$ 0.30 $ 0.24 $ 0.75

ESG impact % 3% 3% 3% 3%

Target price $ / share $ 0.53 -$ 0.29 $ 0.23 $ 0.73


Figure 197: APN Publishing Comparable Companies

P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F

Torstar 4.3x 4.8x 5.0x 3.1x 3.4x 3.4x

Trinity Mirror 3.0x 3.0x 3.1x 2.6x 2.7x 2.9x

Gannett 8.1x 7.9x 7.4x 4.8x 4.8x 4.7x

New York Times Co 13.7x 15.6x 16.0x 4.5x 5.1x 5.2x

Average 7.3x 7.9x 7.9x 3.8x 4.0x 4.0x


DCF valuation

We have a DCF valuation of $0.38 per share (WACC 10%, terminal growth 1%).

Figure 198: APN DCF Valuation

PV of FCF 420

Terminal value 159

Associates:

APN Outdoor 76

Adshel 85


Net debt 485











results in a $0.75 per share valuation for APN.

27 November 2012


PE Multiple

Figure 199: APN one year forward PE Figure 200: APN PE relative to All Ords Index (ex



Risks

The key risks to our investment thesis for APN are as follows:

■ Changes to advertising spend in Australia. Approximately 95% of APN’s total

revenues are derived from advertising. A 1% change in advertising revenue results in

a 4% change to EBITDA, a 7% change in EPS and a 9% change to our DCF

valuation.

■ Further digital acquisitions or key person risk in the founding entrepreneurs of the

digital businesses.

■ Potential asset sales or partnerships in the publishing businesses.

■ Changes to the ownership structure of Outdoor or Radio with Clear Channel or

Quadrant Private Equity.


ESG Issues

Environment issues

■ In our view there are no material environmental issues facing APN.

Social issues

■ In our view there are no material social issues facing APN.

Governance issues

■ APN does not have a majority of independent Directors.

■ APN previously had a common Chairman with major shareholder Independent News

and Media (Gavin O’Reilly). However, Mr O’Reilly has since resigned from the boards

of both companies and APN has an independent Chairman for the first time since

listing in Peter Hunt.

27 November 2012


■ APN is actively pursuing options for its New Zealand business including a potential

sale. The ultimate price and conditions attached to a sale may be impacted by media

ownership rules and competition concerns.

Remuneration

■ Base salary: CEO Brett Chenoweth was paid a base salary of $1,485,000 in FY11

(previous CEO Brendan Hopkins was paid a base of $1,727,000 in FY10). The

aggregate base salary of the eight most senior executives was $4,935,000 in FY11.

■ Short-term incentives: APN pays short-term incentives against financial and

individual key performance objectives. 50% of STI is payable based on business unit

EBIT while 25% is payable against group EBIT, with the remaining 25% based on

individual performance. The common STI targets and performance are disclosed (in

arrears) in the Annual Report. CEO Brett Chenoweth was entitled to an award of

$600,000 in FY11 for achievement of target performance. The maximum potential STI

is 246% of the STI target for the CEO and 200% for most other senior executives.

However, Mr Chenoweth did not receive a bonus in 2011 due to insufficient financial

performance across the group. Matt Crockett (11% of target) and Warren Bright (10%

of target) received an STI award based on the achievement of individual KPIs while

Richard Herring received 68% of his target STI based on the performance of the

Outdoor division.

■ Long-term incentives: The LTI plan awards performance rights over a three-year

period subject to the achievement of an EPS target set by the Board (75%) and

relative TSR against the GICS Consumer Discretionary index (25%). For awards

granted in 2011, compound annual EPS growth of at least 7% (50% of award at 7%

CAGR, 100% of award at 10% CAGR) and TSR in the 51st percentile or above (50%

at 51st percentile increasing on a straight line basis to 100% at the 75

th percentile) is

required for any performance rights to vest. Only Mr Chenoweth (750,000) was

granted any performance rights in 2011, in relation to the commencement of his

employment with the company. He is eligible to receive performance rights to the

value of his fixed remuneration in FY12 and FY13. No awards issued under existing

LTI plans vested during the year. APN has taken a charge of $81,000 against the TSR

component of performance rights held by Mr Chenoweth. It has not taken any charges

against the EPS components as these are considered unlikely to vest due to the

financial performance of the business.

Board

■ APN’s Board has extensive executive and Board-level experience in media and

financial services, although it lacks legal expertise.

■ Only four of the 10 directors are independent, however APN does have an

independent Chairman for the first time following the appointment of Peter Hunt.

27 November 2012


Figure 201: Board skill analysis for APN

Name Position

Tenure

(Years) Financial Legal Media

Former

CEO

ASX 200


Fees / pay

($k)

Peter Hunt Chairman 0.2 X X Yes N/A

Brett Chenoweth CEO 1.8 X No 1,581

Albert Harris Deputy Chairman 20.5 X X X No* 150

Paul Connolly Non Exec 0.0 X X No N/A

Melinda Conrad Non Exec 0.8 X X Yes N/A

Peter Cosgrove Non Exec 8.9 X X No 67

Vincent Crowley Non Exec 3.6 X X X No 0

John Harvey Non Exec 1.8 X X Yes 77

Kevin Luscombe Non Exec 15.1 X No* 90

John Maasland Non Exec 8.9 X Yes 95

Source: Company data. *Considered non-independent due to a tenure greater than ten years

Valuation impact

■ We have included a 3% ESG impact to our valuation for APN. The appointment of

an Independent Chairman has reduced governance risk, however APN does not have

a majority of independent Directors and major shareholder INM retains considerable

influence over the company. INM has a 38% interest in APN.


■ We have a Negative outlook on the MSCI IVA rating for APN. APN's governance

has improved following the appointment of an independent Chairman, lessening the

risk of interference from major shareholder Independent News and Media. However,

MSCI has not previously taken Governance risk into consideration, reducing scope for

an uplift in rating as a result. The lack of independence on the Board (only four out of

10 Directors are independent) could result in a reduction in the Governance score.

Figure 202: MSCI IVA rating for APN: BBB

3.0

4.0

5.0

6.0

7.0

8.0

9.0




27 November 2012


Appendix

Company Overview

APN News & Media is a print-focused media company operating in Australia and New

Zealand. Its primary businesses are newspaper assets in regional Australia and regional

and metropolitan New Zealand. The group also has interests in radio and outdoor

advertising through a number of joint ventures and owns several small digital businesses.

Prior to the acquisition of its New Zealand media interests at the end of 2001, APN was

almost solely Australia-focused, except for two small Asian joint ventures in the outdoor

division. APN’s earnings mix today is largely the result of that transaction.

Figure 203: Revenue mix (2001) Figure 204: Revenue mix (2011)


Market Position

Publishing – Australia and New Zealand

The Australian regional newspaper industry is a A$1.8bn industry. This compares with

>$2bn in 2008. APN is the second largest player in the Australian regional newspaper

market by circulation, behind FXJ and slightly ahead of NWS. The market is highly

concentrated, with the top three controlling around 80% of the market. Head to head

competition is limited, with the majority of regional and rural areas having only one local

newspaper.

The New Zealand newspaper industry is a A$700m industry. The New Zealand newspaper

industry is dominated by two players, APN and FXJ, who between them control roughly

three quarters of the market by circulation. Although APN is the market leader by total paid

circulation, FXJ’s business in New Zealand is larger due to its higher exposure to

metropolitan markets (where the ratio of advertising revenue to circulation is higher).

Figure 205: Australian regional circulation market share Figure 206: New Zealand circulation market share


27 November 2012


Radio – Australia and New Zealand

The Australian Metropolitan Radio industry is a A$680mn industry. APN has ~20% market

share through its 50% ownership of Australian Radio Network (the other 50% is held by

Clear Channel Communications). APN is the second largest player in metropolitan radio

behind SXL by audience share.

The New Zealand Radio industry is a A$200mn industry. APN has ~45% market share

through its 50% ownership of The Radio Network of New Zealand (the other 50% is held

by Clear Channel Communications). The station has three of the top five national networks

and is the number one player in what is essentially a duopoly with Media Works.


2011 (10+)


agency revenue 2011


Figure 209: NZ radio market share by total revenue

APN48%

MediaWorks42%

Other10%

Source: Company data, Advertising Standards Authority, Credit

Suisse estimates

Outdoor – Australia, New Zealand and Hong Kong

The Outdoor market is a A$630mn industry in Australia, A$65mn industry in New Zealand

and A$320mn industry in Hong Kong. APN is well positioned with ~45% market share in

Australia (including Adshel), ~50% market share in New Zealand (including Adshel) and

~10% market share in Hong Kong. APN Outdoor has a small exposure to Indonesia.

The Australian Outdoor industry is currently consolidating, with Champ Private Equity

(which owns oOh!Media) buying Eyecorp from TEN. APN Outdoor, oOh!Media and

Eyecorp compete directly in the billboard market. Adshel and JCDecaux compete directly

in the street furniture market.

In Hong Kong, JCDecaux is the market leader. APN owns Buspak, which is the leader in

transit, and Cody, which has 160 billboards spread across three main tunnels linking Hong

Kong island to the mainland and the downtown areas of the island.

27 November 2012



APN Outdoor

26%

Adshel19%

JCDecaux9%

oOh! Media16%

eyeCorp15%

Other15%

JCDecaux50%

APN10%

POAD*13%

Other27%



History

Figure 212: APN Key Milestones

Date Event

1992 IPO as Australian Provincial Newspapers (Independent News & Media (INM)

retained 41% stake – the O’Reilly family was the major shareholder in INM)

1992 Expansion into Radio via JV with Clear Channel

1995 Acquired Buspak

1996 Acquired Cody

1997 Acquired Australian Posters Group from 3M Australia and formed the Adshel JV with

the More Group

1998 Company name change to APN News & Media

2001 Acquired New Zealand Newspaper Publisher Wilson & Horton from INM for $809mn

2007 Rejected $6.20/share ($3bn) takeover offer from INM and Providence Equity

Partners

2009 $100mn equity raising

2010 Brett Chenoweth announced as incoming CEO. Acquired a 50% stake in ecommerce

business Idea HQ

2011 Brett Chenoweth officially starts as CEO. Acquired CC Media, Jimungo and

increased Idea HQ stake to 75%

2012 Sale of 50% of APN Outdoor to Quadrant Private Equity for $190mn cash. Cash

proceeds used to reduce debt and acquire an 82% stake in Brands Exclusive.

Increased Idea HQ stake to 100%. Peter Myers, CFO, resigned and was replaced by

Jeff Howard. Gavin O’Reilly, Chairman, resigned and was replaced by Peter Hunt.

Pierce Cody, founder of Cody Outdoor and board member, resigned.



Figure 213: Historic Sales Growth Figure 214: Historic EBIT Margin

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Reported 100% owned JVs

10%

15%

20%

25%

30%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Reported 100% owned JVs

Source: Company data, Credit Suisse estimates. Note: APN Outdoor

is considered to be a joint venture for illustrative purposes although it

was 100% owned until May 2012

Source: Company data, Credit Suisse estimates. Note: APN Outdoor

is considered to be a joint venture for illustrative purposes although it

was 100% owned until May 2012

27 November 2012



-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2003 2004 2005 2006 2007 2008 2009 2010 2011

NPAT EPS

-40%

-30%

-20%

-10%

0%

10%

20%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Sales growth EBIT growth

Source: Company data. Note: Reported financial data (radio JVs

consolidated). Basic EPS pre-non-recurring items


consolidated)


0%

2%

4%

6%

8%

10%

12%

14%

16%

2003 2004 2005 2006 2007 2008 2009 2010 2011

0%

2%

4%

6%

8%

10%

12%

14%

2003 2004 2005 2006 2007 2008 2009 2010 2011

ROA ROE


consolidated)


consolidated)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%


consolidated)


consolidated)

27 November 2012



interest / EBITDA)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$0m

$20m

$40m

$60m

$80m

$100m

$120m


consolidated).


consolidated). Net working capital defined as Trade Receivables +

Inventories – Trade Creditors



0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

Source: Company data Source: Company data. Note: Financial year ends have not been

calendarised




Dominant market share Exposed to weak publishing

markets

Growth from digital acquisitions Digital migration for news and

content

Improving ratings performance in

Australian radio

Complicated accounting treatments

of JVs

Growth in Outdoor with JV partners

and potential to acquire 100%

Subdued ad market

Large shareholder with influence in

INM (32% stake)

Potential to acquire 100% radio Increased competition in outdoor

with market consolidation

Balance sheet constraints Potential partnership with FXJ in

publishing

Source: Credit Suisse



Australian Publishing High Low High Low High

NZ Publishing High Low-Medium High Low High

Australian Radio High High High Low Medium

NZ Radio High Medium High Low Medium

Outdoor Medium High Medium Medium Medium



27 November 2012



Peter Hunt (Chairman). Independent.

Mr Hunt joined APN as a Director of the Company and Chairman of the Board on

3 September 2012. Mr Hunt is the Non-Executive Chairman and a founder of Greenhill

Caliburn, a leading corporate advisory firm which is now part of the global Greenhill

advisory group. He was Joint Chief Executive and the Executive Chairman of Caliburn

from its establishment in May 1999 through to its sale to Greenhill in April 2010. Mr Hunt’s

current directorships include Chairman of Cambooya Services Pty Ltd, Chairman of the

AMP Foundation, Chairman of Grameen Foundation Australia and So They Can and a

Director of the St James Ethics Centre and Women’s Community Shelters.

Brett Chenoweth (CEO and Executive Director). Non-Independent.

Mr Chenoweth joined APN as CEO in January 2011. Mr Chenoweth has more than 18 years

of professional experience working exclusively in the areas of media, technology,

telecommunications and online businesses, having held senior executive roles at Telecom

New Zealand Limited (2001–2005: Head of Group Strategy and Mergers & Acquisitions;

Head of Australian Consumer group; Director on a number of TCNZ group company

Boards), the PBL group of companies (ecorp Ltd and ninemsn Pty Ltd 1997–2001: Head of

Business Development) and Village Roadshow Pictures Pty Ltd (1991–1997: General

Manager & Vice President). Mr Chenoweth was most recently the Managing Director and

Head of Asia Pacific for The Silverfern Group, a New York based specialist Merchant Bank.

He is a Director and Founder of Gizmo Corporation Pty Ltd, a leading Australian consumer

IT services organisation and he has been on a number of company Boards, including Living

and Leisure Limited, an Australian publically listed ski resort and aquarium operator.

Albert Harris (Deputy Chairman). Independent.

Mr Harris was Managing Director and Chief Executive Officer of the Ampol Group from

1977 to 1987 and Chairman of Australian Airlines from 1987 to 1992. Mr Harris has been a

Board Member of the Company since March 1992 and Deputy Chairman since December

1994. He was Acting Chairman following the resignation of Gavin O’Reilly . He is currently

Chairman of Thakral Holdings (Director since 1994) and the Australian Radio Network and

President of St Vincent’s Clinic Foundation. He is Life Governor of the Melanoma

Foundation and a Life Member of the Australian Sports Commission. Mr Harris started his

career as a broadcaster and journalist with the Macquarie Broadcasting Service and he is

a former Commissioner of the ABC. He was previously Chairman of Gazal Corporation

Limited (Director 1989 to 2004) and Deputy Chairman of Metcash Limited (Director 1994

to 2007).

Melinda Conrad (Non-Executive Director). Independent.

Ms Conrad was appointed to the Board in January 2012. Ms Conrad is the former founder

and CEO of a retail chain of stores and was previously an executive at Colgate Palmolive.

Ms Conrad has extensive expertise in retail, strategy and marketing to consumer facing

organisations. Ms Conrad is a Director of The Reject Shop Limited (since August 2011), a

Director of the NSW Government’s Clinical Excellence Commission and Agency for Clinical

Innovation, a Director of the Garvan Medical Research Institute Foundation and is also a

Director of the Australian Brandenburg Orchestra. Ms Conrad holds an MBA from Harvard

Business School and is a member of the Australian Institute of Company Directors.

Peter Cosgrove (Non-Executive Director). Non-Independent.

Mr Cosgrove has been a Board Member since December 2003. Founder of the Buspak

group of companies in Australia, New Zealand and Hong Kong, he has more than 20

years’ experience in the outdoor advertising industry. He is non-executive Chairman of

Buspak Hong Kong (since June 2003), as well as non-executive Deputy Chairman of

Clear Media Limited (Director since April 2001), which is listed on the Stock Exchange of

Hong Kong. He is Chairman of GlobeCast Australia Pty Limited (since June 2002), a

broadcasting company. He was previously a Director of Independent News & Media PLC

(April 1988 to June 2009).

27 November 2012


Vincent Crowley (Non-Executive Director). Non-Independent.

Mr Crowley was appointed to the Board in March 2009. He was Chief Executive of APN

from 2000 to 2002, having previously held the position of Finance Director from 1996 to

2000. A chartered accountant, he joined Independent News & Media PLC in 1990,

became a Director in 1997 and was appointed Chief Executive of Independent News &

Media – Ireland in August 2002. In June 2009, he retired from the Board of Independent

News Media PLC. In December 2009, he was appointed Group Chief Operating Officer of

Independent News & Media PLC. Mr Crowley was previously an audit manager with an

international accountancy firm. He is also a Director of a number of Independent News &

Media PLC subsidiaries and associated companies.

Paul Connolly (Non-Executive Director). Non-Independent.

Mr Connolly is Chairman of Connolly Capital Limited, a Dublin based corporate finance

advisory firm focused on the telecom, media and technology sectors and he is a Senior

Adviser to Credit Suisse. He currently serves on the Board of Independent News & Media,

Communicorp Group and Melita cable. He was appointed as a Director in October 2012.

John Harvey (Non-Executive Director). Independent.

Mr Harvey commenced as a Board Member on 1 January 2011. He has over 37 years’

professional experience as a chartered accountant and a company Director. He was a

Partner of PricewaterhouseCoopers for 23 years and held a number of management and

governance responsibilities for PricewaterhouseCoopers in New Zealand, including the

position of Auckland Managing Partner from 1998 to 2006. He retired from

PricewaterhouseCoopers in June 2009 to pursue a career as a professional Director. Mr

Harvey is currently a Director of DNZ Property Fund Limited, Kathmandu Holdings Limited,

MARAC Finance Limited, Port Otago Limited, and New Zealand Opera Limited and is an

Advisor to the Board of Resource Coordination Partnership Limited. He holds a Bachelor

of Commerce degree from the University of Canterbury and is a member of the Institute of

Directors of New Zealand.

Kevin Luscombe (Non-Executive Director). Independent.

Mr Luscombe has been a Board Member since October 1997. Following a successful

corporate career in Australia and the USA, and board roles in several South East Asian

companies, he founded a marketing and research consultancy in 1976. In 1980, he started

the advertising agency Luscombe & Partners, sold it to Clemenger BBDO in 1998, and

joined their Board. He is Executive Chairman of the management consultancy Growth

Solutions Group. He is also a Director of Landis+Gyr (since September 2002) and

Melbourne Food and Wine (since August 2004). In 1998, he was appointed Adjunct

Professor at the Graduate School of Management, Swinburne University. He was the

recipient of the 2001 Sir Charles McGrath Award for marketing excellence.

John Maasland (Non-Executive Director). Independent.

Mr Maasland has been a Board Member since December 2003. Mr Maasland has

extensive business experience in the media industry and in New Zealand, and serves on a

number of private and public company boards. He is Chairman of Hellaby Holdings Ltd

(Director since April 2008) and a Director of Delegat’s Group Ltd (since October 2004). He

is Chancellor of AUT University and was also Chairman and a Trustee of the Royal New

Zealand Ballet (October 1998 to October 2007) and Chairman of Auckland International

Airport Ltd (October 2006 to November 2007).

Jeff Howard (Chief Financial Officer)

Mr Howard was Acting Chief Financial Officer since the departure of Peter Myers on 21

September 2012, and prior to this was the Company’s Chief Financial Controller for two

years. Mr Howard is a Chartered Accountant with extensive financial expertise. His

experience at APN is underpinned by nearly 10 years in banking with ABN AMRO and

RBS, where he was predominantly focused on the telecoms and media sectors. Before

that Mr Howard spent 10 years with KPMG.

27 November 2012


Matt Crockett (Chief Development Officer)

Prior to joining APN in March 2011, Mr Crockett was CEO, Wholesale and International

Division of Telecom New Zealand, having led the division since June 2007. Under Mr

Crockett’s leadership it became one of Telecom New Zealand’s fastest growing and

highest performing business units. During his seven years at Telecom New Zealand he

also held a number of General Manager and strategy roles covering fixed line, mobile and

internet businesses. During this time he gained significant experience in digital media

including overseeing New Zealand’s largest ISP Xtra, and it’s key relationships with MSN

and later Yahoo!7. Prior to his roles at Telecom New Zealand, he held senior positions at

international management consultancy McKinsey and Company where he gained broad

industry experience from resource and industrial companies through to e-commerce start-

ups. Mr Crockett has held several Board positions and is currently a Director of Orion

Health, a global e-health software leader and one of New Zealand’s fastest growing

technology companies.

Martin Simons (Chief Executive, New Zealand Media)

Prior to being appointed as head of the New Zealand operations in 2006, Mr Simons

worked within the organisation for 35 years as a journalist, editor and in various

managerial roles in both Australia and New Zealand.

Warren Bright (Chief Executive, Australian Regional Media)

Warren has extensive experience in establishing successful digital companies that have

partnered with media companies. He has been the CEO of a digital joint venture in the UK

between News International and the ASX listed REA Group. Warren has also held the

positions of Managing Director and Chief Operating Officer of News Interactive in

Australia, now News Digital Media, the digital division of News Limited. In addition, Warren

has served as a Board Member of the REA Group. Prior to joining APN, Warren was the

Director of Profit Drivers, a business advisory and consulting firm that he founded to

pursue entrepreneurial activities. Clients included major Australian media businesses,

leading Australian real estate groups and AdPerfect, an advertising software solution for

newspaper publishers. Warren has also worked at international consultancy McKinsey and

Company.

Richard Herring (Outdoor Chief Executive)

Mr Herring was previously APN Outdoor Chief Executive, a position to which he was

appointed in early 2004. He joined Cody Outdoor in 1995 and was appointed as General

Manager in 1998 and Chief Executive in 2001. He also has a background in sales in

television and radio.

Ciaran Davis (ARN Chief Executive)

Ciaran has spent the last 10 years working in radio around the world and joined ARN as

CEO in January 2010. Previously, he was Commercial Director with one of Europe’s

largest independent groups operating over 40 stations in nine countries. Since joining ARN,

Ciaran has significantly restructured the company and positioned it for the next phase of

industry growth. ARN has also developed new products that extend the current on-air

brands through new online and digital channels."


Figure 227: APN Substantial Shareholders


Independent News & Media plc 38.0%

Allan Gray 19.8%

Maple Brown Abbott 5.5%

Source: Bloomberg

27 November 2012



27 November 2012



Entertainment

News Corporation (NWS.AX / NWS AU)

Corporate split priced in

■ We have a Neutral rating and A$27.00 per share target price for News Corporation (NWS.AX).

■ Investment Case: Corporate split priced in. Our investment view is shaped by four considerations: 1) News Corporation has announced its intention to split the company into a Media & Entertainment business and a Publishing business. The split will occur towards the end of FY13. The announcement of a split has already unlocked value to shareholders and appears priced in, with NWS trading on 9x FY12 EBITDA compared with 7x prior to the announcement. We value the Media & Entertainment business at ~A$23 per share and the Publishing business at ~$5 per share. 2) The Publishing business is more interesting than at first glance. Following the acquisition of Consolidated Media Holdings on 19 November 2012, we estimate the Publishing business will be split 55/35/10 print/cable/digital. Over time, the earnings contribution from Foxtel and Fox Sport will likely grow. Any potential sell down of the Publishing business from US investors following the corporate split may be a buying opportunity for Australian investors. 3) NWS continues to make solid strategic investments in Cable assets. We view an acquisition of 49% of YES Network (Yankees Entertainment and Sports Network) as sound given it is a premium Pay-TV asset with strong market position and growth potential. 4) NWS will continue to suffer from governance issues post the split, in our view. We expect a dual class share structure to remain in place for both entities, which will result in Murdoch family control over both businesses. We expect Rupert Murdoch to be Chairman of both companies. Governance issues have resulted in a 10% discount to our weighted valuation.

■ Catalysts: Further detail about corporate split in December 2012. We expect NWS to announce further details about the corporate split at an industry conference in early December.

■ Valuation: We have a A$27.00 per share target price. This is based on the average of our Sum of the Parts valuation of A$27.70 per share and our DCF valuation of A$32.30 per share (WACC 11%, terminal growth 3%). We apply a 10% discount to our weighted valuation due to governance issues.


80

130

180

0

10

20

30

40

Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12




On 19/07/12 the spot exchange rate was US$.97/US$1

Performance Over 1M 3M 12M Absolute (%) 0.1 3.9 42.0 Relative (%) 1.2 2.5 31.0


Year 06/12A 06/13E 06/14E 06/15E Revenue (US$mn) 33,706.0 35,553.7 38,461.2 39,700.6 EBITDA (US$mn) 6,782.0 7,317.9 8,027.5 8,510.2 EBIT (US$mn) 5,603.0 6,152.3 6,757.5 7,180.2 Net income (US$mn) 3,521.0 3,929.5 4,138.5 4,382.6 EPS (CS adj.) (USc) 140.62 171.64 192.50 216.62 Change from previous EPS (%) n.a. 9.9 3.8 1.0 Consensus EPS (USc) n.a. 173.10 200.40 227.00 EPS growth (%) 19.1 22.1 12.2 12.5 P/E (x) 17.6 14.4 12.9 11.4 Dividend (USc) 17.00 17.00 29.00 43.00 Dividend yield (%) 0.7 0.7 1.2 1.7 P/B (x) 2.5 2.2 2.0 1.9 Net debt/equity (%) 22.6 30.0 28.7 27.2



Rating NEUTRAL*

Price (27 Nov 12, A$) 23.74

Target price (A$) (from 23.00) 27.00¹




Projected return:

Capital gain (%) 13.7


Total return (%) 14.6




Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

Michael Senno

+1 212 325 1353

[email protected]

NW

S.A

X

27 November 2012



News Corporation (NWS) Year ending 30 Jun In USDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$23.70 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating NEUTRAL c_EPS_SHARESEquiv. FPO (period avg.) mn 2,633.0 2,504.0 2,289.4 2,149.8 2,023.1


vs Share price % 13.92 EPS_GROWTH*100EPS Growth % 19.1 22.1 12.2 12.5


c_DPS*100DPS c 17.0 17.0 17.0 29.0 43.0

c_PAYOUT*100Payout % 14.4 12.1 9.9 15.1 19.8




Sales revenue 33,405.0 33,706.0 35,553.7 38,461.2 39,700.6 Valuation

EBITDA 6,166.0 6,782.0 7,317.9 8,027.5 8,510.2 c_PE P/E x 21.0 17.6 14.4 12.9 11.4

Depr. & Amort. (1,191.0) (1,179.0) (1,165.6) (1,270.0) (1,330.0) c_EBIT_MULTIPLE_CURREV/EBIT x 12.1 11.2 10.6 9.7 9.1

EBIT 4,975.0 5,603.0 6,152.3 6,757.5 7,180.2 c_EBITDA_MULTIPLE_CUEV/EBITDA x 9.7 9.3 8.9 8.1 7.6




Profit before tax 4,135.0 4,704.0 5,199.7 5,781.3 6,207.5 ReturnsIncome tax (1,200.0) (1,397.0) (1,591.6) (1,957.2) (2,161.1) c_ROE*100Return on Equity % 10.5 14.3 15.2 15.6 16.2

Profit after tax 2,935.0 3,307.0 3,608.1 3,824.1 4,046.5 c_I_NPAT/c_I_SALES*100Profit Margin % 9.3 10.4 11.1 10.8 11.0

Minorities (155.0) (228.0) (266.7) (294.6) (316.8) c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.5 0.6 0.6 0.6 0.6


Associates & Other 329.0 442.0 588.0 609.0 653.0 c_ROA*100Return on Assets % 5.0 6.2 6.6 6.8 7.1

Normalised NPAT 3,109.0 3,521.0 3,929.5 4,138.5 4,382.6 c_ROIC*100Return on Invested Cap. % 11.0 12.9 12.6 13.0 13.3

Unusual item after tax (370.0) (2,342.0) 1,221.0 0.0 0.0 Gearing

Reported NPAT 2,739.0 1,179.0 5,150.5 4,138.5 4,382.6 c_GEARING*100Net Debt to Net debt + Equity % 8.5 18.4 23.1 22.3 21.4



Cash & equivalents 12,680.0 9,626.0 8,315.7 8,386.8 8,558.0 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x 5.9 6.2 6.5 6.9 7.4

Inventories 2,332.0 2,595.0 2,913.5 3,106.4 3,192.9 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales % 3.5 2.8 2.7 2.7 2.8

Receivables 6,330.0 6,608.0 7,283.8 7,765.9 7,982.2 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 98.3 79.6 81.9 82.1 82.2


Current assets 21,784.0 19,448.0 19,283.1 20,029.1 20,503.0 MSCI IVA (ESG) Rating CCC

Property, plant & equip. 6,542.0 5,814.0 5,743.4 5,516.6 5,279.2 TP ESG Risk (%): -10

Intangibles 23,284.0 20,307.0 22,556.8 22,511.2 22,477.8

Other non-current assets 10,370.0 11,094.0 12,033.9 12,897.0 13,829.5


Total assets 61,980.0 56,663.0 59,617.2 60,953.9 62,089.5

Payables 5,773.0 5,405.0 5,827.0 6,212.7 6,385.7


Other liabilities 10,386.0 9,977.0 10,179.0 10,179.0 10,179.0 MSCI IVA Risk: Neutral


Net assets 30,326.0 25,826.0 27,154.2 28,105.1 29,067.8

Ordinary equity 29,506.0 24,684.0 25,789.5 26,445.9 27,091.7

Minority interests 820.0 1,142.0 1,364.7 1,659.2 1,976.1



Net debt 2,815.0 5,829.0 8,141.3 8,070.2 7,899.0 Source: MSCI IVA Rating


EBIT 4,975.0 5,603.0 6,152.3 6,757.5 7,180.2

Net interest -840.0 -899.0 -952.6 -976.2 -972.7

Depr & Amort 1,191.0 1,179.0 1,165.6 1,270.0 1,330.0

Tax paid -1,200.0 -1,397.0 -1,591.6 -1,957.2 -2,161.1

Working capital 42.0 -981.0 -890.3 -289.3 -129.7

Other 303.0 285.0 -93.8 45.6 33.4

Operating cashflow 4,471.0 3,790.0 3,789.6 4,850.4 5,280.1

Capex -1,171.0 -939.0 -955.0 -1,043.1 -1,092.7


Capex - maintenance

Acquisitions & Invest -831.0 -542.0 -2,527.0 0.0 0.0

Asset sale proceeds 403.0 475.0 1,825.0 0.0 0.0

Other -648.0 -415.0 -261.0 -254.1 -279.5

Investing cashflow -2,247.0 -1,421.0 -1,918.0 -1,297.2 -1,372.2

Dividends paid -500.0 -593.0 -443.8 -482.1 -736.8

Equity raised -54.0 -4,487.0 -3,766.0 -3,000.0 -3,000.0

Net borrowings 1,914.0 -35.0 988.0 0.0 0.0

Other 0.0 0.0 9.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 1,360.0 -5,115.0 -3,212.8 -3,482.1 -3,736.8 Absolute 0.1% 3.9% 42.0%

Total cashflow 3,584.0 -2,746.0 -1,341.3 71.1 171.2 Relative 1.2% 2.5% 31.0%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 3,584.0 -2,746.0 -1,341.3 71.1 171.2 Source: Reuters 52 week trading range: 16.90-25.14

MSCI IVA Risk Comment: NWS is rated 'CCC' because it

continues to face considerable scrutiny due to allegations of

illegal phone hacking that surfaced during July 2011 and

resulted in the closure of its News of the World tabloid. Given

the ongoing legal problems and justified concerns over

governance it is unlikely that the negative perception around

NWS from an ESG perspective will abate anytime soon.

26/11/2012 21:57

News Corporation is a diversified global media company. It operates in six segments:

Filmed Entertainment, Television, Cable Network Programming, Direct Broadcast Satellite

Television, Publishing and Other.

Credit Suisse View

TP Risk Comment: NWS has been faced with significant

governance issues; most recently the phone hacking

controversy and the failed takeover of BSkyB. The

considerable influence that Rupert Murdoch and the Murdoch

family exert over the company through its dual class share

structure raises the risk of further governance issues in the

future as well as inhibiting the rights of minority shareholders.

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15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

NWS.AX XJO

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Stock Local Sector



27 November 2012


Corporate Split: Unlocking value

News Corporation intending to split

On 28 June 2012 NWS publicly announced that it was considering a split into two

separately listed companies; a Media & Entertainment business and a Publishing

business. At its 4Q12 result, the Company confirmed its intent to pursue separation of

these businesses, with the separation expected to be completed by August 2013.

The global Media & Entertainment business will include the broadcast and cable networks,

film and television production studios, TV stations and Sky Italia.

The Publishing business will comprise the company's newspapers and information

businesses in the US, Britain and Australia, the HarperCollins book publishing arm and the

new education unit. The publishing business will also include all of the company’s other

Australian assets, including its REA, Foxtel and Fox Sports shareholdings.

The capital structure of the two businesses is yet to be confirmed, however it is expected

that the Media & Entertainment business would retain the majority of NWS’ debt facilities

while the Publishing business would have a net cash balance position.

Whilst the separation of these business is expected to unlock value over time, there are

likely to be separation costs in the near term. Murdoch is also likely to retain control of

both businesses.

Unlocking the value of the Media & Entertainment business

NWS is currently trading at 9x FY12 EBITDA. Immediately prior to the announcement of its

demerger plans, it was trading at 6.9x FY12 EBITDA.

US diversified entertainment companies (ex-NWS) are trading on 8.1x FY12 EBITDA.

Figure 229: US Entertainment Valuations

EV (US$m) P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F

Time Warner Inc 58,965 14.0x 12.2x 10.6x 8.8x 7.9x 7.4x

Viacom 29,722 11.8x 10.5x 9.0x 7.2x 7.0x 6.6x

Walt Disney Co 97,191 15.9x 14.3x 12.5x 8.3x 7.6x 6.9x

Average 13.9x 12.3x 10.7x 8.1x 7.5x 7.0x

Source: Company data, IBES, Credit Suisse estimates

Global newspaper publishers are trading on 5.4x FY12 EBITDA.

Figure 230: Global Publishing Valuations

EV (US$m) P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F

Daily Mail & General

Trust

4,684 10.6x 9.9x 8.7x 8.1x 8.4x 7.9x

Fairfax Media 2,001 4.9x 7.2x 7.4x 3.8x 4.6x 4.7x

Gannett 5,448 7.7x 7.9x 6.8x 4.7x 4.8x 4.5x

New York Times Co 1,426 15.5x 15.6x 16.3x 5.1x 5.1x 5.2x

Average 9.7x 10.1x 9.8x 5.4x 5.7x 5.6x


The implied valuation of the Media & Entertainment and Publishing businesses is shown in

Figure 231. This implies that prior to the split announcement NWS was trading on a 13%

discount to fair value. Note that we have made no assumptions regarding the change in

cost base to each business following the demerger. The positive share price reaction to

the news that NWS would be pursuing a demerger supports the case that a corporate split

will unlock value.

27 November 2012


Figure 231: NWS break-up valuation based on global comparables

Business FY12 EBITDA (US$m) Multiple Valuation (US$m)

Entertainment US$mn 5,737 8.6x 49,338

Publishing US$mn 1,133 5.5x 6,232

Total EV US$mn 55,570

Adjustments US$mn 11,710

Net Debt US$mn 5,829

Equity Value US$mn 61,451

Shares on issue mn 2,457

Value per share US$/share $25.01

Share price 26 June 2012

(prior announcement)

US$/share $21.76

Discount % 13.0%

Current share price US$/share $23.82

Discount % 4.8%

Source: Company data, IBES, Credit Suisse estimates. Note: Adjusted to exclude impact from associates

Other issues to consider

Whilst the separation of the Media & Entertainment and Publishing businesses is likely to

unlock value, there are several factors which will likely continue to weigh on both

businesses.

■ Separation costs. There are likely to be cost synergies between the Media &

Entertainment and Publishing businesses. The duplication of support offices will

inevitably be necessary in order to run two separately listed businesses.

■ Governance issues remain. At this point, a dual class share structure is expected to

remain in place for both entities. As such, governance issues surrounding the Murdoch

family’s control of NWS are likely to remain. We expect Rupert Murdoch to be

Chairman of both companies.

■ History may repeat. The minority carve-out of Fox Entertainment in 1998 had a limited

impact on NWS’ valuation and was later unwound, with NWS buying out the minorities.

Additionally, the initial positive share price reaction to the Viacom/CBS split (a

comparable situation given Sumner Redstone’s control of both companies) proved

short-lived.

The Media & Entertainment business

What the Media & Entertainment business will look like

The global Media & Entertainment business will include the broadcast and cable networks,

film and television production studios, TV stations and Sky Italia in addition to NWS’

stakes in BskyB and Sky Deutschland.

We expect the Media & Entertainment business to retain the majority of NWS’ debt

facilities.

27 November 2012


Figure 232: News Corporation pre-split

FY13 EBITDA by Segment (excl Other)

Figure 233: The Media & Entertainment business

FY13 Pro Forma EBITDA by Segment (excl Other)

50%

15%

13%

11%

8%1% 2%

Cable

Film

Platforms

Television

Newspapers

Book Publishing

Mags & Inserts

56%18%

13%

13% Cable

Film

Platforms (Sky Italia)

Television

Source: Company data, Credit Suisse estimates. Note: Includes

income from associates.

Source: Company data, Credit Suisse estimates. Note: Includes

income from associates.


FY13 Revenue by Geography

Figure 235: The Media & Entertainment business

FY13 Pro Forma Revenue by Geography

66%5%

10%

10%

9%

US

UK

Australia

Italy

Other

75%

13%

12%

US

Italy

Other

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates.

27 November 2012


Valuing the Media & Entertainment business

Figure 236: Media & Entertainment Business Sum of the Parts Valuation

Business Ownership Multiple

EV

($mn)

Cable* 100% 9.5x 4,077 38,732

Film 100% 6.5x 1,314 8,544

Television 100% 7.0x 965 6,752

Sky Italia 100% 5.5x 464 2,553

Other/Unallocated Corporate Costs** 100% 6.5x (395) (2,565)

Total Consolidated 6,426 54,017

BSkyB*** 39% 7,625

Sky Deutschland*** 50% 1,752

Total Listed Investments/Associates 9,377

Total Media & Entertainment EV 63,394

Less Minorities**** 1,228

Cash / (Net Debt)***** 9,641

Equity Value 52,524

Shares on Issue 2,289

Value per share (USD) 22.94$

Value per share (AUD) 22.71$

FY13F EBITDA

Source: Company data, Credit Suisse estimates. *Includes ESPN Star Sport. **Assumes 90% of overheads stay with Entertainment. ***Current

market value. ****Adjusted to exclude REA. *****Assumes current capital structure as of 30 Sep 2012 adjusted for CMJ acquisition and net cash

of $1.5bn at Publishing spin-off

The Publishing business

What the Publishing business will look like

The Publishing business will comprise the company's newspapers and information

businesses in the US, Britain and Australia, the HarperCollins book publishing arm and the

new education unit. The publishing business will also include all of the company’s other

Australian assets, including its REA, Foxtel and Fox Sports shareholdings (following the

completion of the Consolidated Media Holdings (CMJ.AX) acquisition.

We expect ~55% of the Publishing business group EBITDA will come from publishing and

~45% from ‘new media’ (cable, platforms, digital) initially. Over the next five years,

earnings from ‘new media’ will likely outstrip traditional publishing.

We expect the publishing business to have a net cash balance position.

27 November 2012



FY13 EBITDA by Segment (excl Other)

Figure 238: The Publishing business

FY13 Pro Forma EBITDA by Segment

50%

15%

13%

11%

8%1% 2%

Cable

Film

Platforms

Television

Newspapers

Book Publishing

Mags & Inserts

9%

25%

42%

7%

8%

9%Cable

Platforms

Newspapers

Book Publishing

Mags & Inserts

Digital

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates. Note: Includes CMJ

(Foxtel proportionally consolidated). Loss-making Education business

excluded. Sky Network included as an associate.


FY13 Revenue by Geography

Figure 240: The Publishing business

FY13 Pro Forma Revenue by Geography

66%5%

10%

10%

9%

US

UK

Australia

Italy

Other

38%

17%

45%

US

UK

Australia

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates. Note: Includes CMJ

(Foxtel proportionally consolidated)

Valuing the Publishing business

Issues to consider:

■ Foxtel and Fox Sports: The acquisition of Consolidated Media Holdings (CMJ.AX) on

19 November 2012 will see Foxtel and Fox Sports contribute ~35% EBITDA to the

Publishing business on a proportional consolidation basis.

■ REA stake: NWS’ stake in REA will account for ~9% of the Publishing business’ pro

forma FY13 EBITDA. As a result, the company’s intentions regarding REA are likely

to be of considerable interest following the demerger.

■ UK newspapers: We ascribe little value to the UK publishing business following the

closure of News of the World. There may be the potential to sell the UK publishing

business (most likely to a family or wealthy individual) at some stage. As a

comparison, the Lebedev family acquired a majority stake in the Evening Standard.

■ Dow Jones: A greater focus on Australia could result in the sale or relisting of Dow

Jones. However given NWS acquired the business for US$5.6bn in 2007, a sale may

prove difficult.

27 November 2012


Figure 241: Publishing Business Sum of the Parts Valuation

Business Ownership Multiple

EV

($mn)

Australian Newspapers 100% 4.5x 324 1,456

UK Newspapers 100% 2.5x 185 463

US Newspapers 100% 6.5x 166 1,082

Book Publishing 100% 5.5x 113 624

Magazines & Inserts 100% 3.5x 134 469

Fox Sports 100% 8.5x 139 1,182

Education 100% 0.0x (180) -

Foxtel* 50% 7.0x 798 2,794

REA Group** 60% 145 1,471

Sky New Zealand*** 44% 170 706

Other/Unallocated Corporate Costs**** 6.5x (50) (325)

Total EBITDA (pro forma) 976

Total EBITDA (proportional consolidation) 1,442

Total Publishing EV 9,921

Cash / (Net Debt) 1,500

Equity Value 11,421




FY13F EBITDA

Source: Company data, Credit Suisse estimates. *Foxtel presumed consolidated post CMJ acquisition. **REA consolidated, valued at current

share price. ***Sky NZ valued at current share price.**** Assumed level of overheads in Publishing business

Valuation

Sum of the Parts

We have a Sum of the Parts valuation of $27.70.

Figure 242: Publishing Business Sum of the Parts Valuation

Business

Media & Entertainment Equity Value 52,524

Publishing Equity Value 11,421

TOTAL EQUITY VALUE 63,945




EV ($mn)


DCF valuation


Weighted Valuation

Our target price of $27.00 per share is based on the average of our DCF valuation of

$32.30 (WACC 11%, terminal growth 3%) and Sum of the Parts valuation of $27.70 per

share, adjusted for a 10% ESG discount.

27 November 2012


Figure 243: Target Price Calculation

Sum of the Parts Valuation 27.70$

DCF Valuation 32.30$

Weighted Average 30.00$

ESG Discount 10%

Target Price 27.00$ Source: Company data, Credit Suisse estimates







results in a A$27.06 per share valuation for NWS.

PE Multiple

Figure 244: NWS one year forward PE Figure 245: NWS PE relative to All Ords Index (ex


0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Risks

The key risks to our investment thesis for NWS are as follows:

■ Changes to advertising spend.

■ Changes in the AUDUSD.

■ Potential sale or acquisition of REA Group stake. NWS owns 61% of REA.

■ Litigation costs surrounding the Phone Hacking scandal.

■ Potential changes in ownership.


27 November 2012


ESG Issues

Environment issues

■ In our view there are no material environmental issues facing NWS.

Social issues

■ In our view there are no material social issues facing NWS.

Governance issues

■ News Corporation has been faced with significant governance issues; most recently

the phone hacking controversy and the failed takeover of BSkyB. The considerable

influence that Rupert Murdoch is able to exert over the company in his long term dual

role as Chairman and CEO raises the risk of further governance issues in the future.

Additionally, the dual class share structure (under which the Murdoch family hold just

12% of outstanding shares but 38% of votes) may potentially inhibit the rights of

minority shareholders.

Remuneration

■ Fixed remuneration: In fiscal 2012, the Compensation Committee retained the

services of an external compensation consultant, Deloitte, to advise the Compensation

Committee in its review of Board and Executive compensation. CEO Rupert Murdoch

received a fixed salary of $8.1mn in FY12. COO Chase Carey and Deputy COO

James Murdoch were paid fixed remuneration of $4.05mn and $3mn, respectively for

the year. Fox CEO Roger Ailes received a base salary of $5mn in FY12. Fixed

remuneration for all key management personnel was unchanged in FY12, with the

exception of General Counsel Gerson Zweifach who was appointed during the year.

Base salaries for all senior executives are reviewed annually. The CEO and COO both

sit on the Compensation Committee, however neither are present when their own

compensation is determined.

■ Short-term incentives: Named executives are eligible for an annual bonus

determined by the Compensation Committee. The bonus is measured against

performance goals established by the Compensation Committee. In FY12, two-thirds

of the bonus was awarded based on adjusted total segment operating growth, with a

target in the “low-to-mid teens”, in line with the company’s guidance for the year. The

remainder of the award is assessed based on individual qualitative factors detailed in

the proxy statement. The maximum annual award varies according to individual

contracts and was $25mn for Rupert Murdoch (based on achievement of 120% of

target adjusted EBIT) in FY12, of which he received $10.4mn. Chase Carey and

James Murdoch received bonuses of $8.3mn and $5mn, respectively.

■ Long-term incentives: In order to more fully align the executives’ interests with those

of the company’s stockholders and reward the executives for superior results, the

Compensation Committee designed a performance-based long-term equity-based

incentive program and approved the annual grant of performance rights (PSUs) that

have a three-year performance measurement period. The rights vest according to the

following three performance metrics: annual adjusted EPS growth; average annual

adjusted FCF growth; and three year total TSR measured against the S&P 500. The

target weighting for the adjusted EPS growth, adjusted FCF growth and TSR

performance metrics is 40%, 40% and 20%, respectively. The targets for each of the

performance measures is not disclosed in the annual proxy statement. Rupert

Murdoch, Chase Carey and James Murdoch were granted performance rights with a

value of $4mn, $10mn and $6mn respectively in FY12 (based on the share price at the

time of the award) should the relevant benchmarks be met.

27 November 2012


Board

■ NWS’s Board has extensive executive and Board-level experience in media, legal and

financial services.

■ NWS’ Board consists of 14 Directors, with 50% of the Board independent.

Figure 246: Board skill analysis for NWS

Name Position

Tenure


Former

CEO

ASX 200


Fees / pay

($k)

Rupert Murdoch Chairman & CEO 34 X X No 30,022

Chase Carey Deputy Chairman & COO 3 X X X No 24,757

James Murdoch Deputy COO 5 X X No 16,838

Joel Klein Executive VP 1 X X No 4,512

David F. DeVoe CFO 23 X X No 10,777

Lachlan Murdoch Non Exec 16 X X X No 2,660

Roderick Eddington Non Exec 13 X X X No* 294

Viet Dinh Non Exec 9 X Yes 281

Peter Barnes Non Exec 8 X Yes 264

José María Aznar Non Exec 6 X Yes 248

Natalie Bancroft Non Exec 5 X X Yes 248

James Breyer Non Exec 1 X X X Yes 182

Elaine Chao Non Exec 0 X Yes N/A

Alvaro Uribe Non Exec 0 X Yes N/A


Valuation impact

■ We have a 10% negative ESG impact to our valuation for NWS. NWS has been

faced with significant governance issues; most recently the phone hacking controversy

and the failed takeover of BSkyB. The considerable influence that Rupert Murdoch

and the Murdoch family exert over the company through its dual class share structure

raises the risk of further governance issues in the future as well as inhibiting the rights

of minority shareholders. The Murdoch family hold 12% of outstanding shares but 38%

of voting rights for NWS.


■ We have a Neutral outlook on the MSCI IVA rating for NWS. NWS is rated 'CCC'

(the lowest rating) because it continues to face considerable scrutiny due to

allegations of illegal phone hacking that surfaced during July 2011 and resulted in the

closure of its News of the World tabloid. Given the on-going legal problems and

justified concerns over governance it is unlikely that the negative perception around

NWS from an ESG perspective will abate anytime soon.

Figure 247: MSCI IVA rating for NWS: CCC


27 November 2012


Appendix

Company Overview

News Corporation is one of the world’s largest diversified media companies. The

company’s business segments include cable programming, satellite television, film

production, broadcast television and book and newspaper publishing. NWS is

headquartered in New York City and dual listed on the ASX and NASDAQ.

NWS’ business mix has shifted substantially over the past decade. The cable networks that

were barely profitable in aggregate in FY02 now comprise half of the company’s earnings,

while the total publishing contribution has fallen from 40% to 9% over the same period.

Figure 248: Earnings mix by segment (FY02) Figure 249: Earnings mix by segment (FY12)

1%

25%

10%

24%

22%

6%

12% Cable

Film

Platforms

Television

Newspapers

Book Publishing

Mags & Inserts

50%

17%

13%

11%

4%1% 4%

Cable

Film

Platforms

Television

Newspapers

Book Publishing

Mags & Inserts

Source: Company data. Note: Includes income from associates. Source: Company data. Note: Includes income from associates.

The move away from print has also affected the geographical mix of NWS’ earnings, with

the UK now much less important to the bottom line despite the continued strong growth of

39% owned BskyB. Earnings growth at Foxtel and Fox Sports in Australia has likewise

been offset by a deterioration in contribution from News Ltd. ‘Other’ includes the

international cable channels (mainly in Latin America and Asia) and NWS’ satellite

television platforms in Italy and Germany.

Figure 250: Earnings mix by geography (FY02) Figure 251: Earnings mix by geography (FY12)

60%

31%

9%

US

UK

Australia

66%

11%

7%

16%

US

UK

Australia

Other

Source: Company data. Note: Includes income from associates. Source: Company data. Note: Includes income from associates.

27 November 2012


Market position

Cable Networks

NWS was a late entrant into the cable network business relative to its entertainment peers,

but has established strong franchises in news, sport and general entertainment. The cable

network space is dominated by the large entertainment conglomerates, with Discovery

Communications (DISCA) the only major pure play operator. However, its focus on live

action original programming enables it to generate the highest margins in the industry.

NWS’ margin has historically lagged its peers as it has focused on revenue growth and

new channel launches have provided a drag on earnings, however it has now caught up

with its peer group.

Figure 252: Cable Network Revenue by Company (LFY) Figure 253: Cable Network EBIT Margin (LFY)

$0m

$2,000m

$4,000m

$6,000m

$8,000m

$10,000m

$12,000m

$14,000m

$16,000m

CMCSA DIS DISCA NWS TWX VIAB

0%

10%

20%

30%

40%

50%

60%

CMCSA DIS DISCA NWS TWX VIAB


Filmed Entertainment

All of the major US film studios are part of larger conglomerates. The largest independent,

Lionsgate, is significantly smaller in scale than Universal (CMCSA), Buena Vista / Miramax

(DIS), Fox (NWS), Warner Bros (TWX) and Paramount (VIAB). NWS is the second largest

film producer behind TWX with approximately 12% of the US domestic box office, however

it achieved the highest margins in the industry in FY12 due to strong theatrical and home

entertainment performances from films such as Black Swan. Film industry earnings are

volatile due to their reliance on box office success – DIS took a $200mn write-down

following the theatrical failure of John Carter.

Figure 254: Filmed Entertainment Revenue by Company

(LFY)

Figure 255: Filmed Entertainment EBIT Margin (LFY)

$0m

$2,000m

$4,000m

$6,000m

$8,000m

$10,000m

$12,000m

$14,000m

CMCSA DIS LGF NWS TWX VIAB

0%

2%

4%

6%

8%

10%

12%

14%

16%

CMCSA DIS LGF NWS TWX VIAB


Broadcast Television

NWS owns the Fox Broadcasting Network, one of four major TV broadcast networks in the

US. Through its owned and operated and affiliate stations, Fox reaches 98% of US TV

households. The television network industry structure in the US is very different to the

Australian model. Networks are limited in their station ownership; major networks CBS,

27 November 2012


Fox, NBC (CMCSA) and ABC (DIS) own stations which reach less than 40% of the US

population. The networks have agreements with independently owned affiliates to allow

their signal to reach the rest of the US population. Fox is the youngest and smallest of the

four networks.

Figure 256: Television Revenue by Company (LFY) Figure 257: Television EBIT Margin (LFY)

$0m

$1,000m

$2,000m

$3,000m

$4,000m

$5,000m

$6,000m

$7,000m

$8,000m

CBS CMCSA DIS NWS

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

CBS CMCSA DIS NWS


Direct Broadcast Satellite Television

NWS owns Sky Italia, the only direct broadcast satellite business in Italy, with just under

five million subscribers. Sky Italia’s operations have historically encountered substantial

political challenges given former Prime Minister Silvio Berlusconi controlled both the

Government-owned (but commercial) RAI and the privately owned Mediaset. Difficulties

that Sky Italia encountered over the years included government subsidization of digital set

top boxes (subsequently used commercially by Mediaset) and refusal by Mediaset to carry

advertising for the Sky product. These challenges appear to have waned and despite the

headwind of Italy’s weak economic state, Sky Italia’s competitive situation has steadily

improved in recent years.

NWS also owns significant minority stakes in Sky Deutschland (43%), Sky Television New

Zealand (44%), Foxtel (50% post CMJ acquisition) and British Sky Broadcasting (39%).

Newspapers – US

NWS’ assets comprise the New York Post newspaper in New York, as well the businesses

acquired with Dow Jones. The New York Post has daily circulation of approx. 725K. Dow

Jones comprises three divisions: Consumer Media (Wall Street Journal, Barron’s and

MarketWatch), Enterprise Media (Factiva, Dow Jones Newswires, Dow Jones licensing

services and Local Media (Ottaway Newspapers subsidiary which operates eight general

interest dailies). The Dow Jones Indexes were divested in 2009.

As highlighted in Figure 258 below, the US newspaper industry has experienced

downward pressure on its circulation in the recent past, extending the long-term decline in

the industry. The Wall Street Journal has been one of the few titles to grow its printed

circulation to emerge as the largest newspaper by circulation in the country.

Figure 258: US Newspaper Circulation Trend

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

Source: Newspaper Association of America

27 November 2012


Newspapers – UK

News International is the largest newspaper publisher in the UK, with strong market

shares of the national newspaper market. NWS competes in the popular and quality end of

the market.

Figure 259: News International Newspaper assets Title Frequency Market Circulation (000s) Market share Cover price (p)

Sun Mon-Sat Popular 2,751 57.6% 35/55**

Sun on Sunday Sunday Popular 2,230 45.5% 50

New s of the World Sunday Popular 2,667* N/A 85

Times Mon-Sat Quality 405 23.1% 65/130**

Sunday Times Sunday Quality 968 50.9% 200

*Last recorded circulation

**Saturday price Source: Audit Bureau of Circulation * Mon-Fri/Sat.

The UK national newspaper market has experienced declines in circulation over an

extended period of time. Declines accelerated in 2011 with the closure of the News of the

World.

Figure 39: UK Newspaper Circulation Trend

-10%

-8%

-6%

-4%

-2%

0%

2%


The advertising environment has been equally weak for the overall newspaper market,

with significant losses in share to the internet. The dual pressures of circulation and

advertising declines have resulted in margin compression across the UK newspaper

industry for an extended period of time.

Newspapers – Australia

NWS is the largest newspaper publisher in the Australian market, with titles across all

segments.

Book Publishing

HarperCollins is engaged in English language book publishing worldwide, with the large

majority of its business centred in the US and Canada. Its focus is on fiction and non-

fiction, and through Zondervan Corporation the religious publishing market. The consumer

book publishing industry in the US is a mature one currently coming to terms with the shift

to online. The largest segment of the market is the trade book market which experiences

volatility based on hit product. This is the market in which Harper Collins largely competes,

although it does have a strong market position in the religious market through Zondervan.

Magazines and Inserts

News America Marketing comprises free-standing inserts (FSI) publications which are

inserted in around 1,400 Sunday newspapers across the US over 50 times a year. FSIs

are multi-page promotional booklets, including coupons, sweepstakes and other consumer

offers. News America Marketing also provides in-store marketing products and services to

packaged goods manufacturers, with operations in over 36,000 supermarkets, drugstores

and mass merchandisers. The free standing inserts market is shared between News

27 November 2012


America and Valassis, with market shares shifting in response to pricing strategies. Twice

in the past there has been the entrance of a new player, but in each case it has gone out

of business. In recent years News America has been able to be more aggressive pricing-

wise, benefiting its market share. NWS outsources its printing (unlike Valassis) and has

been able to utilize cost benefits arising from more favourable contracts to both reduce

pricing and lift margin.

History

Figure 260: NWS Key Milestones

Date Event

1979 Creation of News Corp as a holding company for News Limited

1984 Acquired half of 20th Century Fox for $250m

1985 Purchased remaining 50% of 20th Century Fox for $325m

1986 $1.9bn acquisition of Metromedia TV stations, creating Fox Broadcasting

1987 Bought Herald and Weekly Times (publisher of the Sun Herald) for $600m

1988 Acquired TV Guide publisher Triangle Publications for $2.8bn

1990 Merger of NWS’ Sky Television with British Satellite Broadcasting to create BSkyB

1993 Scrip acquisition of STAR TV

1995 Foxtel launched in partnership with Telstra and PBL

1997 Expanded Fox Broadcasting by completing acquisition New World for $817m

1998 Partially spun off entertainment assets as Fox Entertainment Group

2001 Acquired Chris Craft TV stations for $2bn

2003 Bought controlling stake in DirecTV for $3.1bn

2004 Reincorporated in US

2005 Bought out Fox Entertainment Group minorities

2006 Acquired IGN and MySpace for $1.3bn

2007 Acquired Dow Jones for $5.6bn

2008 DirecTV stake sold to Liberty Media in exchange for Liberty’s NWS stake

2011 News of the World phone hacking scandal. Aborted BskyB takeover

2012 NWS announced its intention to separate into separate entertainment and publishing

entities



Figure 261: Historic Sales Growth Figure 262: Historic EBIT Margin

-10%

-5%

0%

5%

10%

15%

20%

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

10%

11%

12%

13%

14%

15%

16%

17%



27 November 2012



-60%

-40%

-20%

0%

20%

40%

60%

80%


NPAT EPS

-40%

-30%

-20%

-10%

0%

10%

20%

30%


Sales growth EBIT growth



0%

5%

10%

15%

20%

25%

30%


0%

5%

10%

15%

20%

25%


ROA ROE



0%

5%

10%

15%

20%

25%

30%


0%

20%

40%

60%

80%

100%

120%

140%

160%



27 November 2012



interest / EBITDA)


0%

20%

40%

60%

80%

100%

$0m

$500m

$1,000m

$1,500m

$2,000m

$2,500m

$3,000m

$3,500m

$4,000m

Source: Company data Source: Company data. Note: Net working capital defined as Trade


Figure 271: Historic Net Debt / EBITDA Figure 272: FY12 Gearing Comparison: US Entertainment

0.0x

0.5x

1.0x

1.5x

2.0x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

DIS DISCA NWS TWX VIAB


calendarised




High growth in cable Poor corporate governance Consolidation of investments Further legal action

Strong brand and market position

in all segments and markets

Exposure to weak European

economies

Further expansion into high growth

international markets

Political interference

Strong management Deterioration in print business Insufficient succession planning

Unpredictable financial

performance in Film




Cable Programming Medium High Medium Medium Medium

Broadcast Television High High Medium Medium Medium

Film production Medium High Low Medium Medium

Publishing High Medium Medium Low High

Satellite Television High Medium High Low Medium


27 November 2012



Rupert Murdoch (Chairman and Chief Executive Officer)

Keith Rupert Murdoch AC is News Corporation’s founder and largest shareholder, having

inherited News Limited from his father Sir Keith Murdoch in 1952. He has been Chief

Executive Officer of the Company since its incorporation in 1979 and its Chairman since

1991. He has served as a Director of British Sky Broadcasting plc. from 1990 to 2007, as a

Director of Gemstar-TV Guide International Inc. from 2001 to 2008 and as a Director of

The Directv Group, Inc. from 2003 to 2008.

Chase Carey (Deputy Chairman and Chief Operating Officer)

Chase Carey has been the President and Chief Operating Officer of the company and

Deputy Chairman of the Board since July 2009. Mr Carey previously served the company

in numerous roles beginning in 1988, including as Co-Chief Operating Officer from 1996 to

2002, as a consultant from 2002 to 2003 and as a Director from 1996 to 2007. Mr Carey

has served as the Chairman of the Supervisory Board of Sky Deutschland AG, a German

pay-television operator and affiliate of the company, since July 2010. Mr Carey served as

a President and Chief Executive Officer of Directv from 2003 to 2009 and as a Director of

Directv from 2003 to June 2010. Mr Carey also served as a Director of BSkyB from 2003

to 2008 and as a Director of Yell Finance B.V. from 2004 to 2007.

Jose Maria Aznar (Independent Director)

Jose Maria Aznar has been a Director of the Company since 2006 and is a member of the

Nominating and Corporate Governance Committee. Mr Aznar has been the President of

the Foundation for Social Studies and Analysis since 1989. Mr Aznar was a Distinguished

Scholar at the Edmund A. Walsh School of Georgetown University from 2004 to 2011. Mr

Aznar is the Honorific President of the Partido Popular of Spain and served as its

Executive President from 1990 to 2004. Mr Aznar was a member of The State Council of

Spain from 2005 to 2006. Mr Aznar served as the President of Spain from 1996 to 2004.

Roderick Eddington (Independent Director)

Sir Roderick I. Eddington has been a Director of the Company since 1999 and the Lead

Director since 2006, and serves as the Chairman of the Audit Committee and as a

member of the Compensation Committee. Sir Roderick Eddington has served as Non-

Executive Chairman, Australia and New Zealand of J.P. Morgan since 2006. He served as

a Director and the Chief Executive of British Airways Plc from 2000 to 2005 and as the

Managing Director of Cathay Pacific Airways from 1992 to 1996. Sir Roderick Eddington

has been a Director of John Swire & Sons Pty Ltd since 1997, a Director of CLP Holdings

Limited since 2006, and a Director of Lion Pty Ltd since 2011 and its Chairman since April

2012. Sir Roderick Eddington served as a Director of Allco Finance Group Limited from

2006 to 2009 and as a Director of Rio Tinto plc from 2005 to 2011.

Joel Klein (Executive Vice President and CEO Amplify)

Joel I. Klein has been a Director and Executive Vice President, Office of the Chairman of

the company and Chief Executive Officer of Amplify, the education division of the

Company, since 2011. He also oversaw the MSC until June 15, 2012. He was the New

York City schools chancellor from 2002 through 2010. He was the U.S. Chairman and

Chief Executive Officer of Bertelsmann, Inc. and Chief U.S. Liaison Officer to Bertelsmann

AG from 2001 to 2002. Mr Klein also served with the Clinton administration in a number of

roles, including Deputy White House Counsel from 1993 to 1995.

James Murdoch (Director and Deputy Chief Operating Officer, Chairman and CEO of

News International)

James R. Murdoch has been a Director of the Company since 2007 and its Deputy Chief

Operating Officer and Chairman and CEO, International since 2011, after serving as the

Company’s Chairman and Chief Executive, Europe and Asia beginning in 2007. Mr J.R.

27 November 2012


Murdoch was the Chief Executive Officer of BSkyB from 2003 to 2007. Mr J.R. Murdoch has

served as a Director of BSkyB since 2003 and served as its Non- Executive Chairman from

2007 to April 2012. Mr J.R. Murdoch was the Chairman and Chief Executive Officer of STAR

Group Limited, a subsidiary of the company, from 2000 to 2003. Mr J.R. Murdoch previously

served as an Executive Vice President of the company, and served as a member of the

Board from 2000 to 2003. Mr J.R. Murdoch served as a Director of GlaxoSmithKline plc from

2009 to May 2012 and as a Director of Sotheby’s from 2010 to May 2012.

David DeVoe (Director and Chief Financial Officer)

David F. DeVoe has been a Director of the Company and its Chief Financial Officer since

1990. Mr DeVoe has served as Senior Executive Vice President of the company since

1996. Mr DeVoe has been a Director of BSkyB since 1994. He served as a Director of

Gemstar-TV Guide from 2001 to 2008 and as a Director of Directv from 2003 to 2008.

Lachlan Murdoch (Non-Executive Director)

Lachlan K. Murdoch has been a Director of the company since 1996. Mr L.K. Murdoch has

served as a Director of Ten Network Holdings Limited since 2010 and as its Non-

Executive Chairman since February 2012, after serving as its Acting Chief Executive

Officer from 2011 to January 2012. Mr L.K. Murdoch has served as the Executive

Chairman of Illyria Pty Ltd, a private investment company, since 2005. Mr L.K. Murdoch

served as an advisor to the company from 2005 to 2007, and served as its Deputy Chief

Operating Officer from 2000 to 2005.

Peter Barnes (Independent Director)

Peter L. Barnes has been a Director of the company since 2004 and serves as a member of

the Audit and the Compensation Committees. Mr Barnes has been a Director of Ansell

Limited since 2001 and its Chairman since 2005. Mr Barnes has been a Director of Metcash

Limited since 1999, serving as its Chairman since 2010. Mr Barnes served in various senior

management positions in the United States, the United Kingdom and Asia at Philip Morris

International Inc. from 1971 to 1998, including as President of Philip Morris Asia Inc.

James Breyer (Non-Executive Director)

James W. Breyer has been a Director of the company since 2011 and serves as a

member of the Compensation and the Nominating and Corporate Governance

Committees. Mr Breyer has been a Partner of Accel Partners, a venture capital firm, since

1987 and is the Founder and Chief Executive Officer of Breyer Capital, a global diversified

investment firm. Mr Breyer is also a co-founder and has been co-lead on the strategic

investment committee since inception of the IDG-Accel China Funds. Mr Breyer has been

a Director of Wal-Mart Stores, Inc. since 2001 and currently serves as its Presiding

Director. Since 2005, Mr Breyer has served as a Director of Facebook where he is the

Chairman of the Compensation Committee.

Natalie Bancroft (Independent Director)

Natalie Bancroft has been a Director of the company since 2007 and is a member of the

Nominating and Corporate Governance Committee. Ms Bancroft is a professionally trained

opera singer, has studied journalism and is a graduate of L’Institut de Ribaupierre in

Lausanne, Switzerland.

Viet Dinh (Independent Director)

Viet Dinh has been a Director of the company since 2004 and serves as Chairman of the

Nominating and Corporate Governance Committee and as a member of the Audit Committee.

He also oversees and reports to the Board on the work of the Management and Standards

Committee (“the MSC”) that was created by the company to have oversight of, and take

responsibility for, all matters related to The News of the World phone hacking case . Mr Dinh

has been a Professor of Law at Georgetown University Law Center since 1996. Mr Dinh is a

Member of Bancroft PLLC, a law firm he founded in 2003. He also has been the General

27 November 2012


Counsel and Corporate Secretary for Strayer Education, Inc. since 2010. He served as an

Assistant Attorney General for Legal Policy in the U.S. Department of Justice from 2001 to

2003. Mr Dinh has served as a Director of Revlon, Inc. since June 2012.

Elaine Chao (Independent Director)

Ms Chao was US Labour Secretary during the presidency of George W Bush. She was

appointed to the Board in October 2012. Ms Chao was previously a director in the Peace

Corps and a banker for Citicorp and Bank of America. She is married to US Senate

Minority Leader Mitch McConnell.

Alvaro Uribe (Independent Director)

Mr Uribe was president of Columbia from 2002 to 2010. He was appointed to the Board in

October 2012. Prior to his political career, Mr Uribe was a lawyer.

Arthur Siskind (Senior Advisor to the Chairman)

Mr Arthur M. Siskind is Senior Advisor to the Chairman, Director of News Corporation. Mr

Siskind served as the Company’s Group General Counsel from 1991 to 2005, as Senior

Executive Vice President from 1996 to 2005 and as Executive Vice President from 1991 to

1996. Mr Siskind has served as a Director of BSkyB since 1991 and as a Director of NDS

from 1996 to 2009. Mr Siskind was an Adjunct Professor of Law at the Cornell Law School

from 2007 to 2009 and was an Adjunct Professor of Law at Georgetown University Law

Center from 2005 to 2007. Mr Siskind was elected to the Cornell University Council

effective July 1, 2011. Mr Siskind has been a Member of the Bar of the State of New York

since 1962. Mr Siskind became a director emeritus in 2012, meaning that he may attend

Board meetings but may not vote on Board matters.

Stanley Shuman (Non-Executive Director)

Mr Stanley S. Shuman, who served as a Director from 1982 to 2005, was named Director

Emeritus in October 2005. Mr Shuman receives the same director fees as other Non-

Executive Directors, and may attend Board meetings but may not vote on Board matters.

Gerson Zweifach (General Counsel)

Mr Gerson Zweifach has been appointed as Senior Executive Vice President, Group

General Counsel, Chief Compliance Officer of News Corp effective February 1, 2012. Mr

Zweifach served as an attorney at Williams & Connolly LLP where he was a partner from

1988 to February 2012 and currently serves as Of Counsel. Mr Zweifach has been a

member of the Bar of the District of Columbia since 1981 and the Bar of the State of New

York since 1980.

Paul Cheesbrough (Chief Technology Officer)

Mr Paul Cheesbrough has been appointed as Chief Technology Officer of News Corp.,

effective September 11, 2012. Mr Cheesbrough most recently served as Chief Information

Officer for News International. In this role he was responsible for the organization's

technology strategy, delivery, transformation programs and digital products. Since joining

News International in 2010, Mr Cheesbrough has led enormous change at the company,

moving it to more cloud-based technologies and putting innovation and engineering at the

heart of the business. Before joining News International, Mr Cheesbrough served as Chief

Information Officer at the Telegraph Media Group, where he pioneered the development of

a wide range of new digital products. Prior to the Telegraph, he was the Controller of

Digital Media for the BBC.


Figure 275: NWS Substantial Shareholders

Shareholder Voting Non-Voting Total

Murdoch family 38.4% 0.0% 12.1%

Prince Alwaleed bin Talal 7.0% 0.0% 2.2%

US institutions / public 16.3% 97.2% 69.4%

Australian institutions / public 38.3% 2.8% 15.1%

Source: ASX, Bloomberg

27 November 2012



27 November 2012



Seven West Media (SWM.AX / SWM AU)

Well positioned with potential to be acquired

■ We initiate coverage of Seven West Media Limited (SWM.AX) with an Outperform rating and $1.80 per share target price.

■ Investment Case: Well positioned with potential to be acquired. Our investment view is shaped by four considerations: 1) SWM has the leading FTA Television business with strong ratings and revenue share. Momentum in ratings and revenue share is likely to continue with quality content locked in for 2013. SWM’s sensitivity to a 1% change in commercial revenue share is a 5% change to EBITDA and 9% change to our DCF. We expect investment in content to be offset by more efficient news and back office costs. Whilst increasing Pay-TV and IPTV penetration poses some structural impediments, we expect the migration to be gradual rather than a sudden step change. Cyclical fluctuations are likely to have a greater impact on SWM, in our view. A 1% change to advertising spend results in a 3% change to EBITDA and 5% change to our DCF. Television contributes 63% EBITDA. 2) SWM has a strong print business with a virtual monopoly in Western Australia. Whilst structural impediments exist, the migration to digital is likely to occur at a slower pace in WA relative to the east coast of Australia, in our view. This will give SWM more time to reduce costs and create additional revenue streams to offset the structural impact on earnings. Print contributes 36% EBITDA. SWM’s digital businesses offer a significant growth opportunity. 3) SWM is improving its balance sheet. Funds raised from the $433mn capital raising will be used to reduce debt to $1.4bn or 3.0x Net debt / EBITDA. 4) We attach 50% probability of SWM being acquired by SVW. A cash injection to SVW coupled with an attractive share price for SWM could see SVW acquire 100% of SWM. A $2.00 per share offer would represent 7.5x FY12 EBITDA.

■ Catalysts: TV Ratings momentum to continue. Seven continues to dominate ratings. We expect this to continue over the coming months.

■ Valuation: We have a $1.80 per share target price. This is based on our Sum of the Parts valuation of $1.89 per share. We apply a 5% discount to our valuation due to governance issues.


20

70

120

0

5

10






Performance Over 1M 3M 12M Absolute (%) 35.5 10.1 -43.4 Relative (%) 36.6 8.6 -54.5


Year 06/12A 06/13E 06/14E 06/15E Revenue (A$mn) 1,937.1 1,955.7 1,966.3 2,021.6 EBITDA (A$mn) 514.9 467.2 490.9 543.2 EBIT (A$mn) 453.3 405.2 428.8 493.3 Net income (A$mn) 226.9 229.2 248.1 302.1 EPS (CS adj.) (Ac) 26.70 21.39 23.15 28.19 Change from previous EPS (%) n.a. — — — Consensus EPS (Ac) n.a. 20.50 23.10 22.60 EPS growth (%) -42.1 -19.9 8.2 21.8 P/E (x) 6.1 7.7 7.1 5.8 Dividend (Ac) 25.00 10.00 10.00 17.17 Dividend yield (%) 15.2 6.1 6.1 10.5 P/B (x) 0.53 0.58 0.55 0.53 Net debt/equity (%) 70.8 48.1 41.4 33.6



Rating OUTPERFORM*

Price (26 Nov 12, A$) 1.64





Projected return:








Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

SW

M.A

X

27 November 2012



Seven West Media Ltd (SWM) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$1.64 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating OUTPERFORM c_EPS_SHARESEquiv. FPO (period avg.) mn 306.7 849.8 1,071.8 1,071.8 1,071.8


vs Share price % 9.76 EPS_GROWTH*100EPS Growth % -42.1 -19.9 8.2 21.8


c_DPS*100DPS c 45.0 25.0 10.0 10.0 17.2

c_PAYOUT*100Payout % 97.5 93.6 46.8 43.2 60.9




Sales revenue 725.7 1,937.1 1,955.7 1,966.3 2,021.6 Valuation

EBITDA 267.0 514.9 467.2 490.9 543.2 c_PE P/E x 3.6 6.1 7.7 7.1 5.8












Unusual item after tax (26.4) 0.0 0.0 0.0 0.0 Gearing

Reported NPAT 115.1 226.9 229.2 248.1 302.1 c_GEARING*100Net Debt to Net debt + Equity % 43.6 41.5 32.5 29.3 25.1







Current assets 568.4 529.2 499.1 650.1 848.7 MSCI IVA (ESG) Rating BB


Intangibles 3,862.9 3,865.5 3,853.5 3,841.5 3,829.5



Total assets 5,087.8 5,038.6 4,986.4 5,115.4 5,294.5

Payables 340.0 339.3 307.7 308.3 314.8


Other liabilities 174.3 150.1 150.1 150.1 150.1 MSCI IVA Risk: Neutral


Net assets 2,511.5 2,619.4 3,038.8 3,167.2 3,339.7

Ordinary equity 2,511.5 2,619.4 3,038.8 3,167.2 3,339.7




Net debt 1,943.5 1,854.7 1,460.2 1,310.0 1,121.2 Source: MSCI IVA Rating


EBIT 236.6 453.3 405.2 428.8 493.3

Net interest -34.0 -186.7 -113.8 -115.4 -107.3

Depr & Amort 30.4 61.6 62.0 62.1 49.9

Tax paid -30.3 -108.5 -87.4 -94.0 -115.8

Working capital -51.0 -3.8 -46.8 -0.3 -3.3

Other -10.8 0.0 25.2 28.7 31.9


Capex -14.7 -26.0 -40.0 -40.1 -30.3


Capex - maintenance

Acquisitions & Invest -5.1 -5.6 0.0 0.0 0.0


Other 65.9 -0.6 0.0 0.0 0.0

Investing cashflow 46.3 -31.8 -40.0 -40.1 -30.3

Dividends paid -73.2 -114.7 -249.4 -119.7 -129.6

Equity raised 1,130.8 -0.9 439.6 0.0 0.0

Net borrowings -1,138.8 -112.1 -440.0 0.0 0.0


Financing cashflow -80.7 -227.7 -249.8 -119.7 -129.6 Absolute 35.5% 9.3% -45.6%

Total cashflow 106.5 -43.5 -45.4 150.1 188.8 Relative 36.6% 7.8% -54.6%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 106.5 -43.5 -45.4 150.1 188.8 Source: Reuters 52 week trading range: 1.09-3.80

MSCI IVA Risk Comment: Seven West Media Limited has

maintained its rating of 'BB'. We so no reason apart from lack

of disclosure why SWM should have such a low Environmental

score given that it does not partake in any potentially harmful

activities. However, there is potential downside on the

Governance ratings.

27/11/2012 9:46

West Australian Newspapers Holdings Limited is an Australia-based company. The

Company is principally engaged in newspaper and digital (online) publishing, commercial

printing and radio broadcasting. The Company has five operating segments: The West

Austr

Credit Suisse View

TP Risk Comment: The lack of independence on the board

and large influence of major shareholder Kerry Stokes

increases the risk to minority shareholders and their interests.

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

SWM.AX XJO

-1.0

-0.9

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0


Stock Local Sector



27 November 2012


Leading FTA Television network with strong

momentum in ratings and revenue share

Strong ratings and revenue share to continue

Seven is the dominant FTA television network in Australia, leading commercial ratings and

revenue share. We expect this momentum to continue over the coming months. Seven

has invested in quality content including the AFL, V8 Supercars, Australian Open Tennis,

The X Factor, Australia’s Got Talent, My Kitchen Rules, How I Met Your Mother and local

productions including Packed To The Rafters and Winners and Losers.

Figure 277 and Figure 278 highlight Seven’s strong ratings and commercial revenue share.

Seven’s All People commercial share is 41% (as at October 2012). This compares to

37%–43% ratings share achieved over the last twelve months.

Figure 277: Seven commercial audience share: all people

2012 versus 2011

Figure 278: Seven monthly revenue share vs. ratings

share: 16-54 yr olds

20%

25%

30%

35%

40%

45%

Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

Ratings Share

Revenue Share

Source: Media Week, OzTam Source: SMI, OzTam

Ten and Nine have 24% and 35% All People ratings commercial share (as at October

2012). This compares to 21-28% (Ten) and 33-42% (Nine) ratings share achieved over the

past 12 months.

Figure 279: Prime Time audiences by network (all people)

(000's)

Figure 280: Prime Time audiences by network (16-54 yr

olds) (000’s)

0

200

400

600

800

1,000

1,200

1,400

1,600

Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12

Network 7 Network 9

Network 10 Pay TV

0

100

200

300

400

500

600

700

800

900


Network 7 Network 9

Network 10 Pay TV

Source: OzTam Source: OzTam

With Nine’s strengthened balance sheet, we expect continued quality content over the

next twelve months. Nine has secured the NRL rights and has a number of successful

programs such as The Voice that are likely to produce strong ratings performances. Ten’s

ratings and commercial revenue share will be determined by its ability to fund quality

content from offshore and deliver good locally produced programs.

27 November 2012


Increasing penetration of Pay-TV

Increasing penetration of Pay-TV in Australia will have a gradual impact on the FTA

networks. Australia has relatively low Pay TV penetration compared with the US and UK.

As such, Pay-TV ad spend represents only 10% of total TV ad spend. This compares to

36% in the UK and 45% in the US. As Pay-TV penetration gradually increases in Australia,

ad spend is likely to shift from the FTA channels to Foxtel. We expect the rate of migration

to be slower in Australia due to Foxtel’s focus on ARPU rather than advertising revenue.

We also expect the rate of migration to be materially slower than seen from print to digital.

For Seven, we expect strong ratings and revenue performance to offset this structural shift

to Pay-TV in the near term.

Figure 281: Global Comparison – Pay TV as a % of TV Ad

Spend

Figure 282: Global Comparison – Pay TV Penetration

0%

10%

20%

30%

40%

50%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

Source: OEASA, MagnaGlobal, WARC Source: Credit Suisse estimates


Platform

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pay TV

Commercial FTA

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD

Metro FTA

Regional FTA

Pay TV

Source: OzTam. Note: 2012 numbers have been seasonally adjusted Source: CEASA, SMI

Sensitivity

A 1% change in Seven’s commercial revenue share has a ~$30mn impact on Seven’s

revenue (2%), a $25mn (5%) impact on EBITDA and a 9% impact on our DCF. A 1%

change in market growth has a $10mn impact on EBITDA.

Figure 285: Revenue share and Market growth impact on EBITDA ($mn) Market Growth

-5.0% -2.5% 0.0% 2.5% 5.0%

37% 188 213 239 264 290

38% 211 238 264 290 316

39% 235 262 289 316 342

40% 259 287 314 342 369

41% 283 311 339 367 395

42% 307 336 365 393 422

43% 331 360 390 419 448

Reven

ue S

hare


27 November 2012


Scenarios

Our mid-case scenario assumes 3% advertising revenue CAGR over five years, 2%

programming cost growth and -3% other cost growth.

This produces FY17F EBITDA of $478mn and an enterprise value of $2.1bn (assuming a

7.0x multiple).

Television contributes 63% EBITDA.

Figure 286: Television Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

Net Advertising Revenue * $mn 1,117 1,117 1,301 1,425

Affiliate Revenue * $mn 88 92 92 92

Program Sales Revenue * $mn 29 34 35 37

Other Revenue * $mn 29 33 35 37

Revenue $mn 1,262 1,276 1,464 1,591

Programming Costs * $mn 623 623 688 758

Employee Costs * $mn 64 47 55 64

Advertising Costs * $mn 23 17 20 23

Licences and Fees * $mn 83 83 97 106

Other Costs * $mn 147 108 126 147

Total Costs $mn 941 878 986 1,099

EBITDA $mn 322 398 478 493


EBITDA Margin % 25% 31% 33% 31%

PV EBITDA $mn 322 247 297 306

Multiple x 7.0 7.0 7.0 7.0

Enterprise Value $mn 2,253 1,729 2,076 2,142

Source: Company data, Credit Suisse estimates. * Credit Suisse estimates for FY12A. 0-6% advertising revenue, 3-5% program and other

revenue, 1% affiliate revenue, 0-4% programming cost growth, -6% to 0% employee, advertising and other cost growth and licences and fees at

7% of net advertising revenue.

A slower structural shift facing the print businesses

Structural migration from print to digital will be slower in WA

Circulation declines are likely to occur at a slower pace in Western Australia compared to

the east coast of Australia due to the lower population concentration and geographic

separation placing a premium on local news and the monopoly nature of the Perth market

(with only once major daily newspaper as opposed to two in Sydney and Melbourne).

Weekday circulation at the West Australian has declined 1% p.a. on average over the past

five years versus -3% p.a. for the total metropolitan market.

27 November 2012


Figure 287: West Australian Weekday Circulation %

change YoY vs. Total Metropolitan Market

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%West Australian

Market


Sensitivity

The sensitivity to a 1% change in circulation is $3mn revenue and $2mn EBITDA,

assuming a linear impact on advertising volumes with circulation.

Figure 288: West Australian Newspapers sensitivity to EBITDA ($mn) Circulation Revenue Growth

-7.5% -5.0% -2.5% 0.0% 2.5%

-15.0% 96 97 98 99 100

-12.5% 102 103 104 105 106

-10.0% 108 109 110 111 112

-7.5% 114 115 116 117 118

-5.0% 120 121 122 123 124

-2.5% 126 127 128 129 130

0.0% 132 133 134 135 136

2.5% 139 139 140 141 142

Ad

Rev G

row

th

Source: Credit Suisse estimates.

Figure 289: Pacific Magazines sensitivity to EBITDA ($mn) Circulation Revenue Growth

-7.5% -5.0% -2.5% 0.0% 2.5%

-15.0% 15 21 28 34 41

-12.5% 17 23 30 37 43

-10.0% 19 26 32 39 46

-7.5% 21 28 35 42 48

-5.0% 24 31 37 44 51

-2.5% 26 33 40 47 53

0.0% 28 35 42 49 56

2.5% 31 38 45 52 59

Ad

Rev G

row

th


Newspaper Scenarios

Our mid-case scenario assumes -2% revenue CAGR over five years, print costs to fall in

line with circulation declines and -2% cost growth.

This produces FY17F EBITDA of $164mn and an enterprise value of $610mn (assuming a

6.0x multiple).

Newspapers contribute 27% EBITDA.

27 November 2012


Figure 290: Newspaper Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

The West Australian

Revenues * $mn 310 289 320 354

Costs * $mn 187 153 169 187

EBITDA * $mn 123 137 151 167

Regionals

Revenues * $mn 38 31 34 38

Costs * $mn 24 20 22 24

EBITDA * $mn 14 11 13 14

Newspapers

The West Australian EBITDA $mn 123 137 151 167

Regionals EBITDA $mn 14 11 13 14

EBITDA $mn 137 148 164 181


EBITDA Margin % 44% 51% 51% 51%

PV EBITDA $mn 137 92 102 112

Multiple x 6.0 6.0 6.0 6.0

Enterprise Value $mn 823 551 610 675

Source: Company data, Credit Suisse estimates. * Credit Suisse estimates for FY12A. Revenue scenarios -4% to 0%, print costs to decline in

line with circulation declines, -4% to 0% other costs.

Magazine Scenarios

Our mid-case scenario assumes -2% advertising and circulation revenue CAGR over five

years and -2% cost growth.

This produces FY17F EBITDA of $45mn and an enterprise value of $168mn (assuming a

6.0x multiple).

Magazines contribute 9% EBITDA.

Figure 291: Magazine Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

Advertising * $mn 99 81 90 99

Circulation * $mn 178 145 161 178

Other * $mn 10 10 10 10

Revenue $mn 287 236 261 287

Costs $mn 239 194 216 239

EBITDA $mn 49 42 45 49


EBITDA Margin % 17% 18% 17% 17%

PV EBITDA $mn 49 26 28 30

Multiple x 6.0 6.0 6.0 6.0


Source: Company data, Credit Suisse estimates. * Credit Suisse estimates for FY12A. Revenue scenarios -4% to 0%, cost growth -4% to 0%.

27 November 2012


Potential for Seven Group to consolidate ownership

Potential takeover offer from Seven Group

A substantial cash injection for Seven Group (SVW) coupled with an attractive Seven

West Media (SWM) share price could result in a takeover offer for SWM from SVW. SVW

owns 33.6% of SWM. A $1.3bn offer for the remaining shares (valuing the entire business

at $2.0bn) appears feasible. This equates to $2.00 per share and represents 7.5x SWM’s

FY12 EBITDA. SVW could make a cash only or cash and scrip offer.

Cash only offer

SVW receives $482mn for its 25% stake in Consolidated Media Holdings (CMJ.AX) in

November 2012. To make a $2.00 per share offer, SVW would need an additional $818mn.

Up to $600mn could be drawn from existing unutilised facilities (to retain reasonably

healthy gearing ratios. SVW has $819mn available undrawn group borrowing facilities).

Other various investments could be sold – including SVW’s investment in the Agricultural

Bank of China worth $230mn (as at 24 August 2012) or its listed portfolio worth $447mn

(as at 24 August 2012).

Cash and Scrip offer

Alternatively, Seven Group could offer part cash, part scrip. However this would have a

dilutive impact on Stokes’ shareholding, and is therefore not as likely as a cash only offer,

in our view. Various scenarios are outlined in Figure 292.

Figure 292: Acquisition Metrics

$2.00 Cash Only Offer

$0.75 Cash & 1 for 6 Offer

1 for 4 Scrip Only Offer

Acquisition Price $mn 2,000 2,000 2,000

Price for Outstanding Shares $mn 1,336 1,336 1,336

Acquisition Price/share $ 2.00 2.00 2.00

Premium % 60% 60% 60%

Cash $mn 1,336 500 -

Scrip $mn - 836 1,336

Cash / share $ 2.00 0.75 -

Scrip ratio SWM:SVW # - 1:6 1:4

FY12 SWM EBITDA Multiple x 7.5 7.5 7.5


Balance sheet assessment

Recent capital raising alleviates some balance sheet pressure

SWM has $1.9bn net debt. Following a $433mn capital raising, SWM will have $1.4bn net

debt. This represents 3.0x Net Debt / EBITDA. SWM’s covenants are <4.0x Net Debt /

EBITDA and >3.0x interest cover.

SWM’s debt facilities have an average weighted duration of three years, with three-, four-

and five-year tranches.

A 1% change in sales results in a 4% change to EBITDA, a 7% change to EPS and a 15%

change to our DCF valuation.

27 November 2012


Figure 293: Net Debt / Adjusted EBITDA

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

350 375 400 425 450 475 500 525 550

EBITDA ($m)

Source: Credit Suisse estimates. Adjusted EBITDA includes

contribution from associates.

Valuation

Sum of the Parts Valuation

Our mid case scenario produces a Sum of the Parts Valuation of $1.89 per share. Refer

Figure 294.

Figure 294: SWM Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

Television A$mn 2,253 1,729 2,076 2,142

Newspapers A$mn 823 551 610 675

Magazines A$mn 292 155 168 181

Other A$mn 43 27 27 27


Yahoo!7 (50% stake) A$mn 221 175 231 275

Net Debt A$mn 1,855 1,855 1,855 1,855

Equity Value A$mn 1,777 782 1,256 1,446

SOI mn 665 665 665 665


ESG impact % 5% 5% 5% 5%

Target Price $ / share $ 2.54 $ 1.12 $ 1.80 $ 2.07

Source: Company data, Credit Suisse estimates. Television 7x EBITDA multiple. Newspapers 6x EBITDA multiple. Magazines 6x EBITDA

multiple. Other 6x EBITDA multiple on FY12 EBITDA. Yahoo!7 Associate valued on 12x EBITDA with 5-15% EBITDA CAGR over five years.

Figure 295: SWM Television Comparable Companies

P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F

CBS 15.8x 13.0x 11.5x 7.9x 7.1x 6.7x

Fuji Media 5.7x 7.4x 9.9x 4.9x 4.4x 5.6x

Sun TV 20.4x 21.4x 19.6x 9.6x 10.4x 9.7x

ITV 11.5x 10.5x 9.8x 7.0x 6.6x 6.3x

TF1 10.2x 12.4x 12.9x 5.2x 6.3x 6.7x

Average 12.8x 13.0x 12.8x 7.0x 7.0x 7.0x


27 November 2012


DCF Valuation

We have a $3.00 per share DCF valuation (WACC 11%, terminal growth 1.5%).

Figure 296: SWM DCF Valuation

PV of FCF 2275

Terminal value 1402

Associates 190


Net debt 1855











results in a $1.39 per share valuation for SWM.

PE Multiple

Figure 297: SWM one year forward PE Figure 298: SWM PE relative to All Ords Index (ex



Risks

The key risks to our investment thesis for SWM are as follows:

■ Changes to advertising spend in Australia. Approximately 80% of SWM’s total

revenues are derived from advertising. A 1% change in advertising revenue results in

a 3% change to EBITDA, a 4% change in EPS and a 5% change to our DCF

valuation.

■ Changes to Network Seven’s commercial revenue share. A 1% change in Network

Seven’s commercial revenue share results in a $30mn change to sales, a 5% change

to EBITDA, an 8% change in EPS and 9% change to our DCF valuation.

■ Impact of digital conversion to newspapers and magazines.

■ Potential corporate activity.

27 November 2012


■ Changes to major shareholdings.

■ Changes to PRT’s affiliate fee, which represents 6% of Television revenue and 4% of

group revenue.

■ Governance issues (refer to ESG Issues section below).

ESG Issues

Environment issues

■ In our view there are no material environmental issues facing SWM.

Social issues

■ In our view there are no material social issues facing SWM.

Governance issues

■ Chairman Kerry Stokes controls SWM’s largest shareholder SVW (33.6% shareholder)

and as a result is able to exercise considerable control over SWM’s operations and

strategic direction. There is a risk that Mr Stokes’ interests may not always align with

independent shareholders.

Remuneration

■ Base salary: Fixed remuneration is determined by the Committee and recommended

to the Board for approval with reference to relevant comparators. Fixed salaries for

SWM’s eight highest paid executives totalled $9m in FY12, including $2.5mn for

former SWM CEO David Leckie and $1.8mn for TV CEO Tim Worner. New CEO Don

Voelte’s fixed annual remuneration will be $2.6mn, with no variable component. He is

employed under an open ended agreement with a three month notice period for Mr

Voelte and a one-month notice period for the company.

■ Short-term incentives: SWM operates an STI scheme based on divisional EBIT. The

maximum STI for the CEO was 75% of his base salary while it varied from 25% to

50% for other key management personnel. Mr Leckie did not receive a bonus in FY12,

however he did receive $1.9mn in severance payments. Other key management

shared ~$1.1m in STI benefits. 50% of STI awards are granted on a deferred basis

(over three years) as performance rights.

■ Long-term incentives: SWM previously operated separate LTI plans for the WAN

and Seven Media Group entities, however all executives have been transitioned onto

a common plan for FY13. No equity grants were made under the respective LTI plans

in FY12 due to business performance. From FY13, performance rights have been

granted to key management personnel. The rights will vest over a three-year period

according to diluted EPS targets set by the Board (50%) and TSR as measured

against a comparator group comprised of the 30 ASX 200 companies nearest to SWM

in terms of market capitalisation (50%). For FY13 the threshold EPS target (at which

50% of applicable performance rights vest) is an undisclosed ‘budget’ EPS while the

‘stretch’ target (at which 100% vests) is 10% growth on FY12 (for FY13; FY14 and

FY15 targets have not been disclosed). The TSR lower and upper limits are 51st and

75th percentile within the comparator group respectively, with 50% to 100% of

applicable performance rights vesting on a straight line basis.

Board

■ SWM’s Board has extensive executive and Board-level experience in media and

financial services, although there is a shortage of legal experience.

27 November 2012


■ SWM does not have a plurality of independent Directors, with major shareholders KKR

and SVW able to exert control.

Figure 299: Board skill analysis for SWM

Name Position

Tenure


Former

CEO

ASX 200


Fees / pay

($k)

KM Stokes AC Chairman 4.1 X No 290

DR Voelte MD & CEO 3.9 X No 155

DR Flynn Non Exec 4.4 X X X X Yes 149

PJT Gammell Non Exec 4.1 X No 149

GT John AO Non Exec 3.9 X Yes 145

JC Reizes Non Exec 1.5 X No 145

SMC Walsh AO Non Exec 3.9 X Yes 161


Valuation impact

■ We have a 5% negative ESG impact to our valuation for SWM. The lack of

independence on the board and influence of Chairman and major shareholder Kerry

Stokes increases the risk to minority shareholders and their interests. Stokes has 68%

interest in SVW and SVW has a 34% interest in SWM.


■ We have a Neutral outlook on the MSCI IVA rating for SWM. Seven West Media

Limited has maintained its rating of 'BB' because according to MSCI there have been

no material changes to its exposure to or management of the key Environmental,

Social, and Governance risks that it faces. We so no reason apart from lack of

disclosure why SWM should have such a low Environmental score given that it does

not partake in any potentially harmful activities. However, we see downside to its high

Governance rating due to the lack of board independence and influence of Chairman

and major shareholder Kerry Stokes. As a result we have a Neutral outlook overall.

Figure 300: MSCI IVA rating for SWM: BB

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0




27 November 2012


Appendix

Company Overview

Seven West Media Limited is Australia’s largest diversified media business, formed by the

acquisition of Seven Media Group by the much smaller West Australian Newspapers in

2011. SWM owns Seven Network, Australia’s largest commercial television network (by

audience and advertising market share), and is the second largest magazine publisher in

Australia through Pacific Magazines. It also publishes the West Australian, the monopoly

weekday newspaper in Perth, and 21 West Australian regional newspapers. The company

also holds nine regional radio licences and is owns 50% of Yahoo!7, one of Australia’s

leading online platforms.

Prior to the acquisition of Seven Media Group, SWM (then known as WAN) was largely a

pure play metropolitan newspaper publisher. SWM’s earnings mix today is now heavily

weighted towards television as a result of that transaction.


Source: Company data Source: Company data. Note: Pro forma. Yahoo!7 equity accounted.

Market Position

FTA Television

The Australian metropolitan FTA TV industry is approximately $2.8bn. This equates to

23% share of total advertising spend. Seven Network is the dominant FTA television

network in Australia, with a 38% revenue share in 2011 and a 41% revenue share

calendar YTD.

Figure 303: Metropolitan commercial FTA All People

audience share

Figure 304: Metropolitan TV advertising YoY change by

company

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Seven Nine Ten

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

Seven Nine Ten

Source: OzTam Source: SMI

27 November 2012


Newspapers

The Australian metropolitan newspaper industry is approximately $2.9bn (from $3.3bn in

2008). This is broadly split 70/30 between advertising and circulation revenue. On a

national basis SWM is a relatively small player, with a ~8% share of total circulation.

However, its competitive position is very strong as the sole newspaper publisher (Monday

to Saturday) in the Perth market. NWS publishes the Sunday Times on Sundays, however

SWM publishes the weekend edition of the West Australian on Saturdays, so direct

competition is minimal. This monopoly position is one reason that circulation volumes at

the West Australian have held up better than its peers on the east coast, with a local brand

strength and reader loyalty unmatched by FXJ or NWS.

Figure 305: WA Metro Newspaper Circulation Market

Share 2011

Figure 306: Australian Metro Newspaper EBIT Margin by

Company

Source: Audit Bureau of Circulations Source: Company data, Credit Suisse estimates. Note: EBIT margins

for NWS are for the Australian publishing business as a whole.

Magazines

The Australian magazine industry is approximately $1.6bn. This is broadly split 50/50

between advertising and circulation revenue (although the ratio of circulation revenue to

advertising revenue is higher at consumer magazine publishers such as SWM). SWM’s

Pacific Magazines is second behind market leader ACP in terms of circulation and

advertising revenue (see Figure 307 and Figure 308). ACP owns 50+ publications. SWM

has 17 titles that are centred around defined niches. SWM’s publications have been

increasing market share over recent periods, with a 5% increase in advertising revenue

share over the past three years.

Figure 307: 2011 consumer magazine market share by

circulation

Figure 308: Australian magazine advertising revenue

share

Source: Audit Bureau of Circulations Source: SMI

27 November 2012


Digital

Online advertising represents approximately 24% of total ad spend in Australia. This

equated to ~$3bn in FY12. Of this amount, online display accounted for ~$700mn. Online

advertising is a highly competitive and fragmented market, characterised by low barriers to

entry and continual innovation in technology and ad formats. Yahoo!7, SWM’s 50/50 joint

venture with Yahoo!, is one of Australia largest players in online display advertising with

just over 10% of the market.

Figure 309: 2011 display advertising market shares Figure 310: Display advertising market shares

0%

5%

10%

15%

20%

25%

30%

Jan

-08

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Yahoo!7 NineMSN FXJ NWS


History

Figure 311: SWM Key Milestones

Date Event

2006 SEV acquires 14.9% stake in WAN. Seven Media Group created via $4bn JV with

KKR for SEV’s television, magazine and online assets

2010 SEV merges with Westrac to form Seven Group Holdings (SVW)

2011 WAN acquires Seven Media Group from SVW and KKR for $4.1bn and renames the

company Seven West Media. David Leckie appointed CEO of SWM, Kerry Stokes

Chairman.

2012 $440mn capital raising for SWM. Don Voelte appointed CEO (replacing David

Leckie)




-15%

-10%

-5%

0%

5%

10%

15%


Actual Pro forma

20%

25%

30%

35%

40%

45%

50%


Actual Pro forma

Source: Company data, Credit Suisse estimates. Note: Pro forma

numbers are for Television only



27 November 2012



-40%

-20%

0%

20%

40%

60%


Series1

-30%

-20%

-10%

0%

10%

20%

30%





0%

5%

10%

15%

20%

25%

30%

35%

40%


0%

20%

40%

60%

80%

100%

120%

140%


ROA ROE



0%

20%

40%

60%

80%

100%

120%


0%

100%

200%

300%

400%

500%

600%

700%



27 November 2012



interest / EBITDA)


0%

20%

40%

60%

80%

100%

120%

$0m

$20m

$40m

$60m

$80m

$100m

$120m





0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x






Strong ratings and revenue share

in television

New CEO with little media

experience

Strong ratings and revenue share

momentum in television

Strong performance from Nine

Monopoly position in weekday and

Saturday Perth Newspaper

Exposed to structural decline in

print

Digital expansion opportunity Increasing penetration of Pay TV

and IPTV

Strong growth from online platform Highly geared balance sheet Possible acquisition of NWS’ WA

Sunday paper or broadcasting

assets

Digital migration in print

Major shareholder with influence Possible takeover target for SVW




Television High High Medium Medium Medium

Newspapers High Low Medium Low High

Magazines High Medium Medium Low High



27 November 2012



Kerry Stokes (Chairman). Non-Independent.

Mr Stokes is the Executive Chairman of Seven Group Holdings Limited (in which he has a

67% shareholding). Mr Stokes has approximately four decades of active involvement in

the ownership and management of media companies in Australia. Seven Group Holdings’

assets include WesTrac Holdings and a portfolio of diverse investments, including a 29.6%

holding in Seven West Media Limited.

Don Voelte (CEO, Executive Director). Non-Independent.

Mr Voelte has significant experience in the global oil and gas industry and, prior to his

retirement in June 2011, was the Managing Director and Chief Executive Officer of

Woodside Petroleum Limited, a position he had held since joining the company in 2004.

Prior to joining Woodside Petroleum Limited, Mr Voelte held a number of Senior Executive

positions in the oil and gas sector.

Peter Gammell (Non-Executive Director). Non-Independent.

Mr Gammell is the Chief Executive Officer of Seven Group Holdings Limited. He is also

the Deputy Chairman of Australian Capital Equity Pty Ltd, Kerry Stokes’ private holding

company. Mr Gammell has served as a Director of Seven West Media and its predecessor

Seven Network Limited for the last 14 years. He was Chairman of the Seven Network

Limited Finance Committee and was a member of the Audit Committee. He is also the

Chairman of Coates Hire, Australia’s largest equipment hire company.

Doug Flynn (Non-Executive Director). Independent.

Mr Flynn was appointed Chief Executive of newspaper publisher Davies Brothers Limited

in 1987. The company was acquired by News Corporation in 1989. During his career at

News Limited Group, Mr Flynn held positions as Deputy Managing Director of News

International Newspapers Ltd, Director of News International Plc, and Managing Director

of News International Plc. Mr Flynn then held Chief Executive positions with Aegis Group

Plc and Rentokil Initial Plc in London, before returning to Australia in 2008. Mr Flynn led

negotiations for West Australian Newspapers during its merger with Seven Network.

Graeme John (Non-Executive Director). Independent.

Mr John was Managing Director of Australia Post from 1993 to 2009. He is a Fellow of the

Chartered Institute of Transport and a Member of the Australian Institute of Company

Directors. He is a Board member of QR National, Racing Victoria and an AFL

Commissioner. He is a former Chairman of the Board of the Kahala Posts Group, Board

member of the International Post Corporation (Netherlands), and Vice-Chairman of Sai

Cheng Logistics International (China), a joint venture with China Post.

Justin Reizes (Non-Executive Director). Non-Independent.

Mr Reizes is a Member of Kohlberg Kravis Roberts & Co L.P. and is the head of its

Australian office. He joined KKR’s London office in 1999, then moved to its Hong Kong

office in 2005, Tokyo in 2006 and Sydney in 2008. Since moving to the Asia/Pacific area,

he has been actively involved in developing KKR’s Asian operations. He is currently on the

board of directors of BIS Industries and was a board member of Seven Media Group from

2006-2011.

Sam Walsh (Non-Executive Director). Independent.

Mr Walsh was appointed chief executive of Rio Tinto’s Iron Ore group in 2004, with

responsibilities covering operations and projects in Australia, Canada, Guinea and India.

He is an executive director on the boards of Rio Tinto plc and Rio Tinto Limited, and in

November 2009 he was appointed chief executive of Rio Tinto Australia. He is also the Rio

Tinto Executive Committee sponsor for Australia and West Africa. Prior to joining Rio

Tinto, Mr Walsh worked in the automotive industry for more than 20 years in Australia and

the USA. Rio Tinto Iron Ore has executed transactions with Iron Ore Holdings (backed by

Kerry Stokes) during Mr Walsh’s tenure.

27 November 2012


Peter Lewis (Chief Financial Officer)

Mr Lewis joined Seven as Chief Financial Officer in May 1998 and was appointed Chief

Financial Officer of Seven West Media in April 2011. His previous position was Head of

Business Affairs for the Sydney Olympic Broadcasting Organisation. He has extensive

experience in financial management for media companies including Network Ten and

Galaxy Media.

Rohan Lund (Chief Operating Officer)

Mr Lund was appointed to the newly created COO role in September 2012. He was

previously the CEO of Yahoo!7 and Chairman of Yahoo!Xtra in New Zealand. He is a

Director of Yahoo!7, Wireless Broadband Australia (Australia's first 4G network) and the

former Chairman of the Internet Advertising Board. Prior to joining Yahoo!7 in 2004, Mr

Lund was Strategy Director with SingTel Optus.

Chris Wharton (WAN CEO)

Chris Wharton is Chief Executive Officer of Seven West Media WA. Before this, he was

Chief Executive Officer of West Australian Newspapers, a position he held since

December 2008. Prior to that, he was Managing Director of Channel Seven Perth Pty

Limited for nine years. Mr Wharton’s newspaper career began as a journalist and he

worked in every area of newspaper management in Sydney before being appointed as the

Chief Executive Officer of Perth’s Community Newspaper Group in 1995.

Nick Chan (Pacific Magazines CEO)

Mr Chan joined Pacific Magazines in March 2004, having previously held the position of

Chief Executive Officer at Text Media Group. Prior to joining Text Media Group, Nick held

a series of senior management positions at Australian Consolidated Press – including

Group Publisher – Major Market & Lifestyle Group and Chief Operating Officer. Nick has a

total of 25 years publishing experience.

Tim Worner (Seven Network CEO)

Mr Worner is responsible for the management for the Seven Network television business. He

was previously Director of Programming and Production for the Seven Network, responsible for

the programming of all three Seven channels (Seven, 7TWO and 7mate) as well as

production. Mr Worner commenced his career as a journalist at Channel Seven Perth. He

joined the Seven Network in 1995 and his roles have included Head of Program Development,

Head of Sport in Melbourne and Head of Infotaintment. He was appointed Director of

Programming and Production in 2002 and CEO of Seven Network Television in 2011.

Stuart Sayers (Yahoo!7 CEO)

Mr Sayers was appointed as the CEO of Yahoo!7 in September 2012 following Rohan

Lund’s transition to Group Chief Operating Officer. has nearly 20 years of experience in

business management and operations. He was previously COO of Yahoo!7 where he was

responsible for the company’s technology operations, editorial management, finance,

human resources and transactional businesses. Prior to joining Yahoo!7, he held

management and strategy roles at ANZ Bank and E*TRADE.

Kurt Burnette (Chief Sales and Digital Officer)

Mr Burnette has over 20 years’ experience within the Seven Network. He began his career

at Seven as a Sales Assistant, working through Sport Sales Management, then to Sydney

Sales Director. He was appointed to his current role in July 2008.


Figure 326: SWM Substantial Shareholders


Seven Group Holdings (SWW.AX) 33.6%

KKR & Co. 7.9%

Source: Bloomberg

27 November 2012



27 November 2012



Ten Network Holdings (TEN.AX / TEN AU)

Highly leveraged

■ We initiate coverage of Ten Network Holdings (TEN.AX) with a NEUTRAL rating and $0.33 per share target price.

■ Investment Case: Highly leveraged. Our investment view is shaped by four considerations: 1) TEN is the most leveraged listed media stock to changes in advertising spend. A 1% change in advertising revenue results in a 10% change to television EBITDA and a 3cps change to our DCF valuation. We do not expect material changes in the ad market in the near term. 2) Ten is highly leveraged to changes in television ratings. A 1% change in TEN’s commercial revenue share has a $30mn impact on revenue (4%), $25mn impact on TEN’s EBITDA (40%) and 14cps impact to our DCF valuation. An improvement in TEN’s s revenue share will be determined by its ability to fund quality content from offshore and deliver good locally produced programs. 3) Ten’s gearing is too high, in our view. TEN has $263mn net debt (post its $200mn capital raising), of which $210mn is due to be refinanced in March 2013. Whilst the sale of Eyecorp to Champ Private Equity for $113mn ($98mn upfront, $15mn deferred) will alleviate some balance sheet pressure, we would like to see TEN move to a more conservative gearing position. 4) We expect the dividend to remain suspended in FY13.

■ Catalysts: Debt refinancing and reduction critical. $210mn debt is due to be refinanced in March 2013. TEN has $350mn undrawn syndicated facilities which it could draw down to repay the $210mn USPP facility, however the $350mn syndicated facility matures in February 2014. Another $150mn drawn debt matures in December 2015. A reduction in debt would improve the risk profile of TEN.

■ Valuation: We have a $0.33 per share target price. This is based on our $0.35 per share DCF valuation (WACC 11%, terminal growth 1.5%). We apply a 5% discount to our valuation due to governance issues.


20

70

120

0

1

2

3

4






Performance Over 1M 3M 12M Absolute (%) 10.9 -20.8 -62.7 Relative (%) 12.0 -22.3 -73.7


Year 08/12A 08/13E 08/14E 08/15E Revenue (A$mn) 861.8 718.9 733.0 762.2 EBITDA (A$mn) 94.0 72.7 74.8 84.9 EBIT (A$mn) 68.4 55.2 57.3 64.9 Net income (A$mn) 9.7 11.8 15.1 20.8 EPS (CS adj.) (Ac) 0.87 0.82 1.05 1.44 Change from previous EPS (%)

n.a. — — —

Consensus EPS (Ac) n.a. 0.30 1.10 2.60 EPS growth (%) -87.7 -5.7 28.0 37.3 P/E (x) 35.0 37.1 29.0 21.1 Dividend (Ac) — — — 1.10 Dividend yield (%) — — — 3.6 P/B (x) 0.25 0.32 0.32 0.32 Net debt/equity (%) 19.1 15.9 13.1 10.4



Rating NEUTRAL*

Price (26 Nov 12, A$) 0.31





Projected return:


Dividend yield (net %) —





Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

TE

N.A

X

27 November 2012



Ten Network Holdings (TEN) Year ending 31 Aug In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$0.31 Earnings 08/11A 08/12A 08/13E 08/14E 08/15ERating NEUTRAL c_EPS_SHARESEquiv. FPO (period avg.) mn 1,045.2 1,117.5 1,437.2 1,437.2 1,437.2


vs Share price % 8.20 EPS_GROWTH*100EPS Growth % -87.7 -5.7 28.0 37.3


c_DPS*100DPS c 5.3 0.0 0.0 0.0 1.1

c_PAYOUT*100Payout % 74.0 0.0 0.0 0.0 76.1




Sales revenue 998.7 861.8 718.9 733.0 762.2 Valuation

EBITDA 172.5 94.0 72.7 74.8 84.9 c_PE P/E x 4.3 35.0 37.1 29.0 21.1












Unusual item after tax 0.0 0.0 0.0 0.0 0.0 Gearing








Current assets 401.4 525.8 308.9 339.8 379.3 MSCI IVA (ESG) Rating A


Intangibles 1,171.4 1,077.8 1,077.8 1,077.8 1,077.8



Total assets 1,679.3 1,674.1 1,468.7 1,496.1 1,531.6

Payables 194.6 137.6 116.8 119.1 123.8




Net assets 807.8 941.8 907.2 922.3 943.1

Ordinary equity 1,153.2 1,349.7 1,349.7 1,349.7 1,349.7



Total shareholder funds 807.8 941.8 907.2 922.3 943.1



EBIT 146.9 68.4 55.2 57.3 64.9

Net interest -27.7 -29.3 -16.1 -13.2 -12.0

Depr & Amort 25.6 25.6 17.5 17.5 20.0

Tax paid 1.7 -30.6 -8.7 -10.2 -12.9

Working capital -15.2 59.8 -1.1 -5.4 -11.5

Other -34.7 -52.2 -8.6 -8.8 -9.3


Capex -34.2 -23.2 -14.0 -14.0 -16.0


Capex - maintenance



Other -6.5 -4.4 0.0 0.0 0.0

Investing cashflow -40.2 -26.1 84.0 -14.0 -16.0

Dividends paid -115.0 -58.4 0.0 0.0 0.0

Equity raised 0.0 196.0 0.0 0.0 0.0

Net borrowings 65.0 -75.4 -160.0 0.0 0.0


Financing cashflow -50.1 62.3 -160.0 0.0 0.0 Absolute 10.9% -20.8% -62.7%

Total cashflow 6.3 77.9 -37.8 23.2 23.3 Relative 12.0% -22.3% -73.7%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 6.3 77.9 -37.8 23.2 23.3 Source: Reuters 52 week trading range: 0.27-0.90

MSCI IVA Risk Comment: TEN has been downgraded to 'A'

from 'AAA' due to high risk of work stoppages, exacerbated by

layoffs since 2011. While we see the likelihood of any strike

action as minimal, TEN continues to restructure its cost base

through substantial workforce redundancies. The drive to cut

costs in a difficult revenue environment is set to continue.

26/11/2012 22:46

Ten Holdings is an Australia-based company engaged in investing in The Ten Group Pty

Limited & controlled entities, look ing into the operation of commercial television licenses in

Sydney, Melbourne, Brisbane, Adelaide & Perth, & out-of-home advertising.

Credit Suisse View

TP Risk Comment: Chairman and substantial shareholder

Lachlan Murdoch has previously shown his willingness to

exert his influence over the company by taking over as Interim

CEO prior to the commencement of James Warburton’s

employment. Additionally, less than half of TEN’s Board is

independent, lessening the likelihood of the Board resisting

attempts to influence the company by major shareholders.

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

TEN.AX XJO

4.1

5.1

6.1

7.1

8.1

9.1

10.1


Stock Local Sector



27 November 2012


Highly leveraged to the Advertising cycle

Ten is the most leveraged media stock to the advertising cycle

Ten is the most leveraged Australian listed media company to the advertising cycle. 90%

of Television revenues are from advertising. The sale of Eyecorp makes TEN more

leveraged to the cycle.

A 1% change in advertising revenue results in a 10% change to EBITDA and a 3cps


We do not expect material changes to the advertising market in the near term. Retail ad

spend is likely to remain subdued, in line with retail sales. FMCG ad spend is likely to

remain weak as funds are diverted to supporting promotions and shelf prices at the

supermarket chains. Banking and Finance ad spend is also likely to remain subdued. The

Federal Election may provide a small boost to consumer confidence and ad spend in late

2013 (the election must be held by 30 November 2013).

Figure 328: Television historic revenue and EBITDA

margin

Figure 329: Eyecorp historic revenue and EBITDA margin

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

$0m

$100m

$200m

$300m

$400m

$500m

$600m

$700m

$800m

$900m

Revenue

EBITDA margin

0%

4%

8%

12%

16%

20%

24%

$0m

$30m

$60m

$90m

$120m

$150m

$180m

Revenue

EBITDA margin




networks. Australia has relatively low Pay-TV penetration compared with the US and UK.






Cyclical fluctuations are likely to have a greater impact on TEN, in our view.


Spend


0%

10%

20%

30%

40%

50%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US


27 November 2012


Figure 332: Australian Metro TV Viewing (All People) Figure 333: TV Advertising YoY Growth by Platform

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pay TV

Commercial FTA

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD

Metro FTA

Regional FTA

Pay TV


Highly leveraged to changes in TV Ratings

Ratings and Revenue share outlook for TEN

TEN’s All People commercial share is 24% (as at October 2012). This compares to 24%–

28% ratings share achieved over the past 12 months. The Olympics and NRL and AFL

finals coverage on competing networks likely had a material effect on TEN’s August and

September result. Across all three channels, TEN has a combined 28.7% share of the 18-

to 49-year old demographic.

Figure 334: TEN commercial audience share: All People

2012 versus 2011

Figure 335: TEN monthly revenue share vs. ratings share:

16-54 yr olds

15%

20%

25%

30%

35%

40%

Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12

Ratings Share

Revenue Share

Source: Media Week, OzTam Source: SMI, OzTam

Seven and Nine have 41% and 35% All People ratings commercial share (as at October

2012). This compares to 37%–43% (Seven) and 33%–42% (Nine) ratings share achieved

over the past 12 months.

27 November 2012



(000's)


olds) (000’s)

0

200

400

600

800

1,000

1,200

1,400

1,600


Network 7 Network 9

Network 10 Pay TV

0

100

200

300

400

500

600

700

800

900


Network 7 Network 9

Network 10 Pay TV

Source: OzTam Source: OzTam

TEN’s ratings and commercial revenue share will be determined by its ability to fund

quality content from offshore and deliver good locally produced programs. In its FY12

result presentation, TEN highlighted its continued focus on programming. It will draw key

output deals with 20th Century Fox and CBS and fast track all appropriate US content.

News will continue to be a focus, albeit in a more efficient manner (by removing

duplication of news desks). TEN’s group strategy to reduce costs is expected to be in non-

programming areas.

Revenue sensitivity to changes in FTA commercial revenue share

A 1% change in Ten’s commercial revenue share has a ~$30mn impact on revenue (4%),

a ~$25mn impact on EBITDA (40%) and 14cps impact to our DCF valuation.

Figure 338: Revenue share and Market growth impact on EBITDA ($mn)

Market Growth

-5.0% -2.5% 0.0% +2.5% +5.0%

Reven

ue S

hare

22.0% -36 -22 -8 6 20

22.5% -24 -10 5 19 34

23.0% -12 3 18 33 48

23.5% 0 16 31 46 61

24.0% 13 28 44 59 75

24.5% 25 41 57 72 88

25.0% 37 53 69 86 102

25.5% 49 66 82 99 115

26.0% 62 78 95 112 129



Balance sheet stress testing

TEN has $263mn net debt (post its $200mn capital raising). $210mn debt is due to be

refinanced in March 2013. TEN has $350mn undrawn syndicated facilities which it could

draw down to repay the US$125mn USPP facility (swapped into A$210mn), however the

$350mn syndicated facility matures in February 2014. Another $150mn drawn debt

matures in December 2015. TEN’s covenants are <4.0x Drawn Debt / EBITDA and >3.0x

interest cover.

Whilst the sale of Eyecorp to Champ Private Equity for $113mn ($98mn upfront, $15mn

deferred) will alleviate some balance sheet pressure, we would like to see TEN move to a

more conservative gearing position. The figure below shows the sensitivity of TEN’s

gearing to changes in earnings. We have not included any assumptions for profit/loss on

the sale of Eyecorp in our model.

27 November 2012


Figure 339: Net Debt / EBITDA

0x

1x

2x

3x

4x

5x

6x

7x

8x

20 30 40 50 60 70 80 90 100

EBITDA ($m)

Source: Credit Suisse estimates. Adjusted EBITDA includes

contribution from associates.

Earnings sensitivity

A 1% change in sales results in a 10% change to EBITDA and a 3cps change to our DCF

valuation.

Valuation

DCF

We have a DCF valuation of $0.35 per share. This assumes 27% long-term commercial

revenue share and 2% market growth.

To achieve a valuation of $1.00 per share, TEN would need to deliver 30% long-term

commercial revenue share and 4% market growth.

Figure 340: TEN DCF Valuation

PV of FCF 428

Terminal value 338

Other 0.0


Net debt 263

Equity valuation 52



ESG impact 5%

Target price $ 0.33








results in a $0.48 per share valuation for TEN.

27 November 2012


PE Multiple

Figure 341: TEN one year forward PE Figure 342: TEN PE relative to All Ords Index (ex



Risks

The key risks to our investment thesis for TEN are as follows:

■ Changes to advertising spend in Australia. A 1% change in sales results in a 10%

change to EBITDA and a 3cps (10%) change to our DCF valuation.

■ Changes to Ten’s commercial revenue share. A 1% change in Ten’s commercial

revenue share has a ~$30mn impact on revenue (4%), a ~$25mn impact on EBITDA

(40%) and a 14cps (40%) impact on our DCF valuation.

■ Changes to Ten’s gearing.



■ Changes to SXL’s affiliate fee, which represents 8% group revenue.

■ Governance issues (refer to the ESG Issues section below).

ESG Issues

Environment issues

■ In our view there are no material environmental issues facing TEN.

Social issues

■ In our view there are no material social issues facing TEN.

Governance issues

■ Approximately half of the register is in the hands of four large individual shareholders

(Chairman Lachlan Murdoch, Bruce Gordon, Gina Rinehart and James Packer). It is

possible that the interests of one or more of these shareholders may differ from those

of independent shareholders. Chairman Lachlan Murdoch is both Chairman and

former CEO of the company.

27 November 2012


Remuneration

■ Base salary: CEO James Warburton will be paid effective 1 January 2012 a fixed

remuneration, inclusive of superannuation of $2,200,000. Departed Chief

Programming Officer David Mott was the second highest paid executive, with a salary

of $1.2mn. Total fixed remuneration for TEN’s key management personnel was $5mn

in FY12.

■ Short-term incentives: STIs are awarded based primarily on individually defined key

performance indicators, with 25% of the maximum award linked to group financial

performance (EBIT). The maximum bonus for senior executives is 45% of fixed

remuneration, with payment split over three years. CFO Paul Anderson was the only

executive to receive an STI award in FY12 ($50,000).

■ Long-term incentives: The LTI plan grants senior executives performance rights

subject to EPS (50%) and TSR relative to the ASX 200 Consumer Discretionary Index

(50%). In order for the TSR portion of the grant to vest, TEN must be at or above the

51st percentile of its comparator group, with 50% vesting at this level and 100% at or

above the 75th percentile. For 50% of the EPS portion to vest, EPS compound annual

growth of 4% is required over the previous three years, making EPS of 7.11cps the

base for FY12. 8% growth is required for 100% of performance rights to vest. A total of

$750,000 in performance rights were expensed in FY12.

■ TEN announced in its annual report that both of its existing performance-based

remuneration plans were being discontinued. The remuneration committee has

engaged a remuneration consultant and is in the process of establishing a new plan

that will replace the existing plan for FY13.

Board

■ TEN’s Board has extensive executive and Board-level experience in media and

financial services

■ Only five members of TEN’s Board are independent

Figure 343: Board skill analysis for TEN

Name Position

Tenure


Former

CEO

ASX 200


Fees / pay

($k)

LK Murdoch Chairman 1.9 X X No 114

BJ Long Deputy Chairman 2.3 X Yes 155

JR Warburton CEO & MD 0.8 X X X No 1,754

JJ Cowin Non Exec 14.6 X No* 97

PV Gleeson Non Exec 14.8 X No* 102

CW Holgate Non Exec 2.6 X X Yes 93

DL Gordon Non Exec 2.6 X X X Yes 95

DD Hawkins Non Exec 2.6 X X Yes 97

PR Mallam Non Exec 1.9 X Yes 97

GH Rinehart Non Exec 1.9 X No 90

SL McKenna Non Exec 0.4 X X No 0


Valuation impact

■ We have included a 5% ESG impact to our valuation for TEN. Chairman and

substantial shareholder Lachlan Murdoch has previously shown his willingness to

exert his influence over the company by taking over as Interim CEO prior to the

commencement of James Warburton’s employment. Additionally, less than half of

TEN’s Board is independent, lessening the likelihood of the Board resisting attempts to

influence the company by major shareholders.

27 November 2012



■ We have a Neutral outlook on the MSCI IVA rating for TEN. TEN has been

downgraded to 'A' from 'AAA' due to high risk of work stoppages, exacerbated by

layoffs since 2011. While we see the likelihood of any strike action as minimal, TEN

continues to restructure its cost base through redundancies. We see any changes to

TEN’s MSCI rating as unlikely in the short term.

Figure 344: MSCI IVA rating for TEN: A

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0




27 November 2012


Appendix

Company Overview

Ten Network Holdings is the holding company for Network Ten, one of Australia’s three

commercial metropolitan free-to-air television networks. Historically the smallest of the

three networks, Ten’s programming has traditionally been geared towards younger

demographics. In addition to its core channel (Ten), the company also operates two digital

multi-channels: One, a general entertainment channel for men in the 25–54 demographic

featuring a mix of sports and action and adventure programming; and Eleven, aimed at

younger viewers. TEN was previously involved in outdoor advertising prior to the sale of

EYE Corp in November 2012, however the company now derives all of its revenue from its

television operations.

Figure 345: Earnings mix (FY04A) Figure 346: Earnings mix (FY14F)

TV, 90%

Outdoor, 10%

TV, 100%


Market Position

The Australian metropolitan FTA TV industry is approximately $2.8bn. This equates to

23% share of total advertising spend. Network Ten is the smallest of the three commercial

FTA networks in Australia, with a 28% revenue share in 2011 and a 26% revenue share

calendar YTD.


audience share


company

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Seven Nine Ten

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%


Seven Nine Ten


27 November 2012


History

Figure 349: TEN Key Milestones

Date Event

1998 IPO

2009 Canwest sells remaining 50.1% stake

2010 James Packer acquires 16% stake

2011 James Warburton appointed CEO (replacing Lachlan Murdoch as interim CEO and

Grant Blackley previous CEO)

2012 Lachlan Murdoch appointed Chairman (replacing Brian Long who became Deputy

Chairman). $200mn Capital Raising. Eyecorp sold to Champ Private Equity for

$113mn ($98mn upfront and deferred consideration of $15mn)




-15%

-10%

-5%

0%

5%

10%

15%


Actual Pro forma

0%

5%

10%

15%

20%

25%

30%

35%

40%


Actual Pro forma






-100%

-50%

0%

50%

100%

150%


NPAT EPS

-60%

-40%

-20%

0%

20%

40%



Source: Company data. Note: Diluted EPS pre-non-recurring items Source: Company data

27 November 2012



0%

5%

10%

15%

20%

25%

30%


0%

10%

20%

30%

40%

50%


ROA ROE



0%

20%

40%

60%

80%

100%

120%

140%

160%

180%


0%

50%

100%

150%

200%

250%




interest / EBITDA)


0%

20%

40%

60%

80%

100%

120%

140%

-$100m

-$80m

-$60m

-$40m

-$20m

$0m

$20m



27 November 2012




0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x


calendarised




Highly leveraged to ratings and ad

spend

Highly leveraged to ratings and ad

spend

Improvement in ratings opportunity Strong performance from Seven

and Nine

Recent poor ratings performance Possible takeover target Increasing penetration of Pay TV

Geared balance sheet Increasing penetration of IPTV




Ten Network High High High Medium Medium



Lachlan Murdoch (Chairman). Non-Independent.

Mr Murdoch has been a director of TEN since December 2010 and Non-executive

Chairman since February 2012. He was Interim Chief Executive between March 2011 and

January 2012. Mr Murdoch is the Executive Chairman of Illyria Pty Ltd, a media

investment company founded in 2005, Executive Chairman of DMG Radio Australia and a

member of the board of News Corporation.

Brian Long (Deputy Chairman). Independent.

Mr Long joined the Board of TEN in July 2010 and became Chairman in December 2010.

In February 2012, he became Deputy Chairman and the Board's Lead Independent

Director following the appointment of Lachlan Murdoch as Chairman. Mr Long previously

chaired the Global Governance and Advisory Council of Ernst & Young and also chaired

the Council for the firm's Oceania Area. He was a Partner of Ernst & Young for 29. Mr

Long is also a Director of the Commonwealth Bank of Australia.

James Warburton (CEO and Executive Director). Non-Independent.

Mr Warburton joined TEN as CEO in January 2012. He was previously Chief Sales and

Digital Officer at Seven Media Group, covering the Seven television network, Pacific

Magazines, Yahoo!7 and SMG Red. Prior to joining Seven, he was Managing Director of

the media agency Universal McCann and General Manager of Marketing at Hyundai

Automotive Distributors Australia.

27 November 2012


Jack Cowin (Non-Executive Director). Non-Independent.

Mr Cowin has been a Director of TEN since February 1998. Mr Cowin owns Hungry

Jack's, the Burger King franchise in Australia, and is the Executive Chairman of

Competitive Foods Australia, one of the country's largest privately held businesses.

David Gordon (Non-Executive Director). Independent.

David Gordon is a former M&A partner at the Sydney law firm, Freehills, and subsequently

at former corporate advisory firm Wentworth Associates Pty Ltd prior to founding Lexicon

Partners, an independent corporate advisory and investment firm based in Sydney. He is

also a director of RCG Corporation Limited. Mr Gordon was appointed as a Director in

March 2010.

Georgina Rinehart (Non-Executive Director). Non-Independent.

Mrs Rinehart has been a Director of TEN since December 2010. Mrs Rinehart is Executive

Chairman of the Hancock Prospecting Pty Ltd Group of Companies and daughter of major

shareholder Gina Rinehart.

Siobhan McKenna (Non-Executive Director). Non-Independent.

Ms McKenna joined the Board in June 2012. She is Managing Partner of Illyria, Lachlan

Murdoch’s private investment company. Ms McKenna is a Non-Executive Director of NBN

Co and is a former Partner of management consulting firm McKinsey & Company. She is a

former Director of Prime Media Group and DMG Radio Australia.

Paul Gleeson (Non-Executive Director). Non-Independent.

Mr Gleeson has been a Director of TEN since February 1998. He is a member of the

Institute of Chartered Accountants in Australia. Mr Gleeson is Chairman of the

Audit/Risk/Treasury Committee and is also a member of the Nomination and

Remuneration Committees of the Company.

Dean Hawkins (Non-Executive Director). Independent.

Mr Hawkins is Chairman at Skins Consolidated Pty Ltd, the manufacturer of Skins sports

compression garments, and a strategic advisor to the media industry. He was previously

an executive director of Video Networks Limited ('VNL', UK's first IPTV platform) and an

executive director of Chello Media (a European broadband ISP and digital media

company). Mr Hawkins was appointed as a Director in March 2010.

Christine Holgate (Non-Executive Director). Independent.

Christine Holgate is presently Managing Director and Chief Executive Officer at

Blackmores Limited. Ms Holgate was previously Managing Director, Business Sales at

Telstra and Group Director of Strategy and Marketing at Energis, a European alternative

network operator. Ms Holgate has also served as Managing Director, Head of Marketing

and Communications for Europe, Middle East and Africa at JP Morgan. Ms Holgate was

appointed as a Director in March 2010.

Paul Mallam (Non-Executive Director). Independent.

Paul Mallam was appointed as a Director in December 2010. Mr Mallam has been one of

Australia's leading Telecom/Media/Technology legal practitioners for 20 years.

Paul Anderson (Chief Financial Officer)

Mr Anderson was appointed CFO in March 2011, having held various senior finance roles

at the company since he joined in 2003. Paul was previously a Chartered Accountant at

KPMG and held various senior finance roles at CLS Holdings plc in London for eight years

before moving to Australia.

27 November 2012


Jon Marquand (Chief Operating Officer)

Mr Marquand joined TEN as Commercial Director in November 2011 and was appointed

Chief Operating Officer in March 2012. He was previously Chief Operating Officer at Fox

Sports.

Neil Shoebridge (Director of Communications)

Mr Shoebridge joined TEN in February 2012. He previously worked at Fairfax Media in a

variety of roles, including Managing Editor of BRW and Marketing and Media Editor for

The Australian Financial Review.


Perpetual is no longer a substantial shareholder (previously had 14.8%).

Figure 364: TEN Substantial Shareholders


Bruce Gordon 10.2%

Gina Rinehart 10.0%

Lachlan Murdoch 8.9%

James Packer 8.9%

Lazard 7.8%

Colonial 5.0%

Source: Bloomberg

27 November 2012



27 November 2012



Prime Media Group (PRT.AX / PRT AU)

Benefiting from strong ratings at Seven

■ We initiate coverage of Prime Media Group (PRT.AX) with a NEUTRAL

rating and $0.86 per share target price.

■ Investment Case: Benefiting from strong ratings at Seven. Our

investment view is shaped by four considerations: 1) PRT’s regional

television business (95% EBITDA) is likely to maintain strong ratings and

revenue share in line with Seven’s investment in quality content. As a

sensitivity, every 1% change in Seven’s commercial revenue share has an

$8mn (3%) impact on sales, an 8% impact on EBITDA and 10cps impact on

our DCF valuation. 2) We expect a small escalation in PRT’s affiliate fee in

FY13 – a 1% lift will have a 4% impact on EBITDA and 5cps impact on our

DCF valuation. 3) PRT’s Queensland radio business should experience

some lift following weak market conditions in FY12. We expect the radio

business to be sold at some point over the medium term for $30-40mn (cash

proceeds likely to be used to reduce debt). 4) On 9x FY13 EPS, PRT looks

fair value.

■ Catalysts: Continued momentum in Seven’s ratings is key for PRT. We

expect Seven and PRT to continue momentum in ratings given the quality

content invested by Seven; AFL, V8 Supercars, Australian Open Tennis, The

X Factor, Australia’s Got Talent, My Kitchen Rules, How I Met Your Mother

and local productions including Packed To The Rafters and Winners and

Losers.

■ Valuation: We have a $0.86 per share target price. This is based on the

average of $1.00 per share DCF valuation (WACC 10%, terminal growth

1.5%) and 9x one year forward earnings of $0.77 per share. We apply a 3%

discount to our weighted valuation due to governance issues.


60

80

100

120

0

0.5

1

1.5

2








Year 06/12A 06/13E 06/14E 06/15E Revenue (A$mn) 268.8 279.3 286.3 293.7 EBITDA (A$mn) 68.6 63.5 64.1 64.9 EBIT (A$mn) 57.3 54.7 55.3 54.9 Net income (A$mn) 33.2 31.5 32.1 32.2 EPS (CS adj.) (Ac) 9.07 8.61 8.77 8.78 Change from previous EPS (%) n.a. — — — Consensus EPS (Ac) n.a. 9.10 9.50 10.20 EPS growth (%) 22.1 -5.1 1.9 0.1 P/E (x) 8.9 9.4 9.2 9.2 Dividend (Ac) 6.60 6.40 6.60 6.60 Dividend yield (%) 8.1 7.9 8.1 8.1 P/B (x) 1.9 1.8 1.7 1.6 Net debt/equity (%) 72.9 68.4 59.6 51.7



Rating NEUTRAL*

Price (27 Nov 12, A$) 0.81





Projected return:







Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

PR

T.A

X

27 November 2012



Prime Media Group (PRT) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$0.81 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating NEUTRAL c_EPS_SHARESEquiv. FPO (period avg.) mn 366.3 366.3 366.3 366.3 366.3


vs Share price % 6.17 EPS_GROWTH*100EPS Growth % 22.1 -5.1 1.9 0.1


c_DPS*100DPS c 4.5 6.6 6.4 6.6 6.6

c_PAYOUT*100Payout % 60.6 72.8 74.4 75.2 75.1





EBITDA 60.3 68.6 63.5 64.1 64.9 c_PE P/E x 10.9 8.9 9.4 9.2 9.2










Associates & Other (0.6) (1.2) 0.0 0.0 0.0 c_ROA*100Return on Assets % 7.3 9.2 8.7 8.6 8.4


Unusual item after tax (0.0) (5.5) 0.0 0.0 0.0 Gearing








Current assets 76.4 72.7 77.4 88.9 100.4 MSCI IVA (ESG) Rating


Intangibles 229.0 227.0 227.0 227.0 227.0


Non-current assets 295.2 288.1 286.4 284.6 282.6

Total assets 371.6 360.8 363.8 373.5 383.0

Payables 57.6 61.4 56.7 58.1 59.6


Other liabilities 7.5 13.9 13.9 13.9 13.9 MSCI IVA Risk:


Net assets 153.1 160.0 167.7 176.1 184.1

Ordinary equity 153.1 160.0 167.7 176.1 184.1






EBIT 49.3 57.3 54.7 55.3 54.9

Net interest -13.2 -10.2 -9.7 -9.4 -8.9

Depr & Amort -11.0 -11.4 -8.8 -8.8 -10.0

Tax paid -3.7 -6.4 -13.5 -13.8 -13.8

Working capital -3.3 -3.1 -7.6 -0.2 -0.2

Other 16.3 22.4 17.5 17.6 20.0


Capex -9.7 -13.2 -7.0 -7.0 -8.0


Capex - maintenance

Acquisitions & Invest 1.0 0.1 0.0 0.0 0.0


Other -1.7 -0.3 0.0 0.0 0.0

Investing cashflow 10.2 -9.6 -7.0 -7.0 -8.0

Dividends paid -12.8 -20.9 -23.8 -23.8 -24.2

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings -16.9 -26.0 0.0 0.0 0.0

Other -1.1 -2.6 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow -30.9 -49.5 -23.8 -23.8 -24.2 Absolute 3.8% 18.2% 26.6%

Total cashflow 13.7 -10.5 1.8 9.9 9.8 Relative 4.9% 16.8% 15.5%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash 13.7 -10.5 1.8 9.9 9.8 Source: Reuters 52 week trading range: 0.63-0.84

MSCI IVA Risk Comment: Not rated

26/11/2012 22:53

Prime Media Group Limited is an Australian company operating in the media industry within

Australia and New Zealand. The Company has four operating segments, being television

broadcasting, radio broadcasting, digital media and online platform.

Credit Suisse View

TP Risk Comment: While we have seen no indication that

Chairman and major shareholder Paul Ramsay will try to exert

undue influence on the compay, the lack of independence on

the Board is a cause for concern.

0.40

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15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

PRT.AX XJO

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Stock Local Sector



27 November 2012


Regional TV: Likely to maintain ratings in flat market

Regional TV represents 95% of group EBITDA

Ratings and revenue share highly leveraged to Seven’s performance

PRT sources the vast majority (~90%) of content from Seven. As such, ratings and

revenue share are highly correlated to Seven’s performance. PRT is the second largest

player in regional FTA TV commercial revenue share behind WIN with ~35% of the market,

although this is skewed by PRT’s absence from the Queensland market (where Seven

operates its own regional affiliate, Sunshine Broadcasting). In the markets in which it

operates, PRT’s revenue share is ~42%.

PRT’s All People commercial ratings share is ~39% in CY12. This compares to an

average of 36% over the past five years, mirroring Seven’s share gains. PRT’s ratings

(and consequently revenue share) typically lag Seven due to demographic differences

between metropolitan and regional areas (e.g. relative popularity of AFL and NRL).

Figure 366: PRT ratings share by market Figure 367: PRT agency revenue share

25%

30%

35%

40%

45%

PRT SXL WIN

Source: Regional TAM Source: SMI.

SXL and Win have 21% and 38% All People commercial share, respectively. This

compares to 23%–27% (SXL) and 36-39% (Win) ratings share achieved over the past two

years.

Figure 368: Regional commercial FTA All People audience

share

Figure 369: Regional TV advertising YoY change by

company

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

PRT / Seven WIN / Nine SXL

-20%

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-5%

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20%

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PRT WIN SXL


We expect PRT to continue to deliver strong ratings in the near term due to quality content

invested by Seven; AFL, V8 Supercars, Australian Open Tennis, The X Factor, Australia’s

Got Talent, My Kitchen Rules, How I Met Your Mother and local productions including

Packed To The Rafters and Winners and Losers.

27 November 2012


With Nine’s strengthened balance sheet, we expect continued quality content over the

next 12 months. Nine has secured the NRL rights and has a number of successful

programs such as The Voice that are likely to produce strong ratings performances. TEN’s

ratings and commercial revenue share will be determined by its ability to fund quality

content from offshore and deliver good locally produced programs.


A 1% change in PRT’s commercial revenue share has an $8mn (3%) impact on sales, an

8% impact on EBITDA and a 10cps impact on our DCF valuation.

Figure 370: Revenue share and Market growth impact on EBITDA ($mn) Market Growth

-5.0% -2.5% 0.0% 2.5% 5.0%

39% 40 43 47 51 54

40% 43 47 51 54 58

41% 47 51 54 58 62

42% 50 54 58 62 66

43% 54 58 62 66 70

44% 57 61 66 70 74

45% 61 65 69 73 78

Reven

ue S

hare


Affiliate agreement

We estimate PRT pays approximately 33% of its revenues to Seven as a result of the

affiliate agreement. There are likely to be small escalations at certain periods within the life

of the agreement. The affiliate agreement expires in July 2017.

A 1% escalation in the affiliate fee would have a 4% impact on EBITDA and 5cps impact

on our DCF valuation.





36% in the UK and 45% in the US. As Pay TV penetration gradually increases in Australia,




Cyclical fluctuations are likely to have a greater impact on PRT, in our view.


Spend


0%

10%

20%

30%

40%

50%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

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100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US


27 November 2012



Platform

0

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pay TV

Commercial FTA

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD

Metro FTA

Regional FTA

Pay TV


Radio: Asset sale likely

Radio represents 5% of group EBITDA. We do not expect the radio assets to be a long-

term strategic asset for PRT.

Pure exposure to Queensland radio

PRT operates various Queensland regional radio stations (including Zinc FM in Cairns,

Townsville, Mackay, Gladstone and the Sunshine Coast, 106.3 FM in Townsville and

HOT91 on the Sunshine Coast). It has ~5% share of the $325mn Australian regional radio

advertising market. This compares to SXL’s ~50% market share.


traditional media. Radio ad spend increased 2.3% in CY2011 and 0.7% CY2012 YTD.












Figure 375: Regional radio revenue share Figure 376: Radio Agency Ad Spend YoY Growth

0%

10%

20%

30%

40%

50%

60%

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

SXL PRT


27 November 2012


Potential asset sale for $30-40mn

PRT’s radio business generated EBITDA of $4.2mn in FY12. On 8.0x this implies an

enterprise value of $34mn. Proceeds from a potential sale of PRT’s radio business are

likely to be used to reduce debt.

Valuation

DCF

We have a DCF valuation of $1.00 per share (WACC 10%, terminal growth 1.5%).

Figure 377: PRT DCF Valuation

PV of FCF 302

Terminal value 176

Other 0.0


Net debt 117





Weighted valuation

Figure 378: PRT Weighted Valuation

DCF $ 1.00

9x one year forward PE $ 0.77

Weighted valuation $ 0.89

ESG discount 5%

Target price $ 0.86








results in a $0.73 per share valuation for PRT.

27 November 2012


PE Multiple

Figure 379: PRT one year forward PE Figure 380: PRT PE relative to All Ords Index (ex


0

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Risks

The key risks to our investment thesis for PRT are as follows:


change to EBITDA and a 10cps (10%) change to our DCF valuation.

■ Changes to Seven’s commercial revenue share. A 1% change in Seven’s commercial

revenue share has a $8mn (3%) impact on sales, a 8% impact on EBITDA and 10cps

(10%) impact on our DCF valuation.

■ Changes to the affiliate fee paid to Seven. A 1% escalation in the affiliate fee would

have a 4% impact on EBITDA and 5cps impact on our DCF valuation.


■ Governance issues (refer to ESG Issues section below).

ESG Issues

Environment issues

■ In our view there are no material environmental issues facing PRT.

Social issues

■ In our view there are no material social issues facing PRT.

Governance issues

■ Chairman Paul Ramsay is also the company’s largest shareholder, while the Board

has only two independent Directors. As a result there are potential concerns regarding

corporate governance.

Remuneration

■ Base salary: The fixed remuneration pool for key management personnel increased

8% to $2.59mn in FY12 partially due to the appointment of a General Counsel. The

CEO’s employment may be terminated by the Company by providing six months’

written notice. The Company may elect to provide six months’ payment in lieu of the

notice period, or a combination of notice and payment in lieu of notice.

27 November 2012


■ Short-term incentives: In FY 2012 the Group implemented changes to its STI

program based on advice from independent external consultants to ensure that the

award of a cash bonus is subject to the attainment of clearly defined Group, business

unit and individual measures. The targets consist of a number of key performance

indicators (KPIs) covering financial and non-financial, corporate and individual

measures of performance. The STI opportunity linked to financial measures covers a

range from 50% to 75% and varies depending upon each individual executive’s ability

to influence results at a group level and/or divisional level. STI payments are primarily

awarded on the basis of core NPAT (actual target not disclosed) and power ratio

(revenue share to audience share greater than 1).The STI pool was $1.05mn in FY12,

with 100% being awarded in cash bonuses.

■ Long-term incentives: LTI awards will be made annually to executives under the

Performance Rights Plan and are awarded on the same basis and have a three-year

vesting period. The proposed allocations in FY12 represented less than 0.4% of the

undiluted capital of the Group with a maximum income cost over a three-year period of

$735,805 (or $251,268 annualised). The performance rights are available over a 36-

month vesting period subject to continuing service and achieving the following targets:

60% of the rights will be subject to achievement of undisclosed annual core earnings

per share (EPS) targets; and 40% of the rights will be subject to achievement of an

annual power ratio greater than one. The exercise price of the performance rights is

nil. The rights will lapse 30 days after vesting date.

Board

■ PRT’s Board has extensive executive and Board-level experience in media and


■ Only two of the eight Directors are independent while Chairman Paul Ramsay is also

the company’s largest shareholder.

Figure 381: Board skill analysis for PRT

Name Position

Tenure


Former

CEO

ASX 200


Fees / pay

($k)

P.J. Ramsay AO Chairman 27.6 X No 75

M.S. Siddle Deputy Chairman 27.6 No 65

I.C. Audsley CEO 2.4 X X No 1,448

P.J. Evans FCA Non Exec 21.6 X No 70

A.A. Hamill Non Exec 9.1 X No 65

I.P. Grier AM Non Exec 4.4 Yes 65

I.R. Neal Non Exec 4.4 X Yes 65


Valuation impact

■ We have included a 3% ESG impact to our valuation for PRT. Paul Ramsay is

Chairman and major shareholder, with a 30% interest in PRT. While we have seen no

indication that Paul Ramsay will try to exert undue influence on the company, there is

a the lack of independence on the Board.


■ PRT is not currently rated by MSCI

27 November 2012


Appendix

Company Overview

Prime Media Group is a regional television and radio broadcaster. PRT is the regional

affiliate for the Seven Network across most of regional Australia, with a potential audience of

5.1mn people in Northern and Southern New South Wales, Victoria, the Gold Coast area of

eastern Queensland and all of regional Western Australia. The company also operates 10

commercial radio stations in Queensland (where it has no television operations).

Following the acquisition of Prime Radio (formerly the Queensland assets of Macquarie

Regional Radioworks), PRT remains heavily dependent on regional FTA television. The

company previously operated a loss-making New Zealand television broadcasting

business. PRT also has a small online segment which is not yet profitable.



Market Position

Regional TV

The Australian regional FTA TV industry is approximately $830mn, representing ~6.6%

share of total ad spend. As the regional affiliate to Network Seven, PRT is almost wholly

reliant on Seven for programming. Seven is the strongest of the three metro FTA networks

in terms of audience, and PRT is likewise the ratings leader among the regional networks.

PRT’s ratings tend to slightly lag those of Seven Metro and Sunshine Broadcasting (the

Queensland regional network owned and operated by SWM) due to differences in viewing

habits and demographics in regional areas (e.g. AFL and NRL ratings).


share


company

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


-20%

-15%

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-5%

0%

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10%

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20%

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PRT WIN SXL


27 November 2012


Regional Radio

The Australian regional radio advertising market is approximately $325mn. Competition is

significantly lower than in metropolitan areas, with many regions having virtual

monopolies. PRT’s Heritage talk radio stations based in Cairns, Rockhampton and

Mackay are the incumbent stations in each of their respective markets. The Zinc Network

classic rock stations in the same markets launched in 2008. On a national scale PRT is

not a major regional radio player with a total market share of less than 10% and its

network concentrated in northern Queensland.

History

Figure 386: PRT Key Milestones

Date Event

2005 Prime New Zealand sold to Sky Television for NZ$30m

2006 Regional radio stations acquired from Macquarie Regional Radioworks (now SXL)

2007 Acquired majority stake in production services company Becker Group in a deal

valuing the company at $26m (PRT eventually bought out the minorities in 2009

following a protracted takeover)

2009 $105m rights issue

2010 Disposes of production services assets. Current CEO Ian Audsley replaced Warwick

Syphers in the role.




-20%

-10%

0%

10%

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30%


15%

18%

21%

24%

27%

30%




-80%

-60%

-40%

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NPAT EPS

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27 November 2012



0%

5%

10%

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ROA ROE



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interest / EBITDA)


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27 November 2012




0.0x

1.0x

2.0x

3.0x

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5.0x

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1.0x

1.5x

2.0x

2.5x

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3.5x

4.0x





Market leader in regional TV No geographical overlap between

radio and TV assets

Possible takeover target if there is

a relaxation of the 75% audience

reach rule

Strong performance from Nine and

Ten affiliates

Affiliation with #1 metro TV

network

Highly leveraged to SWM’s ratings

with no input into programming

Renegotiation of affiliation

agreement with SWM

Dominant market position in most

radio markets

Increasing penetration of Pay TV




Regional TV High Medium Medium Medium Medium

Regional Radio High Low Medium Low Medium



Paul Ramsay (Chairman). Non-Independent.

Mr Ramsay is Chairman of Paul Ramsay Holdings Pty Limited, a major shareholder of the

Company. He is also the Chairman of Ramsay Health Care Limited, Australia’s largest

private hospital owner. Mr Ramsay has more than 45 years’ experience in real estate,

health care, media and communications.

Ian Audsley (CEO, Executive Director). Non-Independent.

Mr Audsley has had over 25 years’ experience in the television industry. He has held

various senior executive roles at Southern Cross Television, the Seven Network and the

Nine Network.

Michael Siddle (Non-Executive Deputy Chairman). Non-Independent.

Mr Siddle has been Deputy Chairman of Paul Ramsay Holdings Pty Limited since 1967.

He is also Deputy Chairman of Ramsay Health Care Limited and has been a Director of

the Company since 1985.

Peter Evans (Non-Executive Director). Non-Independent.

Mr Evans is a Chartered Accountant, and was in public practice for almost 20 years with

predecessor firms of KPMG. He has been a Director of Paul Ramsay Holdings Pty Limited

since 1987.

27 November 2012


Alexander Hamill (Non-Executive Director). Independent.

Mr Hamill has worked in marketing and advertising in Australia and globally for over 45

years. Mr Hamill was the Media Director of the Australian Olympic Team in Sydney (2000),

Athens (2004) and Beijing (2008).

Ian Grier (Non-Executive Director). Non-Independent.

Mr Grier was employed as an executive in the private health care industry for more than

20 years and held the position of Chief Executive Officer of Ramsay Health Care Limited

for 14 years until retiring in June 2008, when he continued as a Non-Executive Director of

that company.

Ian Neal (Non-Executive Director). Independent.

Mr Neal is a Chairman for the Executive Connection and consults on business strategy

and implementation from a perspective of maximising shareholder value. Prior to

establishing Management Abroad, Mr Neal was co-founder and Managing Director of

Nanyang Ventures Pty Limited from 1993 to 2004. Mr Neal’s professional background is in

financial markets, commencing as an equities analyst and moving through various banking

positions until establishing Nanyang Ventures Pty Limited.

John Palisi (Chief Financial Officer)

John Palisi joined Prime Media Group in February 2012 as Group Financial Controller and

was promoted to the position of Chief Financial Officer & Assistant Company Secretary on

1 October 2012. Mr Palisi is a chartered accountant with over 20 years’ experience and

spent the last 5 years prior to joining Prime as a Chief Financial Officer in the listed

environment.


Figure 401: PRT Substantial Shareholders


Paul Ramsay 30.0%

Perpetual 14.1%

Seven Group Holdings (SWW.AX) 11.4%

Investors Mutual 9.7%

Invesco 5.3%

Source: Bloomberg

27 November 2012



27 November 2012



Southern Cross Media Group

(SXL.AX / SXL AU)

A challenging FY13, upside to FY14

■ We initiate coverage of Southern Cross Media Group (SXL.AX) with an

UNDERPERFORM rating and $1.00 per share target price.

■ Investment Case: A challenging FY13, upside to FY14. Our investment

view is shaped by four considerations: 1) The acquisition of Austereo in 2011

has provided SXL with exposure to the dominant player in a robust metro

radio industry. We expect recent market share erosion to stabilise in 2H13

as SXL invests in content. We expect stronger metro radio earnings growth

in FY14. 2) There is a $15mn–$20mn p.a. synergy opportunity between

regional and metro radio. Synergies should primarily come from cost

reduction in sales, revenue upside as a result of increased scale and reach

and content sharing across networks. We expect implementation costs to

offset synergies in FY13. We see earnings upside from FY14. 3) Regional

TV ratings and revenue share are likely to remain subdued until TEN

increases its investment in quality content. We see risk around the

renegotiation of the television affiliate agreement with TEN in 2013. Every

1% escalation in the affiliate fee has a 1% impact on EBITDA and 2% impact

on our DCF. 4) We view corporate activity as unlikely in the near term due to

constrained balance sheets in the sector. A potential relaxation of the 75%

audience reach rule may spark interest from TEN, however they are in no

position to be acquiring assets at this point in our view.

■ Catalysts: Stabilisation in ratings key. Ratings stabilisation in metro radio

and regional television is key for SXL. Whilst SXL appears to be investing in

content for its metro radio business, improvement in regional TV will depend

on TEN’s ability to invest in quality content.


Sum of the Parts valuation of $1.00 per share.


60

80

100

120

140

0

1

2

3

4






Performance Over 1M 3M 12M Absolute (%) 5.9 -11.8 -3.1 Relative (%) 6.9 -13.3 -14.2






Price (26 Nov 12, A$) 1.09





Projected return:







Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

SX

L.A

X

27 November 2012



Southern Cross Media Group (SXL) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015



vs Share price % -7.83 EPS_GROWTH*100EPS Growth % 2.3 -0.3 3.1 4.7


c_DPS*100DPS c 10.0 10.0 10.0 10.0 10.0

c_PAYOUT*100Payout % 76.1 74.3 74.6 72.3 69.1





EBITDA 155.0 226.4 208.5 209.6 215.1 c_PE P/E x 8.3 8.1 8.1 7.8 7.5










Associates & Other 1.4 (0.7) 2.0 2.0 2.0 c_ROA*100Return on Assets % 2.5 3.8 3.8 3.9 4.0


Unusual item after tax 3.5 (13.5) 0.0 0.0 0.0 Gearing








Current assets 170.4 229.8 233.1 259.6 292.3 MSCI IVA (ESG) Rating BB

Property, plant & equip. 183.7 172.5 169.6 169.2 168.7 TP ESG Risk (%): 0

Intangibles 2,036.9 2,036.9 2,036.9 2,036.9 2,036.9



Total assets 2,406.2 2,474.9 2,477.3 2,505.4 2,539.6

Payables 111.1 118.2 103.7 104.8 107.4




Net assets 1,509.8 1,534.4 1,551.3 1,578.3 1,609.9

Ordinary equity 1,586.9 1,611.5 1,628.5 1,655.4 1,687.0






EBIT 132.7 195.9 183.6 187.1 192.3

Net interest -36.2 -55.8 -51.5 -50.7 -49.4

Depr & Amort -22.3 -30.5 -24.9 -22.5 -22.8

Tax paid -4.9 -23.2 -39.6 -40.9 -42.9

Working capital 0.5 13.3 -11.6 -0.3 -0.7

Other 56.2 51.1 49.8 45.1 45.6


Capex -21.0 -21.2 -22.0 -22.1 -22.4


Capex - maintenance

Acquisitions & Invest -720.2 0.0 0.0 0.0 0.0


Other 0.0 -0.3 0.0 0.0 0.0

Investing cashflow -741.2 -21.6 -22.0 -22.1 -22.4

Dividends paid -48.5 -56.4 -77.5 -70.5 -70.5

Equity raised 455.1 -1.3 0.0 0.0 0.0

Net borrowings 220.4 -6.0 0.0 0.0 0.0

Other -18.2 -0.1 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 608.8 -63.8 -77.5 -70.5 -70.5 Absolute 5.9% -11.8% -3.1%

Total cashflow -6.5 65.5 6.3 25.2 29.3 Relative 6.9% -13.3% -14.2%

Adjustments 0.0 0.0 0.0 0.0 0.0

Net change in cash -6.5 65.5 6.3 25.2 29.3 Source: Reuters 52 week trading range: 0.99-1.41

MSCI IVA Risk Comment: SXL has faced issues over high

profile employees in its metro radio division which has

resulted in its MSCI rating being downgraded from ‘A’ to ‘BB’.

Further issues could impact future ratings or incur legal costs,

however we believe that these risks are already incorporated

into the current rating.

26/11/2012 22:59

Southern Cross Media is a television broadcaster in regional markets in Australia and a

radio broadcaster in metropolitan and regional Australia.

Credit Suisse View

TP Risk Comment: SXL has encountered reputational

problems within its radio division in the past 12 months

caused by controversy surrounding on-air talent. We have not

quantified this risk as it is impossible to predict and we do not

believe it to be an ESG issue.

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

SXL.AX XJO

-1.0

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-0.7

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Stock Local Sector



27 November 2012


Metro Radio: Dominant player in a robust industry

Metro radio (Austereo) is the largest division, representing 40% of group revenues. Metro

radio has higher EBITDA margins relative to the regional businesses. Austereo was

acquired in 2011 for $730mn.

Market leader in metro radio

The Australian metropolitan radio advertising market is approximately $680mn. SXL is the

largest radio network with the highest commercial rating share across the five major

capital cities (refer Figure 403). Networks include Today and Triple M. SXL is the second

largest radio network in Sydney and Melbourne and the largest in Brisbane and Perth.

SXL is able to command a higher power ratio (proportion of revenue share to audience

share) due to its scale, reach and demographic mix (refer Figure 410).

We expect recent market share erosion to stabilise in FY13 as SXL invests in content.

Figure 403: Metropolitan radio 5 city audience share by

network (10+)

Figure 404: Metropolitan radio revenue share

5%

10%

15%

20%

25%

30%

35%

2010 2011 2012

SXL APN FXJ DMG MRN

0%

10%

20%

30%

40%

50%


SXL DMG APN FXJ

Source: Nielsen. Note: Revenue weighted by geography Source: SMI

Earnings growth outlook


traditional media. Radio ad spend increased 2.3% in CY2011 and 0.7% CY2012 YTD.

Figure 405: Australian Metro Radio Advertising Revenue Figure 406: Radio Agency Ad Spend YoY Growth

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

0

100

200

300

400

500

600

700

800

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Revenue ($m)


Source: CEASA Source: SMI






27 November 2012








Regional Radio: Synergy opportunity with metro

Regional Radio represents 24% of group revenues.

Dominant player in regional radio

The Australian regional radio advertising market is approximately $325mn. SXL is a clear

market leader across the majority of Australian regional areas in which it operates.

Figure 407: Regional radio commercial audience share Figure 408: Regional radio revenue share

Source: Nielsen. Note: Canberra stations are both JVs with ARN Source: SMI

Synergies from Austereo acquisition

We expect $15mn–$20mn synergies p.a. as a result of the Austereo acquisition in 2011.

The primary synergy is a reduction in selling costs. Greater scale should drive stronger

advertising dollars from a lower cost base. 27% of regional radio advertising is from

national advertisers. 67% of metro radio advertising is from national advertisers. There is

also the potential to share content across metro and regional platforms.

Regional TV: At the mercy of TEN

Regional TV represents 36% of group revenues.

Ratings and revenue share highly leveraged to TEN’s performance

SXL sources the vast majority (80%) of content from TEN. As such, ratings and revenue

share are highly correlated to Ten’s performance. SXL is the third player in regional FTA

TV commercial revenue share behind Prime (Seven affiliate) and Win (Nine affiliate).

SXL’s All People commercial share is 21%. This compares to 23%–26% over the past two

years. SXL’s ratings are typically lower than TEN due the older demographic in regional

areas versus TEN’s youth-oriented content. TEN’s loss of the AFL contract has also

impacted regional ratings.

27 November 2012


Figure 409: SXL ratings share by market Figure 410: SXL agency revenue share

25%

30%

35%

40%

45%

PRT SXL WIN

Source: Regional TAM Source: SMI

PRT/Seven and WIN/Nine have 41% and 38% All People commercial share. This

compares to 36%–40% (PRT/Seven) and 37%–39% (WIN/Nine) ratings share achieved

over the past two years.


share


company

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1

May

-11

Jun

-11

Jul-

11

Au

g-1

1

Sep

-11

Oct

-11

No

v-1

1

De

c-1

1

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

PRT WIN SXL


We expect Prime and Win to continue to deliver strong ratings in the near term due to

quality content invested in at Seven and Nine. SXL’s performance will be reliant on TEN’s

ability to fund quality content from offshore and deliver good locally produced programs. In

its FY12 result presentation, TEN highlighted its continued focus on programming. It will

draw key output deals with 20th Century Fox and CBS and fast track all appropriate US

content. News will continue to be a focus, albeit in a more efficient manner (by removing

duplication of news desks).


A 1% change in SXL’s commercial revenue share has an $8mn (1%) impact on SXL’s

revenue, a 4% impact on EBITDA and an 8cps (9%) impact on our DCF valuation.

Figure 413: TV Revenue Share and Market Growth Impact on EBITDA ($mn) Market Growth

-5.0% -2.5% 0.0% 2.5% 5.0%

21% 183 187 190 193 196

22% 189 193 196 199 203

23% 195 199 202 206 209

24% 201 205 208 212 216

25% 207 210 214 218 222

26% 212 216 220 224 228

27% 218 222 227 231 235

Reven

ue S

hare


27 November 2012


Affiliate agreement expiring 2013

We estimate SXL pays approximately 29% of its revenues to TEN as a result of the

affiliate agreement. This compares to an estimated 33% of revenues which Prime pays to

Seven as a result of its affiliate agreement.

SXL’s 10-year affiliate agreement with TEN expires in 2013. There is risk surrounding a

possible escalation in the revenue proportion paid to TEN, which we expect SXL to accept

given its limited ability to source content elsewhere. SXL may be able to negotiate a ‘seat

at the programming table’ as consolation for a higher affiliate fee. There may also be a

clause which matches affiliate fees with ratings, albeit unlikely in our view.

A 1% escalation in the affiliate fee would have a 1% impact on EBITDA and a 2cps (2%)

impact on our DCF valuation.


Increasing penetration of Pay TV in Australia will have a gradual impact on the FTA







Cyclical fluctuations are likely to have a greater impact on SXL, in our view.


Spend


0%

10%

20%

30%

40%

50%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US



Platform

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pay TV

Commercial FTA

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD

Metro FTA

Regional FTA

Pay TV


27 November 2012



Balance sheet stress testing

SXL has $610mn net debt. This represents 2.7x FY12 EBITDA. Figure 418 shows the

sensitivity of SXL’s gearing to changes in earnings.

Figure 418: Net Debt / EBITDA

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

150 160 170 180 190 200 210 220 230 240 250

EBITDA ($m)


Earnings sensitivity

A 1% change in SXL’s sales results in a 3% change to EBITDA, a 60cps change in EPS

and a 7cps (7%) change to our DCF valuation.

Valuation

Sum of the Parts

We have a Sum of the Parts valuation of $1.00 per share.

Figure 419: SXL Sum of the Parts Valuation

FY13F EBITDA

$M

Adj Adj EBITDA $M Multiple EV

Reg TV & Radio 120 0 120 6.0x 721

Metro Radio 91 0 91 6.0x 544

Gross Value 1,264

Less : Net Debt 610

Net Value 655

No. shares 705

Value/Share $ 1.00


Figure 420: SXL Comparable Companies

P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F

CBS 15.8x 13.0x 11.5x 7.9x 7.1x 6.7x

Fuji Media 5.7x 7.4x 9.9x 4.9x 4.4x 5.6x

TF1 10.2x 12.4x 12.9x 5.2x 6.3x 6.7x

Cumulus n.a 12.6x 8.1x 7.9x 7.5x 7.0x

Saga 12.5x 10.9x 11.1x 6.4x 6.1x 6.2x

Average 10.6x 11.4x 10.6x 6.5x 6.3x 6.5x


DCF

We have a DCF valuation of $1.00 per share (WACC 11%, terminal growth 1.5%).

27 November 2012


Figure 421: SXL DCF Valuation

PV of FCF 748

Terminal value 534

Other 0.0


Net debt 610











results in a $1.46 per share valuation for SXL.

PE Multiple

Figure 422: SXL one year forward PE Figure 423: SXL PE relative to All Ords Index (ex


4

6

8

10

12

14


0.0

0.2

0.4

0.6

0.8

1.0



Risks

The key risks to our investment thesis for SXL are as follows:

■ Changes to advertising spend in Australia. Approximately 93% of SXL’s total revenues

are derived from advertising. A 1% change in advertising revenue results in a 3%

change to EBITDA, a 5% change in EPS and a 6cps (6%) change to our DCF

valuation.

■ Changes to TEN’s commercial revenue share. A 1% change in TEN’s commercial

revenue share has a $8mn (1%) impact on SXL’s revenue, a 4% impact on EBITDA

and a 8cps (9%) impact on our DCF valuation.

■ Changes to the affiliate agreement with Ten which expires in 2013. A 1% escalation in

the affiliate fee would have a 1% impact on EBITDA and a 2cps (2%) impact on our

DCF valuation.

■ Changes to SXL’s gearing.

27 November 2012




ESG Issues

Environment issues

■ In our view there are no material environmental issues facing SXL.

Social issues

■ In our view there are no material social issues facing SXL.

Governance issues

■ SXL has faced issues over high profile employees in its metro radio division which

could impact future ratings or incur legal costs. Due to the nature of its business,

which relies heavily on on-air talent, completely mitigating these risks is very difficult.

Remuneration

■ Base salary: Base pay for executives is reviewed annually to ensure the executive’s

pay is competitive with the market. As part of this review process, external

remuneration consultants are engaged from time to time to provide analysis and

advice to ensure base pay is set to reflect the market for a comparable role. An

executive’s pay is also reviewed on promotion. Total base salaries for key

management personnel were $3.04mn in FY12. CEO Rhys Holleran received fixed

remuneration of $700,000, unchanged from FY11.

■ Short-term incentives: Each year the Nomination and Remuneration Committee sets

the Key Performance Indicators (“KPIs”) for executives, which are designed to directly

align the individual’s STI reward to the KPIs of the Group and to its strategy and

performance. STIs are awarded primarily based on EBITDA performance (segment

and group) against budget. The senior executive group received an aggregate bonus

of $483,000 in FY12, with Mr Holleran receiving $230,000 (FY11: $300,000).

■ Long-term incentives: The long-term incentive (“LTI”) is an “at risk” bonus provided

in the form of shares and is designed to reward senior executives for meeting or

exceeding Total Shareholder Return (“TSR”) performance over a two- to four-year

period (one-third at the end of each relevant period). Between the 51st and 75

th

percentile against a selected group of media and related listed companies,

performance rights will vest on a linear basis from 50% of award to 100% award. In

June 2010 the Board approved the introduction of an executive long-term incentive

plan, to commence on 1 July 2010, which provided for the CEO and senior executives

to receive grants of performance rights over ordinary shares, for nil consideration. The

senior executive group received an aggregate LTI award of $555,000 in FY12, with Mr

Holleran receiving $253,000 (FY11: $126,000).

Board

■ SXL’s Board has extensive executive and Board-level experience in media, legal and

financial services

■ Four of the seven directors are independent, including the Chairman (although Max

Moore-Wilton does have links to majority shareholder Macquarie Group through his

role as Chairman and former CEO of Macquarie Airports)

■ 41.4% of votes were cast against the re-election of the Chairman at the FY12 AGM. A

significant number of shareholders also opposed the re-election of Leon Pasternak

and Michael Carapiet to the Board, with business underperformance cited as the

reason behind the large no votes.

27 November 2012


Figure 424: Board skill analysis for SXL

Name Position

Tenure


Former

CEO

ASX 200


Fees / pay

($k)

Max Moore-Wilton Chairman 5.7 X X Yes 250

Leon Pasternak Deputy Chairman 7.1 X Yes 162

Chris de Boer Non Exec 7.1 X Yes 156

Tony Bell Non Exec 4.6 X Yes 149

Michael Carapiet Non Exec 2.6 X No 125

Peter Harvie Non Exec 1.3 X X No 1,484

Marina Darling Non Exec 1.1 X X X Yes 110


Valuation impact

■ We have included 0% ESG impact to our valuation for SXL. SXL has encountered

reputational issues within its radio division in the past 12 months caused by

controversy surrounding on-air talent. We have not quantified this risk as it is

impossible to predict and we do not believe it to be an ESG issue.


■ We have a Neutral outlook on the MSCI IVA rating for SXL. SXL has faced issues

over high profile employees in its metro radio division which has resulted in its MSCI

rating being downgraded from ‘A’ to ‘BB’. Further issues could impact future ratings or

incur legal costs, however we believe that these risks are already incorporated into the

current rating.

Figure 425: MSCI IVA rating for SXL: BB


27 November 2012


Appendix

Company Overview

SXL owns a portfolio of media assets including regional free-to-air television, regional

radio, metropolitan radio and online entertainment across Australia. SXL is the regional

affiliate for Network Ten across all four aggregated regional markets and is the largest

regional radio operator in Australia. Following the bankruptcy of American Consolidated

Media in late 2009, SXL operated only in Australian regional areas until the 2011

acquisition of Austereo. The acquisition of Austereo has made SXL the largest

metropolitan radio broadcaster in the country. The Group now trades as Southern Cross

Austereo. SXL was listed on the Australian Securities Exchange on 17 November 2005

and was formerly known as Macquarie Media Group.

Figure 426: Revenue mix (FY09) Figure 427: Revenue mix (FY12)


An overview of SXL’s operations following the Austereo acquisition is shown in Figure 428.

Figure 428: SXL operations


27 November 2012


Market Position

Regional TV

The Australian regional FTA TV industry is approximately $830mn, representing ~6.6%

share of total ad spend. As the regional affiliate to Network Ten, SXL is almost wholly

reliant on TEN for programming, sourcing 80% of content from TEN. With TEN the

weakest of the three metro FTA networks in terms of audience, SXL has historically had

the smallest market share among the regional networks. SXL’s ratings typically lag those

of TEN Metro by two to three share points due to differences in viewing habits and

demographics in regional areas.


share


company

20%

25%

30%

35%

40%

45%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1

May

-11

Jun

-11

Jul-

11

Au

g-1

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Sep

-11

Oct

-11

No

v-1

1

De

c-1

1

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

PRT WIN SXL


SXL’s regional ratings and revenue share varies by market.

Figure 431: Regional commercial FTA share Qld Figure 432: Regional commercial FTA share Nth NSW

Source: Regional TAM Source: Regional TAM

27 November 2012


Figure 433: Regional commercial FTA share Sth NSW Figure 434: Regional commercial FTA share VIC

Source: Regional TAM Source: Regional TAM

Metro Radio

The Australian metropolitan radio advertising market is approximately $680mn. Radio

broadcasting achieves significant exposure with 95% of all Australians listening to the

radio each week. The concentration of Australia’s population in metro areas allows metro

radio to reach over 60% of the country’s population every week. The commercial metro

radio audience has 8.6mn+ consumers tuned into commercial radio each week, a

proportion that is relatively unchanged year on year (with absolute growth trending with

population growth).

SXL is the largest radio network with the highest commercial rating share across the five

major capital cities. Networks include Today and Triple M. SXL is the second largest radio

network in Sydney and Melbourne and the largest in Brisbane and Perth.

SXL’s audience is a younger demographic, with its flagship Today network most popular

among the 18–24 and 25–39 demographics favoured by advertisers. Due to a combination

of both its demographic mix and the scale and reach SXL offers across all five capital

cities, the company is able to command a high power ratio (proportion of revenue share to

audience share).


network (10+)


5%

10%

15%

20%

25%

30%

35%

2010 2011 2012

SXL APN FXJ DMG MRN

0%

10%

20%

30%

40%

50%


SXL DMG APN FXJ


Regional Radio

The Australian regional radio advertising market is approximately $325mn. SXL is a clear

market leader across the majority of Australian regional areas in which it operates, with

audience shares in excess of 60% in three of the four major regional centres (SXL does not

have a presence in Wollongong). Although little data is available for smaller regional areas,

in many cases SXL has a monopoly or near-monopoly position in commercial FM radio.

27 November 2012




History

Figure 439: SXL Key Milestones

Date Event

2004 Macquarie Bank acquires RG Capital Radio and DMG Digital Radio

2005 IPO as Macquarie Media Group (MMG). Acquired majority interest in Taiwan

Broadband Communications (TBC)

2007 MMG acquires Southern Cross Broadcasting for $1.35bn

2008 MMG sells TBC stake for $400mn

2009 American Consolidated Media (ACM) breaches debt covenants and is taken over by

senior lenders in a debt-for-equity swap. $294mn Rights Issue to reduce debt.

2010 Company renamed Southern Cross Media Group (SXL)

2011 Austereo acquisition for $730mn




-5%

0%

5%

10%

15%

20%

25%

FY10 FY11 FY12

Actual Pro forma

25%

27%

29%

31%

33%

35%

FY09 FY10 FY11 FY12

Actual Pro forma



-60%

-40%

-20%

0%

20%

40%

60%

FY10 FY11 FY12

NPAT EPS

-9%

-6%

-3%

0%

3%

6%

9%

FY10 FY11 FY12



27 November 2012



0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

FY09 FY10 FY11 FY12

0%

2%

4%

6%

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12%

14%

FY09 FY10 FY11 FY12

ROA ROE



0%

10%

20%

30%

40%

50%

60%

70%

80%

FY09 FY10 FY11 FY12

0%

20%

40%

60%

80%

100%

120%

140%

FY09 FY10 FY11 FY12



interest / EBITDA)


0%

20%

40%

60%

80%

100%

120%

140%

FY09 FY10 FY11 FY12

$0m

$5m

$10m

$15m

$20m

$25m

$30m

$35m

FY09 FY10 FY11 FY12





0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

FY09 FY10 FY11 FY12


calendarised

27 November 2012





Market leader in metro radio Highly leveraged to TEN’s ratings

with no input into programming

schedule

Improvement in ratings opportunity Strong performance from Seven

and Nine affiliates

Dominant position in regional radio Recent market share decline in

metro radio

Potential synergies following

Austereo acquisition

Renegotiation of affiliation

agreement with TEN

Gearing higher than desired Possible takeover target if there is

a relaxation of the 75% audience

reach rule

Increasing penetration of Pay TV

Increasing competition in metro

radio




Regional TV High Medium Medium Medium Medium

Metro Radio High High Medium Low Medium

Regional Radio High Medium Medium Low Medium



Max Moore-Wilton (Chairman). Independent.

Mr Moore-Wilton was appointed chairman of SXL (previously MMG) in February 2007 and

is also chairman of Map Airports Limited, chairman of Sydney Airport Corporation Limited

and deputy chairman of the supervisory board of Copenhagen Airports A/S. Prior to this,

Mr Moore-Wilton was secretary to the Department of Prime Minister and Cabinet from May

1996 and has also held positions as either chairman or board member of a number of

major Commonwealth and State business enterprises, and in regulated businesses.

Leon Pasternak (Deputy Chairman). Independent.

Mr Pasternak is Vice Chairman and Managing Director of mergers and acquisitions at

Merrill Lynch. He was previously a practising solicitor and was appointed as a partner at

Freehills in 1987, specialising in mergers and acquisitions, public offerings and corporate

reorganisations.

Tony Bell (Non-Executive Director). Independent.

Mr Bell has more than 30 years’ experience in the Australian radio and free-to-air

television industry. Mr Bell was managing director of Southern Cross Broadcasting

(Australia) Limited from 1993 to 2007 and has previously held appointments as chairman

and director of Commercial Radio Australia (formerly FARB), a director of Free TV

Australia and chairman of Regional Broadcasters Australia.

Chris De Boer (Non-Executive Director). Independent.

Mr de Boer has had careers in banking, business consulting, stockbroking and direct

investment and has experience in takeover regulation both domestically and internationally.

Mr de Boer is the chairman of the audit and risk committee of Southern Cross Media

Group.

Michael Carapiet (Non-Executive Director). Independent.

Prior to his retirement in July 2011, Mr Carapiet was the executive chairman of Macquarie

Capital and Macquarie Securities Group.

27 November 2012


Peter Harvie (Non-Executive Director). Independent.

Mr Harvie was appointed as a director of SXL in August 2011. He was previously the

executive chairman of Austereo Group Limited from 1997 until its acquisition by SXL and

has more than 35 years’ experience in the Australian media industry.

Marina Darling (Non-Executive Director). Independent.

Ms Darling is currently a non-executive director of listed company Argo Investments

Limited and has previously been a non-executive director of a broad range of listed

companies, government bodies and other organisations. These have included Southern

Cross Broadcasting Limited, Deacons (Lawyers), National Australia Trustees Limited and

Southern Hydro Limited.

Rhys Holleran (Chief Executive Officer)

Mr Holleran assumed CEO responsibility of SXL in February 2010. Mr Holleran has a 22

year history in a variety of media roles, including Managing Director of RG Capital Radio

from 1997 – 2004. Mr Holleran previously held the role of CEO of Macquarie Southern

Cross Media from November 2007.

Steve Kelly (Chief Financial Officer)

Mr Kelly was appointed CFO of SXL in March 2010 following MMG’s recapitalization and

internalisation. Mr Kelly previously held the position of CFO of SMS Management and

Technology.

Jeremy Simpson (National Sales Director)

Mr Simpson was appointed to the newly created role in June 2011 following the

combination of Austereo and Southern Cross Media’s sales units. He was previously

group national sales director at Southern Cross Media.

Guy Dobson (Chief Content Officer)

Mr Dobson was the chief executive of Austereo Group Limited prior to its acquisition by

SXL. He served as head of the metropolitan radio division before being appointed to the

newly created role of Chief Content Officer in August 2012.


Figure 454: SXL Substantial Shareholders


Macquarie 25.5%

JCP 6.7%

Allan Gray 6.1%

Colonial 5.0%

Source: Bloomberg

27 November 2012



27 November 2012



Seek (SEK.AX / SEK AU)

Lower employment to weigh on FY13

■ We initiate coverage of Seek (SEK.AX) with an UNDERPERFORM rating

and $6.93 per share target price.

■ Investment Case: Lower employment to weigh on FY13. Our investment

view is shaped by four considerations: 1) SEK’s share price is highly

correlated with Australian employment and online job ads, with ~80%

EBITDA derived from the domestic employment business. The continuation

of subdued corporate investment and growth is likely to result in flat-to-

negative job ad volume growth in SEK’s core employment business in FY13.

2) Lower employment in SEK’s international businesses also appears likely.

Chinese GDP growth has moderated over the past year. We expect SEK to

consolidate its current investments in the near-to-medium term and increase

its exposure to international markets. Further acquisitions are possible over

the longer term, in our view. 3) Seek is the dominant player in Australia with

proven success offshore. SEK has the number one or two position in

international markets. This dominant position should enable pricing power

and yield expansion over the medium term. We expect some yield expansion

in FY13, which would provide an offset to weaker volumes. 4) SEK’s

Education businesses provide some cyclical diversification, however with the

Education businesses around one-quarter the size of the domestic

employment business, it provides little offset in its current form.

■ Catalysts: Australian labour market changes. SEK’s share price is highly

correlated to Australian online job ads and the inverted unemployment rate.

As such, ANZ job ads or lead indictors to Australian unemployment provide

important catalysts for SEK.


Sum of the Parts valuation of $6.93.


60

80

100

120

4

6

8

10






Performance Over 1M 3M 12M Absolute (%) 1.0 -4.6 20.1 Relative (%) 2.1 -6.1 9.0


Year 06/12A 06/13E 06/14E 06/15E Revenue (A$mn) 442.3 579.2 631.1 687.7 EBITDA (A$mn) 193.6 236.0 265.2 302.6 EBIT (A$mn) 169.0 202.0 229.9 265.9 Net income (A$mn) 126.4 142.1 173.5 210.4 EPS (CS adj.) (Ac) 37.39 41.86 51.13 61.98 Change from previous EPS (%) n.a. — — — Consensus EPS (Ac) n.a. 42.90 50.80 59.30 EPS growth (%) 20.6 12.0 22.1 21.2 P/E (x) 18.2 16.3 13.3 11.0 Dividend (Ac) 17.30 20.80 25.00 30.10 Dividend yield (%) 2.5 3.0 3.7 4.4 P/B (x) 5.8 4.7 3.9 3.2 Net debt/equity (%) 29.3 10.7 net cash net cash




Price (26 Nov 12, A$) 6.82





Projected return:







Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

SE

K.A

X

27 November 2012



Seek (SEK) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015





c_DPS*100DPS c 14.3 17.3 20.8 25.0 30.1

c_PAYOUT*100Payout % 46.1 46.3 49.7 48.9 48.6





EBITDA 143.6 193.6 236.0 265.2 302.6 c_PE P/E x 22.0 18.2 16.3 13.3 11.0










Associates & Other 1.0 (5.8) (12.2) (14.2) (16.3) c_ROA*100Return on Assets % 10.8 9.1 9.4 10.6 11.7



Reported NPAT 104.6 126.4 142.1 173.5 210.4 c_GEARING*100Net Debt to Net debt + Equity % 29.0 22.6 9.7 Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 1.2 1.2 0.4 Net Cash Net Cash






Current assets 160.6 161.8 277.3 393.8 534.1 MSCI IVA (ESG) Rating A


Intangibles 463.3 984.5 969.6 954.8 939.9


Non-current assets 809.8 1,229.9 1,234.7 1,247.7 1,260.8

Total assets 970.4 1,391.7 1,512.0 1,641.5 1,794.9

Payables 43.6 57.0 73.5 80.9 88.2




Net assets 434.1 771.1 874.9 997.0 1,143.1

Ordinary equity 311.2 399.5 491.1 599.1 728.8



Total shareholder funds 434.1 771.1 874.9 997.0 1,143.1

Net debt 177.0 225.7 93.7 -17.9 -153.3 Source: MSCI IVA Rating


EBIT 130.0 169.0 202.0 229.9 265.9

Net interest -12.7 -17.2 -21.6 -18.0 -14.5

Depr & Amort 13.6 24.6 22.1 24.4 25.0

Tax paid -32.2 -41.8 -56.7 -65.7 -77.6

Working capital 8.5 -9.4 33.0 2.5 2.4

Other 1.0 16.1 11.9 10.9 11.7


Capex -8.4 -8.7 -8.0 -10.5 -11.1


Capex - maintenance



Other -235.7 -142.9 11.6 14.7 26.0

Investing cashflow -244.1 -151.6 3.6 4.2 14.9

Dividends paid -45.4 -56.7 -62.4 -76.5 -92.4

Equity raised 0.0 2.6 0.0 0.0 0.0

Net borrowings 178.7 41.8 0.0 0.0 0.0


Financing cashflow 194.2 4.1 -62.4 -76.5 -92.4 Absolute 1.0% -4.6% 20.1%

Total cashflow 58.3 -6.2 132.0 111.6 135.4 Relative 2.1% -6.1% 9.0%

Adjustments 0.3 0.7 0.0 0.0 0.0


MSCI IVA Risk Comment: SEK has been downgraded to 'A'

from 'AA' despite the company continuing to perform well

across the key issues. We so no reason that SEK should have

been downgraded given that its social policy and governance

have not changed in our view.

26/11/2012 23:33

SEEK Limited is an Australia-based company engaged in advertising employment

classifieds and related services on the Internet, and provision and distribution of vocational

training and higher education courses.

Credit Suisse View

TP Risk Comment: SEK's increasing expansion into offshore

markets could expose it to higher ESG risk in the future.

However given that the vast majority of value in our DCF-

derived Target Price is attributable to its Australian

employment business we do not currently factor any ESG risk

into our Target Price.

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

8.00

15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

SEK.AX XJO

-1.0

-0.9

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0


Stock Local Sector



27 November 2012


Dominant player in local and international markets

Dominant and entrenched market position in the core Australian market

The Australian employment classifieds market is a $400mn–$500mn market (online

~$250mn, print ~$150mn–$250mn). Seek is the dominant player with an estimated 90%

online classifieds market share (45%–55% share overall). Career One (owned by News

Corporation) and My Career (owned by Fairfax) are the #2 and #3 players online, although

it is difficult to separate their digital revenues from those of their affiliated print publications.

We expect Seek to maintain its dominant market position for several reasons:

■ SEK has strong brand recognition and a strong job seeker following.

■ SEK has superior IP, technical expertise, flexibility and innovation.

■ SEK has the highest level of inventory and traffic. As shown in Figure 456, SEK’s job

inventory is multiples of its nearest competitors. Its lead in web traffic is even greater

(see Figure 457). SEK’s leadership in both promotes a virtuous circle whereby high

inventory attracts jobseekers, and high web traffic incentivises employers to place ads

on the SEK website.

Figure 456: Australian Online Job Classifieds Inventory

(Month End Job Ads)

Figure 457: Australian Online Job Classifieds Web Traffic

(Monthly UVs)

0

50,000

100,000

150,000

200,000

250,000

Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12

Seek CareerOne MyCareer

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Seek CareerOne MyCareer

Source: Company websites Source: Company websites

Proven success offshore

SEK has actively pursued international expansion in high growth markets since IPO. Its

investments have invariably followed a similar theme, with each acquisition being of an

established business with the number one or number two position in the market and a

focus on high growth economies with significant potential upside in Internet penetration

and the transition of classifieds from print to online.

Figure 458: Overview of SEK International Businesses

Business Country Mkt Position Pop (m) Internet Pen Labour Force (m) GDP Growth

Seek NZ New Zealand #1 4 78% 2 2.0%

Brazil Online Brazil #1 203 37% 104 2.8%

Zhaopin China #2 1,337 36% 816 9.5%

OCC Mexico #1 114 29% 48 3.9%

JobsDB Indonesia #1 246 16% 117 6.4%

JobsDB Hong Kong #1 7 78% 4 6.0%

JobsDB Singapore #1 5 90% 3 5.3%

JobsDB Thailand #1 67 27% 39 1.5%

JobStreet Malaysia #1 29 59% 12 5.2%

JobStreet Philippines #1 102 29% 40 4.7%

Source: Company data, Gartner, CIA World Factbook

27 November 2012


SEK is the number one player in New Zealand with ~65% market share of the ~NZ$40mn

online employment classifieds market. Trade Me is the #2 player online, with ~30% market

share. The New Zealand online classifieds market is less mature than Australia’s, with

over half of employment classifieds expenditure still going to print.

SEK has a 56% stake in Chinese employment website Zhaopin (through SEEK Asia).

Zhaopin is considered a strong number two player in the fast-growing Chinese market,

however as shown in the figures below, it has surpassed market leader 51Job in terms of

both web traffic and job ad volume. Zhaopin holds the number one position in a number of

second tier cities (particularly in the North) while 51Jobs is more concentrated in the larger,

more developed cities such as Shanghai and Beijing. Zhaopin has invested heavily in

sales and IT infrastructure in order to support growth, and has increased focus on online

revenue (now ~80% of total revenue).

Figure 459: Chinese Job Ad Inventory (Month End ‘000s) Figure 460: Chinese Employment Website Traffic (Monthly

UBs)

Source: iResearch Source: iResearch

Brazil Online (a 51% owned subsidiary) is the clear market leader in Brazil through its

Catho website (Brazil Online also operates the executive-level focused Manager Online).

Brazil Online is a good example of SEK’s strategy in leveraging its international expertise:

traditionally, Brazilian employment websites (including Catho and Manager Online)

operated via a jobseeker-pays model. SEK has been able to gain market share and drive

revenue growth in a soft macro environment by transitioning to an employer-pays model in

less candidate rich segments.

Figure 461: Brazil Online Inventory Figure 462: Brazil Employment Sites: Share of Web Traffic

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000


OCC (57% owned subsidiary in Mexico) is another example of a typical SEK investment.

OCC is the dominant market leader in Mexico, with the resultant brand awareness and

pricing power enabling SEK to boost yields via more efficient pricing models and an

improved product platform.

27 November 2012


Figure 463: Mexican Job Ad Inventory (Month End ‘000s) Figure 464: Mexican Employment Website Traffic

(Monthly UBs)


We expect SEK to consolidate its international investments over time. There is the

potential for SEK to drive significant growth in its international businesses, as well as the

potential to enter new markets.

Seek Australia: lower volumes offset by yield growth

The core employment business includes Seek and Seek Commercial in Australia and

Seek NZ in New Zealand. The core employment business contributed ~80% group FY12

EBITDA.

We expect lower employment to weigh on volumes in FY13

SEK’s share price is highly correlated to Australian online job ads and Australian

employment. Lower employment results in lower online job ads for Seek. Refer Figure 465

and Figure 466.

Seek reported 1% volume growth in FY12 versus a -4% decline in the overall online job

market as reported by ANZ new job ads. A weak consumption environment coupled with

subdued corporate investment is likely to result in the continuation of low or negative job

ad growth in FY13. Online job ads declined 4.6% MoM and 14.4% YoY in October 2012,

representing the seventh consecutive monthly decline. Financial year-to-date average

weekly online job ads have fallen ~11% YoY as reported by ANZ new job ads. We

forecast 0% volume growth for Seek in FY13 and 2% volume growth in FY14.

A 1% change in Australian online job ads has a 0.4% impact on SEK’s sales and results in

a 1% change to EBITDA, a 0.5cps change to EPS and a 1% change to our DCF valuation.

Figure 465: Australian Online Job Ads v Unemployment

Rate (inverted)

Figure 466: SEK Share Price v Australian Online Job Ads

4.0%

4.4%

4.8%

5.2%

5.6%

6.0%0

50,000

100,000

150,000

200,000

250,000

300,000

Online Job Ads Unemployment rate (RHS)

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

100,000

140,000

180,000

220,000

260,000

300,000

Online Job Ads SEK share price (RHS)

Source: ANZ Source: Bloomberg, ANZ. Note: Trend break in online job ads in April

2010 due to a change in reporting

27 November 2012


Some medium-term volume growth from Government job ads

There has been a significant shift from print employment classifieds to online. Online now

represents 50%–60% of total employment classifieds by value, ~90% by volume. There is

some upside from conversion of Government job classifieds from print to online.

Considerable yield opportunity

Most of the future growth in the core Seek employment business is likely to come from

yield.

In FY12, Seek reported 10% yield expansion. This compares to an average 12% yield

expansion since FY04. Refer Figure 467.

Figure 467: Seek Australia Historic Volume and Yield Growth


We are forecasting 9% yield expansion in FY13 and 7.5% yield expansion in FY14. We

expect yield growth to be driven by several factors over the medium term:

■ Price growth. There is still a substantial price differential between print and online. We

expect this differential to narrow over time without having an impact on Seek’s market

share.

■ Mix shift. Seek’s revenue is primarily derived from Recruiters (55% volumes) who pay

a 12-month subscription for a large volume of ads at a discount. Corporates represent

20% volumes where revenues are derived from subscriptions and/or smaller ad

packages. SMEs represent 20% volumes and pay per individual ad (at a premium).

Government represent 5% volumes. We expect mix shift towards SMEs as companies

increase their direct advertising rather than via recruiter. Exposure to Government is

also likely to grow as this category migrates to online. This would increase the

cyclicality of Seek’s revenues however more individual ads would elicit higher yield.

■ Premium services. We expect Seek to introduce tiered pricing as well as differentiated

and tailored offerings for customers – which can demand a premium.

■ New products. With the rise of social networking sites such as LinkedIn, we believe

Seek is likely to focus on building new products to more effectively compete with new

entrants. For example Seek’s JobSeeker product lodges a job seeker’s resume and

then the job finds the candidate.

Scenarios

Our mid-case scenario assumes 0% volume growth and 7.5% yield growth on average

p.a. for the next five years. We assume 4% cost growth. This produces core employment

EBITDA of $239mn in FY17. On 12x this represents $1.8bn enterprise value.

27 November 2012


Figure 468: Employment Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

Aus Volume '000 2,558 2,312 2,558 2,824

Aus Yield $ $ 86 $ 110 $ 124 $ 139

Australian Revenues $mn 221 254 317 392

NZ Volume '000 190 172 190 210

NZ Yield $ $ 104 $ 133 $ 149 $ 167

NZ Revenues $mn 20 23 28 35

New Products $mn 8 10 11 12

Total Revenues $mn 248 287 356 439

Total Costs $mn 96 111 117 122

EBITDA $mn 152 176 239 317


EBITDA Margin % 61% 61% 67% 72%

PV EBITDA $mn 152 109 149 197

Multiple x 12.0 12.0 12.0 12.0

Enterprise Value $mn 1,825 1,310 1,783 2,364

Source: Company data, Credit Suisse estimates. Assumptions are +/-2% volume growth, 5-10% yield growth, 5-10% new product growth and 3-

5% cost growth.

International Employment: Long-term growth

potential, short-term impacted by fewer jobs

The International Employment business includes a 69% stake in Seek Asia (which owns

an 80% stake in JobsDB, 56% stake in Zhaopin and 22% stake in JobStreet), a 51% stake

in Brazil Online and 57% stake in Online Career Centre (OCC) Mexico.

Lower employment in international markets

China is one of SEK’s core international markets. GDP growth has moderated in China

over the past year. As a result, employment conditions are likely to deteriorate, particularly

given that China remains a labour surplus country. This would weigh on SEK’s

international employment volumes despite rising Internet penetration. Total online ad

volume at the ‘big three’ (Zhaopin, 51Job and ChinaHR) expanded 6% in FY12, down from

26% a year earlier.

Figure 469: Chinese GDP Growth (YoY % Change) Figure 470: Chinese Labour Gap (Demand – Supply) in

Millions

0%

2%

4%

6%

8%

10%

12%

-12m

-10m

-8m

-6m

-4m

-2m

0m

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source: National Bureau of Statistics of China Source: UN, ILO, China Labour Statistics Yearbook, Credit Suisse

estimates

27 November 2012


Assessing the growth opportunity

We see considerable growth opportunity in SEK’s international businesses. Over the past

five years SEK’s international employment businesses have grown from a net investment

of -A$7mn aggregate (assuming 100% ownership) EBITDA to +A$103mn aggregate

EBITDA (assuming 100% A$EBITDA for all businesses). Refer Figure 471.

Figure 471: International Employment Aggregate EBITDA (A$mn)

Source: Company data. Aggregate EBITDA assumes 100% ownership.

We expect further growth in the international businesses to come from 1) increasing

Internet penetration, 2) a large labour force and 3) strong GDP growth.

Figure 472: Internet penetration international markets Figure 473: 2011 GDP growth international markets

0%

20%

40%

60%

80%

100%

0%

2%

4%

6%

8%

10%

Source: Australian Bureau of Statistics, Gartner Source: CIA World Factbook

Scenarios

Our mid-case scenario assumes 12% CAGR over the next five years for the international

businesses. This produces aggregate international employment EBITDA of $178mn in

FY17 (SEK’s share $87mn). On 10x this represents $543mn enterprise value.

Figure 474: International Employment Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

International Employment EBITDA* A$mn 103 142 178 222

SEK share of International Employment EBITDA A$mn 50 70 87 109



Multiple x 10.0 10.0 10.0 10.0


Source: Company data, Credit Suisse estimates. International Employment businesses include Zhaopin (56% stake), Jobstreet (22% stake),

JobsDB (55.2% stake), Brazil Online (51% stake) and OCC Mexico (57% stake).* 100% A$EBITDA for all businesses.

27 November 2012


Education: Providing a small offset

The Education business includes Seek Learning, an 80% stake in Think, a 50% stake in

IDP and a 50% stake in Swinburne.

A complement to Job Ads

SEK has a unique market position in Australian education. Seek Learning markets, sells

and distributes education courses in Australia that are developed by external providers

(including Think). IDP provides English language testing and enrolment services to

international students looking to study in a number of countries including Australia.

Swinburne offers University of Technology, Melbourne courses to local and international

students.

There are a number of synergies between SEK’s education and employment business.

The most obvious is the crossover in marketing and sales.

There is strong negative correlation between employment and education. A fall in the

number of jobs coincides with more up-skilling and training. SEK’s education businesses

primarily focus on up-skilling and training courses for working adults (rather than catering

for school graduates). As such, the correlation is quite strong.

SEK’s education businesses are around one-quarter the size of SEK’s domestic

employment business on a consolidated bases. As such, the negative correlation in

absolute dollar terms is not as strong.

Figure 475: Seek Employment EBITDA Growth v Seek

Learning EBITDA Growth

Figure 476: Education Consolidated EBITDA (A$mn)


Scenarios

The growth opportunity for the Education businesses should come from additional course,

new partners and operational improvements.

Our mid-case scenario assumes 5% CAGR over the next five years in the education

businesses. This produces consolidated education EBITDA of $60mn in FY17 (SEK’s

share $41mn). On 10x this represents $252mn enterprise value.

27 November 2012


Figure 477: Education Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

Seek Learning A$mn 15 15 17 20

Think A$mn 5 5 7 9

IDP A$mn 28 28 36 45

Swinburne A$mn -3 - - -

EBITDA* A$mn 46 49 60 73

Seek Learning (100%) A$mn 15 15 17 20

Think (80% in forecast) ** A$mn 5 4 5 7

IDP (50%) A$mn 14 14 18 23

Swinburne (50%) A$mn -2 0 0 0

SEK share of EBITDA A$mn 33 34 41 49



Multiple x 10.0 10.0 10.0 10.0


Source: Company data, Credit Suisse estimates. Assume 0-5% EBITDA growth in Seek Learning, 0-10% EBITDA growth in Think and IDP and

breakeven for Swinburne.* 100% A$EBITDA for all businesses.** SEK had a 100% stake in Think in FY12.

Valuation

Sum of the Parts

We have a Sum of the Parts valuation of $6.93 per share, based on our mid-case

scenario. There is risk that a continuation of low employment growth in Australia moves

our valuation to the low-case scenario.

Figure 478: SEK Valuation Scenarios

Five Year Forecast

FY12A Low Mid High

Employment A$mn 1,825 1,310 1,783 2,364

International Employment A$mn 499 432 543 676

Education A$mn 331 209 252 304


Net Debt A$mn 226 226 226 226

Equity Value A$mn 2,428 1,725 2,353 3,118

SOI mn 339 339 339 339



Figure 479: SEK Digital Comparable Companies

P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F

Moneysupermarket 19.8x 16.1x 13.1x 14.8x 11.5x 9.7x

Monster Worldwide 16.4x 14.6x 11.3x 4.5x 4.6x 4.1x

Ebay 22.4x 19.4x 16.6x 13.3x 11.5x 10.2x

Interactive Corp 16.5x 12.1x 10.2x 9.5x 6.3x 5.2x

Google 17.3x 14.7x 12.5x 10.2x 8.6x 7.4x

Yahoo 8.9x 8.3x 15.5x 11.5x 12.2x 12.1x

Baidu 24.5x 19.0x 17.5x 18.9x 14.5x 12.6x

Average 18.0x 14.9x 13.8x 11.8x 9.9x 8.7x


27 November 2012


DCF


Figure 480: SEK DCF Valuation

PV of FCF 1428

Terminal value 1871

Associates 247

Less Minorities -52


Net debt 226



Value per share 9.00







It is important to note that HOLT® uses CFROI to determine company fade rates. Given

digital businesses are asset light in nature and generate very high CFROI (relative to

traditional media peers), the HOLT® valuations for the digital media companies are

impacted by higher fade rates. As such, HOLT® valuations are not as accurate for digital

stocks.


results in a $4.60 per share valuation for SEK. The table below highlights the sensitivity of

SEK’s valuation to varying sales growth and EBITDA margin assumptions.

Figure 481: SEK valuation metrics through Credit Suisse HOLT®


27 November 2012


PE Multiple

Figure 482: SEK one year forward PE Figure 483: SEK PE relative to All Ords Index (ex


0

5

10

15

20

25

30

35

0.0

0.5

1.0

1.5

2.0

2.5


Risks

The key risks to our investment thesis for SEK are as follows:


change to EBITDA, a 3% change to EPS and a 17cps (2%) change to our DCF

valuation.

■ Changes to job ads in Australia. A 1% change in Australian online job ads has a 0.4%

impact on SEK’s sales and results in a 1% change to EBITDA, a 0.5cps change to

EPS and a 1% change to our DCF valuation.

■ Changes to Chinese GDP and advertising spend.

■ Potential acquisitions.


ESG Issues

Environment issues

■ In our view there are no material environmental issues facing SEK.

Social issues

■ In our view there are no material social issues facing SEK.

Governance issues

■ Chairman Bob Watson is not considered independent under ASIC guidelines due to

his tenure on the Board being greater than 10 years.

Remuneration

■ Base salary: Base pay is set at a market competitive rate and is reviewed annually by

external remuneration consultants. Base pay is structured as a total package which

may be delivered as a combination of cash and benefits at the executives’ discretion.

There is no guaranteed increase in executive contracts. The comparator group is

reassessed regularly to ensure that it remains an appropriate basis of comparison.

CEO Andrew Bassat’s base salary for FY12 was $820,000 (cash and non-monetary

benefits), up from $755,000 (cash and non-monetary benefits) in FY11. Total fixed

remuneration of key management personnel was $4,740,000 in FY12.

27 November 2012


■ Short-term incentives: SEK’s STI quantum was determined taking into account:

EBITDA results; and CEO recommendations regarding executive performance against

individual objectives and SEEK values criteria. The level of the target STI opportunity

for FY12 was set as a percentage of the executive’s base pay (30% for all KMP

excluding the CEO who did not participate). STI payments are capped at 125% of

target (80% of target STI at 90% of target EBITDA, 100% of target at 100% of target

EBITDA and 125% of target STI at 125% of target EBITDA). There is no STI plan for

FY13.

■ Long-term incentives: LTI achievement for FY12 was determined taking into account

a combination of (as appropriate per plan): 1) Relative TSR against the ASX200

excluding real estate, energy, metals and mining; 2) EPS aggregate target over a

three-year period and set by the Board. Minimum and stretch aggregate EPS targets

are set; and 3) Return On Investment (“ROI”) result in comparison against minimum

and maximum targets. LTI is based on a maximum value calculated as a percentage

of base pay, ranging from 40% to 50% of base salary. The actual targets for each

component were not disclosed in the annual report.

■ Cash bonuses and share based payments for key management personnel totalled

$1,069,000 and $2,388,000, respectively (FY11: $461,000 STI and $520,974 LTI). As

part of his employment contract, the CEO received a fixed payment of options of $2mn

over the first two years of his employment contract (starting in January 2011), split

50% p.a.

■ The Board conducted a review of the company’s executive remuneration strategy

during FY12 and provided an update in its proxy form for the AGM. Under the terms of

the FY13 executive remuneration plan, only long-term incentives are available to

senior executives in addition to their base salaries, with cash based bonuses being

replaced with longer-term performance rights. In FY13, performance rights vest after

one year but are restricted for a further 18 months for the MD and CEO. From FY14,

all executives will have the same 18-month share restriction period. There are no

financial hurdles relating to the award of performance rights. KMP will also receive

options with an exercise price indexed to the current share price based on the historic

15-year CAGR in equity markets (ASX All Ords index). LTI options will vest or expire

at the end of a three year vesting period, followed by a one year restricted period.

■ The CEO’s remuneration for FY13 comprises $1.65mn in fixed salary (including

Super), $825,000 in performance rights and $825,000 in LTI options (1.09m options).

Board

■ SEEK’s Board has executive and Board-level experience in financial, IT and legal

services.

■ Three out of the five directors are independent, although Chairman Bob Watson is not

considered independent due to a tenure on the Board of over ten years.

Figure 484: Board skill analysis for SEK

Name Position

Tenure

(Years) IT Financial Legal

Former

CEO

ASX 200


Fees / pay

($k)

Bob Watson Chairman, Non Exec 13.8 X X No* 275

Andrew Bassat CEO & MD 15.2 X X X No 2,086

Neil Chatfield Non Exec 7.4 X X Yes 166

Colin Carter Non Exec 7.7 X X Yes 120

Denise Bradley Non Exec 2.8 X Yes 120


27 November 2012


Valuation impact

■ We have included 0% ESG impact to our valuation for SEK. SEK's increasing

expansion into offshore markets could expose it to higher ESG risk in the future.

However given that the vast majority of value in our DCF-derived Target Price is

attributable to its Australian employment business we do not currently factor any ESG

risk into our Target Price.


■ We have a Positive outlook on the MSCI IVA rating for SEK. SEK has been

downgraded to 'A' from 'AA' despite the company continuing to perform well across the

key issues. We so no reason that SEK should have been downgraded given that it's

Social policy and Governance have not materially changed in our view.

Figure 485: MSCI IVA rating for SEK: A


27 November 2012


Appendix

Company Overview

SEEK Limited is a diversified online-focused employment and education services business.

SEK operates the largest online employment classifieds website in Australia, seek.com.au.

SEEK Education comprises THINK and SEEK Learning and provides vocational and

education training courses in Australia. SEEK International owns and invests in online

employment websites globally, with operations in China, South East Asia, Brazil and

Mexico.

Although SEK’s core Australian employment business is still responsible for the bulk of

earnings, the company has progressively diversified its earnings streams in recent years.

Education services and international operations now provide meaningful earnings streams.


Source: Company data Source: Company data. Note: Includes income from associates

Market Position

Australian online employment classifieds

The online classifieds market in Australia is a $650mn industry. Employment classifieds

represent ~$250mn of annual ad spend. SEK is the clear market leader with an estimated

revenue market share of 90%. SEK’s main competitors in the online space are the print

publishers, which have attempted to reclaim some of the share lost in the digital transition

of classified ads: FXJ (My Career and Jobs.com.au) and NWS (Career One). As shown in

Figure 488 and Figure 489, SEK maintains a dominant leadership in terms of both

inventory and web traffic.

Figure 488: Inventory as of September 2012 Figure 489: Employment Website Traffic (Monthly UBs)

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

SEK MyCareer CareerOne Jobs.com

0

100,000

200,000

300,000

400,000

500,000


seek.com.au

MyCareer

CareerOne

Source: Company websites Source: Google Analytics

27 November 2012


International online employment classifieds

SEK has actively pursued international expansion in high growth markets since IPO. Its

investments have invariably followed a similar theme, with each acquisition being of an

established business with the number one or number two position in the market and a

focus on high growth economies with significant potential upside in Internet penetration

and the transition of classifieds from print to online.

Figure 490: Overview of SEK International Businesses

Business Country Mkt Position Pop (m) Internet Pen Labour Force (m) GDP Growth

Brazil Online Brazil #1 203 37% 104 2.8%

Zhaopin China #2 1,337 36% 816 9.5%

OCC Mexico #1 114 29% 48 3.8%

JobsDB Indonesia #1 246 16% 117 6.4%

JobsDB Hong Kong #1 7 69% 4 6.0%

JobsDB Singapore #1 5 77% 3 5.3%

JobsDB Thailand #1 67 27% 39 1.5%

JobStreet Malaysia #1 29 59% 12 5.2%

JobStreet Philippines #1 102 29% 40 4.7%

Source: Company data, CIA World Factbook

SEK’s highest profile foreign investment is its 56% stake in Chinese employment website

Zhaopin (through SEEK Asia). Zhaopin is considered a strong number two player in the

fast-growing Chinese market, however as shown in the figures below, it has surpassed

market leader 51Job in terms of both web traffic and job ad volume. Zhaopin holds the

number one position in a number of second tier cities (particularly in the North) while

51Jobs is more concentrated in the larger, more developed cities such as Shanghai and

Beijing. Zhaopin has invested heavily in sales and IT infrastructure in order to support

growth, and has increased focus on online revenue (now ~80% of total revenue).

Figure 491: Chinese Job Ad Inventory (Month End ‘000s) Figure 492: Chinese Employment Website Traffic (Monthly

UBs)


Brazil Online (a 51% owned subsidiary) is the clear market leader in Brazil through its

Catho website (Brazil Online also operates the executive-level focused Manager Online).

Brazil Online is a good example of SEK’s strategy in leveraging its international expertise:

traditionally, Brazilian employment websites (including Catho and Manager Online)

operated via a jobseeker-pays model. SEK has been able to gain market share and drive

revenue growth in a soft macro environment by transitioning to an employer-pays model in

less candidate rich segments.

27 November 2012


Figure 493: Brazil Online Inventory Figure 494: Brazilian Employment Sites: Share of Web

Traffic

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000


OCC (57% owned subsidiary in Mexico) is another example of a typical SEK investment.

OCC is the dominant market leader in Mexico, with the resultant brand awareness and

pricing power enabling SEK to boost yields via more efficient pricing models and an

improved product platform.

Figure 495: Mexican Job Ad Inventory (Month End ‘000s) Figure 496: Mexican Employment Website Traffic

(Monthly UBs)


History

Figure 497: SEK Key Milestones

Date Event

1997 Founded in Melbourne by Andrew and Paul Bassat and Matthew Rockman

1999 Seek.co.nz launched in New Zealand

2003 PBL acquired 25% of the company

2004 SelfCert acquired and renamed SEEK Learning

2005 Floated on the ASX

2006 Acquired 50% stake in IDP Education. First investment made outside of Australasia

with acquisition of 25% stake in Zhaopin for $27m

2007 Acquired 50% of THINK (remaining 50% acquired in 2009)

2008 Acquired initial stakes in Brazil Online (30%), JobStreet (10%). Zhaopin stake

increased to 56% (43% on a diluted basis)

2009 SEK shareholding sold by CMJ (formerly PBL)

2010 Co-founder Paul Bassat resigns as joint CEO. Initial US$40m investment in Mexican

employment website OCC. Zhaopin CEO replaced.

2011 80% stake in JobsDB acquired by SEEK Asia (69% owned by SEK) in three stages

2012 Shareholdings in OCC and Brazil Online increased to majority ownership


27 November 2012




-20%

0%

20%

40%

60%

80%

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

Australian employment Total

0%

10%

20%

30%

40%

50%

60%

70%


Australian employment Total



-40%

-20%

0%

20%

40%

60%

80%


NPAT EPS

-20%

0%

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40%

60%

80%

100%

120%





0%

100%

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500%


0%

20%

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60%

80%

100%


ROA ROE


27 November 2012



0%

10%

20%

30%

40%

50%

60%

70%

80%


0%

100%

200%

300%

400%

500%

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Source: Company data Source: Company data


interest / EBITDA)


85%

90%

95%

100%

105%

110%

-$2m

$0m

$2m

$4m

$6m

$8m

$10m

$12m

$14m



Figure 508: Historic Net Debt / EBITDA Figure 509: FY12 Gearing Comparison: ASX-Listed Online

Companies

-2.5x

-2.0x

-1.5x

-1.0x

-0.5x

0.0x

0.5x

1.0x

1.5x

-2.0x

-1.5x

-1.0x

-0.5x

0.0x

0.5x

1.0x

1.5x

CRZ REA SEK TME


calendarised

27 November 2012





Dominant market position in

Australian job classifieds

Highly exposed to the Australian

employment market

Further international expansion Disruption from new entrants e.g.

LinkedIn

Strong position in most

international businesses

Limited upside from Display relative

to other online companies

Yield growth and online migration

within international businesses

High competition in some markets

(China, New Zealand)

Continued online migration of

classified advertising

Key man risk Acquisition of complementary

businesses

High brand awareness




Education services Medium High Medium Low High

Employment classifieds

Australia Medium Low Low Low Medium

Brazil Medium Low Low Low Medium

China High High Medium Low High

Mexico Medium Low Low Low Medium

South East Asia Low Medium Low Low High

New Zealand Medium Medium Low Low Medium



Bob Watson (Non-executive Chairman). Non-Independent.

Mr Watson has announced his intention to retire from the SEK Board following the

AGM on 29 November. Bob Watson has over 20 years’ of executive management

experience in the information technology and recruitment industries. His various roles

have included Chief Executive Officer of Mayne Nickless Computer Services, Data

Sciences International (in the UK) and Lend Lease Employer Systems. Bob was also the

Australasian CEO for Adecco, the world's (and Australia's) largest recruitment and labour

contracting agency. Mr Watson has been a Director since February 1999, and Chairman

since August 2009.

Neil Chatfield (Non-executive Director and Chairman-elect). Independent.

Mr Chatfield will replace Bob Watson as Chairman following November’s AGM. Neil

Chatfield is an established Executive and Non-Executive Director with extensive

experience across all facets of company management, and with specific expertise in

financial management, capital markets, mergers and acquisitions, and risk management.

In addition to Seek, Neil also holds Non-Executive roles across a range of industries and is

currently the Chairman of Virgin Blue Holdings Ltd, and a Non-Executive Director of

Transurban Group and Grange Resources Ltd, all ASX listed companies. Neil was most

recently an Executive Director and Chief Financial Officer of ASX listed Toll Holdings Ltd,

Australia's largest transport and logistics company; a position he held for over 10 years.

He has been a Director since 2005.

Andrew Bassat (Chief Executive Officer and Managing Director). Non-Independent.

Mr Bassat is a co-founder of SEK. Prior to co-founding SEEK in 1997, Mr Bassat was a

management consultant with Booz Allen & Hamilton and prior to that, he worked as a

solicitor at Corrs Chamber Westgarth. Mr Bassat shared CEO duties with his brother Paul

before the latter’s departure in 2010.

27 November 2012


Colin Carter (Non-executive Director). Independent.

Colin Carter has an extensive consulting background in organisational and business

strategy. He is a former Senior Vice-President of, and a current senior adviser to, The

Boston Consulting Group. His interests include corporate governance issues and in recent

years Mr Carter has carried out board performance reviews for a number of companies.

Mr Carter is a non-executive Director of ASX Listed companies Wesfarmers Limited and

Lend Lease Corporation Limited, and a Director of World Vision Australia. He is Chairman

of the AFL Foundation and President of the Geelong Football Club. Mr Carter has been a

Director since March 2005.

Denise Bradley (Non-executive Director). Independent.

Emeritus Professor Denise Bradley AC, is a former Vice-Chancellor and President of the

University of South Australia. Professor Bradley has been extensively involved in national

education policy groups for more than two decades. She was a member of the

Commonwealth Tertiary Education Commission (CTEC) and later of the National Board of

Employment, Education and Training (NBEET) and was deputy chair of the Higher

Education Council of NBEET. Professor Bradley is also a former President and Chair of

IDP Education Australia Limited in which SEEK has a 50% investment in partnership with

the Australian Universities.

Graham Goldsmith (Non-executive Director). Independent.

Mr Goldsmith recently retired as Vice-Chairman and a Managing Director of Goldman

Sachs Australia. He is a fellow of the Financial Services Institute of Australia, a CPA and a

member of the Australian Institute of Company Directors. Mr Goldsmith was appointed to

the SEEK Board in October 2012.

John Armstrong (Chief Financial Officer).

Mr Armstrong has over 15 years’ experience in various financial and commercial

management roles. Prior to SEEK John worked with Ernst & Young, Blackwoods and

Foster’s Brewing Group.

David Gibbons (Chief Information Officer).

Mr Gibbons has over 20 years’ of IT experience gained across Europe, the US, Asia and

Australia. Prior to joining SEEK, he has held senior roles with high-profile organisations

including Nike, GAP and GE.

Joe Powell (Managing Director SEEK Employment).

Mr Powell has day-to-day responsibility for SEEK's online employment business in

Australia and New Zealand. In his role he oversees the sales, marketing, customer service

and product departments as well as the entire New Zealand team. Joe joined SEEK from

Optus where he was Director, Consumer Sales.

Peter Everingham (Managing Director SEEK Education).

Peter Everingham is Managing Director of SEEK Education where he is responsible for

leading & managing the direction, priorities and operational execution across THINK

Education as well as SEEK Learning. Prior to SEEK, Peter was Director of Corporate

Strategy for Yahoo! in Australia and South Asia.

Jason Lenga (Managing Director SEEK International).

Mr Lenga has overall stewardship of SEEK’s international investments and international

corporate strategy including new investment opportunities. He also leads the Strategy and

Business Development team for SEEK's Australian and New Zealand online employment

businesses. Prior to joining SEEK in 1999, Mr Lenga was a solicitor with commercial law

firm Mallesons Stephen Jaques within the Mergers and Acquisitions practice.

27 November 2012


Michael Ilczynski (Group Strategy Director).

Mr Ilczynski is responsible for strategy & corporate development for SEEK across SEEK’s

Australian and New Zealand online employment businesses and its Education & Training

businesses. Prior to working at SEEK, Mr Ilczynski worked for McKinsey & Company,

Tabcorp and the Collingwood Football Club.


Figure 512: SEK Substantial Shareholders


Fidelity 15.0%

Hyperion 11.8%

Australian Super 5.0%

Andrew Bassat 4.0%

Paul Bassat 3.9%

Bob Watson 1.3%

Source: Bloomberg

27 November 2012



carsales.com.au (CRZ.AX / CRZ AU)

Solid and reliable earnings growth

■ We initiate coverage of Carsales.com.au (CRZ.AX) with an OUTPERFORM rating and $8.80 per share target price.

■ Investment Case: Solid and reliable earnings growth. Carsales is a growth business with a reasonably reliable and defensive earnings stream. It has generated 43% EBITDA CAGR over the past five years and we forecast 15% EBITDA CAGR over the next five. Our investment view is shaped by four considerations: 1) Carsales is the dominant player in Australian online automotive classifieds (~80% share of total online viewership). It has superior traffic and IP in data services and technology which should enable pricing power. New services and premium offerings to private consumers and dealers will also support yield expansion. 2) There is a significant volume opportunity in new cars. New car inventories are 48K compared with 89K for dealer used cars. We expect significant volume growth in new car inventories and enquiries. Furthermore, the online automotive classifieds industry is a less volatile industry relative to other online classifieds with the number of car enquiries remaining robust through the cycle (there is a shift to lower value cars which do not affect the number of enquiries). 3) Carsales should continue to benefit from the structural migration from print to online. Display ad spend is significantly higher in auto and finance relative to other categories. 4) Growth in non-auto verticals such as Quicksales as well as potential international expansion provides further upside. We have not included growth from international expansion in our forecasts.

■ Catalysts: More rational competitive behaviour a positive for Carsales. Carsales will cycle the initial six-month free offering from Carsguide in 2H13. A more rational pricing environment should enable Carsales to drive yield expansion in 2H13 and FY14.

■ Valuation: We have an $8.80 per share target price. This is based on our $8.80 per share Sum of the Parts valuation.


80

100

120

140

160

4

5

6

7

8








Year 06/12A 06/13E 06/14E 06/15E Revenue (A$mn) 184.2 213.0 248.7 273.9 EBITDA (A$mn) 101.3 117.8 141.0 155.3 EBIT (A$mn) 97.9 115.6 138.6 152.8 Net income (A$mn) 71.6 81.8 98.3 108.8 EPS (CS adj.) (Ac) 30.63 34.88 41.69 45.88 Change from previous EPS (%) n.a. — — — Consensus EPS (Ac) n.a. 35.20 40.00 44.40 EPS growth (%) 22.8 13.9 19.5 10.0 P/E (x) 24.8 21.8 18.2 16.5 Dividend (Ac) 24.50 27.90 33.30 36.60 Dividend yield (%) 3.2 3.7 4.4 4.8 P/B (x) 13.8 11.7 9.9 8.6 Net debt/equity (%) net cash net cash net cash net cash



Rating OUTPERFORM*

Price (26 Nov 12, A$) 7.59





Projected return:







Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

CR

Z.A

X

27 November 2012



carsales.com.au (CRZ) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Share Price: A$7.59 Earnings 06/11A 06/12A 06/13E 06/14E 06/15ERating OUTPERFORM c_EPS_SHARESEquiv. FPO (period avg.) mn 233.5 233.7 234.4 235.8 237.2




c_DPS*100DPS c 19.9 24.5 27.9 33.3 36.6

c_PAYOUT*100Payout % 79.7 80.0 80.0 79.9 79.8





EBITDA 83.8 101.3 117.8 141.0 155.3 c_PE P/E x 30.4 24.8 21.8 18.2 16.5




Net interest Exp. 1.0 1.3 1.2 1.9 2.7 c_FCF_YIELD*100FCF Yield % 3.4 4.1 4.6 5.4 6.0









Reported NPAT 58.3 71.6 81.8 98.3 108.8 c_GEARING*100Net Debt to Net debt + Equity % Net Cash Net Cash Net Cash Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash Net Cash Net Cash Net Cash Net Cash

Balance Sheet 06/11A 06/12A 06/13E 06/14E 06/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x -85.1 -78.4 -95.9 -74.5 -58.1

Cash & equivalents 32.8 40.9 63.0 89.1 115.7 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -82.4 -75.8 -94.1 -73.3 -57.1




Current assets 52.6 71.2 94.4 125.7 156.0 MSCI IVA (ESG) Rating B


Intangibles 81.5 80.6 80.6 80.6 80.6



Total assets 138.3 161.9 184.9 216.0 246.1

Payables 13.6 15.9 15.7 18.3 20.2




Net assets 108.7 128.4 151.5 180.0 208.2

Ordinary equity 108.7 128.4 151.5 180.0 208.2




Net debt -32.8 -40.9 -63.0 -89.1 -115.7 Source: MSCI IVA Rating


EBIT 81.1 97.9 115.6 138.6 152.8

Net interest 1.0 1.3 1.2 1.9 2.7

Depr & Amort -2.7 -3.3 -2.2 -2.4 -2.5

Tax paid -25.2 -29.7 -35.0 -42.1 -46.6

Working capital 1.0 -8.3 -1.3 -2.6 -1.9

Other 4.9 16.3 4.4 4.8 5.1


Capex -0.7 -5.3 -2.0 -2.2 -2.3

Capex - expansionary 0.0 -4.6 -1.0 -1.2 -1.3

Capex - maintenance -0.7 -0.8 -1.0 -1.0 -1.0



Other 0.0 0.0 0.0 0.0 0.0


Dividends paid -41.3 -51.0 -60.4 -71.6 -82.5

Equity raised 4.4 -7.0 1.8 1.8 1.8

Net borrowings 0.0 0.0 0.0 0.0 0.0



Total cashflow 19.2 8.1 22.1 26.1 26.6 Relative 4.9% 4.8% 56.4%

Adjustments 0.0 0.0 0.0 0.0 0.0


MSCI IVA Risk Comment: CRZ has relatively small

environmental footprint we see no reason other than lack of

disclosure that it is scoring poorly on environmental and

social issues. If the company were to provide disclosure on

these points its rating would likely be substantially higher.

26/11/2012 23:44

Carsales.com Limited is an Australian business principally operating two business

segments, being Online Advertising Services and Data Research Services. Currently, the

automotive classified advertising is the main product of the Company.

Credit Suisse View

TP Risk Comment: We do not foresee any ESG risks on the

horizon for CRZ.

2.00

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4.00

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6.00

7.00

8.00

9.00

15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

CRZ.AX XJO

-1.0

-0.9

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-0.7

-0.6

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-0.4

-0.3

-0.2

-0.1

0.0


Stock Local Sector



27 November 2012


Dominant player in an attractive industry

Leading online automotive classifieds website in Australia

Carsales.com.au is the #1 online automotive classifieds website in Australia. Carsales has

an 80% share of total audience viewing time on automotive classifieds websites when

compared to its three major competitors. Refer Figure 514. There is a significant gap to

Carsales’ closest competitors Trading Post (owned by Telstra), Drive (owned by Fairfax

Media) and Carsguide (joint venture between News Limited and a group of car dealers).

The most notable change to the competitive landscape in the past 12 months has been

the re-launch of the Carsguide website in November 2011. The initial free six-month listing

period for dealers resulted in a meaningful uplift of automotive inventory for Carsguide

(refer Figure 515), with little uplift in traffic or sales. We suspect dealers took advantage of

the free offer and listed the same inventory on multiple sites (as indicated by a similar uplift

in inventory to Carsales, Drive and Gumtree). As such, there has been no material

changes to market share.

The re-launch of Carsguide and free six-month listing period has however made it difficult

for Carsales to increase yield for dealers. We suspect that this is a short-term impact. Over

the medium term, Carsales’ superior services, traffic and enquires should enable the

company to increase yield without adversely impacting market share.

We see traffic statistics as the key measure of a company’s performance as traffic will

generate enquiries and sales.

Figure 514: Monthly Online Auto Traffic (Monthly Unique

Browsers in 000s)

Figure 515: Online auto inventory by site

0

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250

Carsales Drive Carsguide Trading Post

0

50,000

100,000

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Carsales Drive Carsguide Trading Post Gumtree Source: Google Trends Source: Company websites

Attractive automotive classifieds industry

The online classifieds market in Australia is a $650mn industry. Automotive classifieds are

the third largest category (behind Employment and Real Estate) representing ~$150mn,

however Auto is the least penetrated category of the three. As such, we expect strong

growth in Automotive classifieds over the next five years.

27 November 2012


Figure 516: Classified advertising revenue by media ($m) Figure 517: Online classifieds YoY growth by company

0

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Online Newspapers

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FY06 FY07 FY08 FY09 FY10 FY11 FY12

CRZ REA SEK All online classifieds

Source: CEASA Source: Company data, CEASA

Display advertising represents around half of total Automotive advertising. Automotive

advertising has recovered from the large declines witnessed during the GFC and has now

returned to 2007 levels. However, the mix has shifted substantially, with online advertising

growth of nearly 30% per annum offsetting considerable weakness among most traditional

media. As a result, online display is becoming an ever more significant component of total

ad spend within the category. Digital now accounts for almost one in five dollars spent on

automotive advertising, up fourfold in the past five years.

We estimate that online automotive display advertising by automotive corporates

amounted to $127mn in 2011, and amounted to around 17% of total manufacturer ad

spend. As both audiences and classified ads continue to move online, we expect online’s

share of auto advertising to continue to grow.

Figure 518: 2007-2011 CAGR in auto display advertising

by media

Figure 519: Share of auto display agency advertising by

media

-15.0%

-7.5%

0.0%

7.5%

15.0%

22.5%

30.0%

0%

10%

20%

30%

40%

50%

60%

Television Newspapers Radio Magazines Digital Source: SMI Source: SMI

There is a close correlation with Auto advertising and new vehicle sales.

Figure 520: Auto Agency Ad Spend vs. New Vehicle Sales

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Auto Ad Spend New vehicle sales

Source: SMI, ABS

27 November 2012


Four Auto Pillars: Assessing the growth potential

Pillar 1 – Dealers: Significant volume opportunity in new cars

Carsales’ original and core business is the provision of online classified listings for car

dealers. Dealers pay no upfront fee for listing a vehicle on the site – instead, payment is

based on a cost per enquiry model. Currently, each time an enquiry is made for a used car

or in stock new car, Carsales is paid $35 by the relevant dealer. Enquiries from Carsales

Discount New Car site are currently more expensive at $60 per enquiry.

The number of listings and number of enquiries per listing is critical for Carsales. More

listings typically drive more enquiries (as consumers enquire on a number of similar cars

and purchase one – if there is only one car in that specific category, the consumer is less

likely to make a number of enquires if they are looking for a particular car). The conversion

of enquiries to sales is also important.

Strong volume growth (particularly in used cars) has been the primary driver of strong

Dealer revenue growth. Dealer revenues have achieved 22% CAGR over the past five

years.

We forecast 15% Dealer revenue CAGR over the next five years.

Figure 521: Dealer revenue Figure 522: Dealer enquiries (000s)

$0m

$10m

$20m

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$40

$50

$60

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3,000

New enquiries Used enquiries

Used cost New cost


Used cars

For Carsales’ used cars, inventory is almost at peak levels at 89K used cars. This level of

inventory is generating a strong number of enquiries.

Whilst the re-launch of Carsguide has constrained yield growth for Carsales in the short

term, we expect its significant inventory and traffic advantage to enable yield growth over

the medium term.

We forecast 4% volume enquiry growth and 3% yield growth on average p.a. over the next

five years.

Figure 523: Dealer Listings v Enquiries in 000s (Used)

0

500

1,000

1,500

2,000

2,500

0

20

40

60

80

100

FY08 FY09 FY10 FY11 FY12

Listings

Enquiries


27 November 2012


New cars

The material opportunity for Carsales is in new cars. We expect strong growth in inventory,

which are only at 48K new cars. There is the potential for new car inventories to match

used car inventories, in our view. Growth in inventory should drive strong growth in

enquiries. Over the longer term there may be the opportunity to lift yield.

We forecast 12% volume enquiry growth and 3% yield growth on average p.a. over the

next five years.

Figure 524: Dealer Listings v Enquiries in 000s (New) Figure 525: Australian New Car Sales

0

60

120

180

240

300

360

0

10

20

30

40

50

60


Listings

Enquiries

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Source: Company data Source: ABS. Passenger and SUV vehicle sales.

Pillar 2 – Private: Yield growth dependent on premium offering

Carsales also offers listings to private sellers. The pricing model is different in the Private

segment, with a fixed price per listing (the car is then listed until sold or removed by the

advertiser). This model allows greater flexibility in price negotiation as is common between

individual buyers and sellers and gives private sellers certainty around cost. Carsales’

dominant position in the online private sales market has bestowed it with considerable

pricing power. Prices for a standard listing have increased from $10 in FY05 to $60 in

FY11. Carsales also offer a premium option giving the seller access to additional features,

and increased take-up of this offering has supplemented the core yield growth.

Private listings have grown rapidly in recent years as the wider population has become

comfortable with the concept of buying and selling vehicles online and Carsales has

established itself as the preeminent player (see Figure 526). The combination of volume

growth and consistent yield expansion has enabled Private revenues to achieve 43%

CAGR over the past five years.

Figure 526: Private listings (000s) and cost per listing Figure 527: Private revenue

$0

$20

$40

$60

$80

$100

$120

0

100

200

300

400

500

600Listings

Standard cost

Premium cost

$0m

$5m

$10m

$15m

$20m

$25m

$30m

$35m

Source: Company data. Note: Average cost for the financial year Source: Company data

With inventory of 78K, growth in Private will primarily have to come from yield. Whilst yield

growth may stabilise in the short term given the significant inflation since FY05 and current

competition from Carsguide, we expect Carsales’ premium services and superior online and

mobile offering to enable pricing power and yield growth over the medium term. Figure 528

to Figure 530 shows Carsales’ recent redesigned and improved web-pages and user tools.

27 November 2012


We forecast 15% Private revenue CAGR over the next five years.

Figure 528: Carsales.com.au Homepage

Source: Company FY12 Presentation

Figure 529: Carsales.com.au Price Assist tool for private sellers and Car Facts


27 November 2012


Figure 530: Carsales.com.au Comparison View and High Resolution Gallery


Pillar 3 – Data Services: Provides competitive edge and yield upside

Carsales’ Data Services division trades as Datamotive. Datamotive’s flagship service is

Livemarket, a suite of online tools for optimisation of inventory management, allowing

dealers to dynamically price appraise and stock vehicles according to market conditions.

The Data Services division has been able to achieve consistently strong organic growth

driven by increasing penetration of Livemarket and the launch of new product offerings

such as front end web design, video listings and CRM offerings (e.g. CallTracker). The

segment also received a boost from the 2007 acquisition of Automotive Data Services,

trading as The Red Book, a provider of vehicle identification and pricing information.

We view the Data Services division as a core competitive advantage of Carsales relative

to its peers. As data is linked to traffic statistics, we expect Carsales to entrench its

leadership position in the data service offerings to dealers. This should give Carsales

pricing power as more dealers become reliant on data services to efficiently run their

businesses and convert enquiries to sales.

CRZ’ Data Services division has produced 36% CAGR over the past five years.

We forecast 15% Data Services revenue CAGR over the next five years.

Figure 531: Carsales.com.au Dealer Portal and AutoGate


27 November 2012


Figure 532: Data services revenue

$0m

$5m

$10m

$15m

$20m

$25m


Pillar 4 – Display: Strong growth in traffic and sales to continue

Carsales’ Display division trades as Mediamotive. Strong traffic has enabled Carsales to

drive strong growth in display advertising revenues.

As the most visited automotive website group in the country by some distance, Carsales’

portfolio of sites are premium properties for automotive display advertising, particularly by

manufacturers. A combination of increased focus and expanded product offerings has

allowed Carsales to almost triple its share of online auto display revenue over the past five

years (refer Figure 533), resulting in a 68% CAGR FY05-11. As shown in Figure 534,

Carsales’ growth continues to far outstrip that of the market.

We expect Carsales to continue to drive strong growth in display advertising. Strong traffic

coupled with a premium offerings is likely to support yield expansion over the short to

medium term.

CRZ’ Display division has produced 51% CAGR over the past five years.

We forecast 15% Display revenue CAGR over the next five years.

Figure 533: Display revenue and market share Figure 534: Display YoY growth

0%

6%

12%

18%

24%

30%

$0m

$10m

$20m

$30m

$40m

$50m

Revenue

Market share

0%

20%

40%

60%

80%

100%

120%

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

CRZ Market

Source: Company data Source: SMI

27 November 2012


Figure 535: Carsales.com.au Manufacturer Landing Page


Pillar Five: The rise of non-auto verticals

Non-auto categories expected to drive strong growth over the medium term

Non-auto verticals currently represent a smaller but growing contribution to group revenue.

Revenue for non-auto is reported within each of the dealer, private, display and the a

lesser extent data services segments. We see the potential for strong growth over the

medium term.

Quicksales is an online shopping and auctions site for goods including fashion, jewellery,

car parts, computers, wine, electronics and sporting goods. CRZ is investing in the

Quicksales website and mobile platforms (refer Figure 549) as well as marketing to build

brand awareness, inventory and audience. As brand recognition improves we expect

revenue to grow strongly.

Homesales is a real estate classifieds site with over 150K listings.

We have incorporated a small amount of growth from non-auto verticals in our forecasts.

The non-auto verticals present upside to our current valuation.

Figure 536: Quicksales.com.au Homepage


27 November 2012


Potential offshore acquisitions

Strong balance sheet

We expect CRZ to expand into new markets. It has $41mn net cash on its balance sheet.

CRZ could draw down up to $400mn of debt without nearing covenants in FY13.

Prior interests

CRZ has looked at international expansion opportunities. In 2012 CRZ acquired a 15%

stake in Torpedo 7; a New Zealand online sports retail business; which was subsequently

unwound two months later.

Potential markets of interest

We expect CRZ to look at growth markets with a healthy used car market. Potential

markets may include Japan, Singapore, India and Brazil.

Valuation

Sum of the Parts


Figure 537: Sum of the Parts Valuation

FY12A FY17F Prior 5Yr CAGR Forecast 5Yr CAGR

Low Mid High Low Mid High

Dealer Revenue $mn 83 134 168 207 22% 10% 15% 20%

Private Revenue $mn 33 54 67 83 43% 10% 15% 20%

Display Revenue $mn 44 70 88 109 51% 10% 15% 20%

Data Services Revenue $mn 24 39 48 60 36% 10% 15% 20%

Revenue $mn 184 297 371 458 32% 10% 15% 20%

Costs (incl D&A) $mn 83 101 101 101 23% 4% 4% 4%

EBITDA $mn 101 196 270 357 43% 14% 22% 29%

PV EBITDA $mn 101 122 167 222

Multiple x 12.0 12.0 12.0 12.0


Net Debt $mn -41 -41 -41 -41

Equity Value $mn 1256 1500 2050 2705

SOI mn 234 234 234 234

Value per share $/share $ 5.37 $ 6.42 $ 8.80 $ 11.57

Source: Company data, Credit Suisse estimates.

27 November 2012


Figure 538: CRZ Digital Comparable Companies

P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F



Ebay 22.4x 19.4x 16.6x 13.3x 11.5x 10.2x


Google 17.3x 14.7x 12.5x 10.2x 8.6x 7.4x

Yahoo 8.9x 8.3x 15.5x 11.5x 12.2x 12.1x

Baidu 24.5x 19.0x 17.5x 18.9x 14.5x 12.6x

Average 18.0x 14.9x 13.8x 11.8x 9.9x 8.7x


DCF


Figure 539: CRZ DCF Valuation

PV of FCF 871

Terminal value 1172

Other 0


Net debt -41



Value per share 8.90











stocks.


results in a $7.13 per share valuation for CRZ. The table below highlights the sensitivity of

CRZ’s valuation to varying sales growth and EBITDA margin assumptions.

27 November 2012


Figure 540: CRZ valuation metrics through Credit Suisse HOLT®


PE Multiple

Figure 541: CRZ one year forward PE Figure 542: CRZ PE relative to All Ords Index (ex


10

15

20

25

30


1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8



Risks

The key risks to our investment thesis for CRZ are as follows:

■ Changes to advertising spend in Australia. CRZ derives 80% revenue from advertising

– both classified and display. A 1% change in sales results in a 2% change to

EBITDA, a 2% change to EPS and <1% change to our DCF valuation.

■ Changes to motor vehicle sales or the structure of the motor vehicle market.

■ Changes to Government taxes.

■ Changes to competitive landscape.

■ Changes to technology.



27 November 2012


ESG Issues

Environment issues

■ In our view there are no material environmental issues facing CRZ.

Social issues

■ In our view there are no material social issues facing CRZ.

Governance issues

■ In our view there are no material governance issues facing CRZ.

Remuneration

■ Base salary: Executives are offered a competitive base pay that comprises the fixed

component of pay and rewards. External remuneration consultants from time to time

provide analysis and advice to ensure base pay is set to reflect the market for a

comparable role. Base pay for executives is reviewed annually to ensure the

executive's pay is competitive within the market. Fixed salaries for the senior

executive group in FY12 totalled $2.6mn, with CEO Greg Roebuck receiving a base of

$874,000.

■ Short-term incentives: Key executives have a target STI opportunity depending on

the accountabilities of the role and impact on the organisation or business unit

performance. STI awards are paid based on three components: financial performance

(both group and business unit revenue and earnings), project delivery and individual

targets such as staff development and retention. Mr Roebuck received a $500,000

bonus in FY12, while the bonus pool for the wider senior executive group was $1.2m.

Specifics of each of the criteria for the STI plan was not included in the FY12 annual

report.

■ Long-term incentives: Long-term incentives are provided to certain employees via

the carsales.com Ltd Employee Option Plan. Total share base payments in FY12

totalled $1.98m, comprising $1.59m in options and $390,000 in performance rights. Mr

Roebuck received $379,000 in options and $154,000 in performance rights. Both

options and performance rights vest according to EPS targets. The shares will vest

over a three-year period, measured against an EPS target. For the third year (the

period ended June 2014), 50% of the vested options will be capable of exercise if the

aggregate EPS growth over the period exceeds 24.6%. 100% will vest at the

maximum EPS aggregate growth target of 29.9%.

Board

■ CRZ’s Board has extensive executive and Board-level experience in media and


■ Half of the Board is independent, however this does not include Chairman Walter

Pisciotta who is the founder of CRZ’ predecessor, Pentana Solutions, and has been

on the Board for over 10 years.

Figure 543: Board skill analysis for CRZ

Name Position

Tenure

(Years) Financial Automobile Media

Former

CEO

ASX 200


Fees / pay

($k)

W Pisciotta Non Exec, Chairman 16.4 X X No 126

G Roebuck CEO & MD 16.4 X No 1983

I law Non Exec 1.5 X X X Yes 84

P O'Sullivan Non Exec 5.3 X X X Yes 92

R Collins Non Exec 12.3 X X X No* 95

K Anderson Non Exec 2.4 X X Yes 85


27 November 2012


Valuation impact

■ We have included 0% ESG impact to our valuation for CRZ. We do not foresee

any ESG risks on the horizon for CRZ.


■ We have a Positive outlook on the MSCI IVA rating for CRZ. CRZ has relatively

small Environmental footprint. We see no reason other than lack of disclosure that it is

scoring poorly on Environmental and Social issues. If the company were to provide

disclosure on these points its rating would likely be higher.

Figure 544: MSCI IVA rating for CRZ: B


27 November 2012


Appendix

Company Overview

Carsales is Australia’s leading provider of online automotive classifieds. The company

operates the carsales.com.au website in addition to a portfolio of related classifieds

websites. The company also derives revenue from related sources including data services

and online display advertising.

While carsales’ core dealer revenue has grown strongly since the acquisition of Trader

Online in 2005, the company has also been successful in diversifying its revenue base

away from a reliance on dealers. In FY05, dealer listings accounted for 73% of revenue.

By FY12 this had decreased to 45% due to strong growth in private listings, display

advertising and data services.


Dealer, 73%

Private, 8%

Display, 10%

Services, 9%

Dealer, 45%

Private, 18%

Display, 24%

Services, 13%


Carsales has achieved significant growth in all four of its revenue streams over the past

seven years. Over time the growth rates in Private and Display have consistently

outstripped those in Dealer, diversifying Carsales’ revenue stream.

Figure 547: CRZ reported revenue and EBITDA margins Figure 548: Growth by revenue stream

0%

10%

20%

30%

40%

50%

60%

$0m

$30m

$60m

$90m

$120m

$150m

$180m

$210m

Revenue ($m)

EBITDA margin

0%

20%

40%

60%

80%

100%

120%

140%

160%


Dealer Private Display Services


Market Position

Australian New Car Sales

The new car market in Australia is a ~$800K market (passenger and SUV vehicle sales).

Sales have remained robust post the Global Financial Crisis due to: 1) discounted prices

to clear excess stock; and 2) Government tax incentives to small businesses.

Looking forward, we expect prices to stabilise as a result of cleaner inventories.

27 November 2012


Figure 549: Australian annual sales of passenger and SUV

vehicles

Figure 550: Australian new car price index

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

88

92

96

100

104

108

112

Source: ABS Source: ABS

Australian Used Car Sales

The used car market in Australia is significantly larger than the new car market, estimated at

twice its size in volume. This is Carsales’ primary market, with all private sales volume and

~90% of dealers’ sales coming from the used car market.

The attraction of the CRZ model for the used car market reflects the fact that every vehicle is

unique, with specific criteria of interest to buyers, in contrast to the commodity like nature of

the new car market.

While used car volumes reduced in line with the trends in the new car market during the

Global Financial Crisis, the level of used car enquiries remained very strong, highlighting the

defensive nature of CRZ’ business model.

Figure 551: CRZ year-end used car inventory (000s) Figure 552: CRZ used car enquiries (000s)

0

20

40

60

80

100


Dealer Private

0

400

800

1,200

1,600

2,000


Dealer Private

Source: CRZ Source: CRZ

Australian Automotive Classified Advertising

The online classifieds market in Australia is a $650mn industry. Online automotive

classifieds are the third largest category (behind Employment and Real Estate),

representing ~$150mn. Carsales is the dominant player in what is otherwise a fragmented

market, with market share of approximately 80%. Key competitors include Carsguide

(www.carsguide.com.au – JV between News Digital and a group of dealers), Drive

(www.drive.com.au – owned by Fairfax Digital), TradingPost (www.tradingpost.com.au –

part of Sensis and owned by Telstra), Ebay (http://cars.ebay.com.au – owned by eBay Inc)

and Gumtree (www.gumtree.com.au).

Carsguide re-launched as a joint venture between News Limited and a group car dealers

in November 2011. Its initial free six-month listing period for dealers resulted in a

meaningful uplift of auto inventory to levels not seen since mid-2010. The listings, however,

do appear to have come from dealers taking advantage of the free offer to list across

multiple sites rather than market share shifts, as Carsales and Drive have also

experienced uplifts in inventory. Carsales’ inventory remains substantially above the levels

of its competitors.

27 November 2012


To date, the re-launched Carsguide’s impact on traffic numbers has been modest, with

Carsales retaining comfortable leadership. Its slight uplift compares with continued strong

trajectory at Carsales and improved momentum at Drive (which has repositioned itself

towards display advertising revenue, in line with parent FXJ’s overall digital strategy). We

view the traffic data as key in determining the long term success of the venture given the

significant network effects inherent in the relationship between unique inventory and traffic.

Figure 553: Online auto inventory by site Figure 554: Monthly Online Auto Traffic (Monthly Unique

Browsers in 000s)

0

50,000

100,000

150,000

200,000

250,000

Carsales Drive Carsguide Trading Post Gumtree

0

50

100

150

200

250

Carsales Drive Carsguide Trading Post

Source: Company websites Source: Google Trends

Although it is the smallest of the three online classifieds verticals, Auto is also the least

penetrated and the least reliant on macroeconomic factors. As a result, it has the highest

future growth potential of the three major verticals in our view.

Figure 555: Classified advertising revenue by media Figure 556: Online classifieds YoY growth by company

0

500

1,000

1,500

2,000


Online Newspapers

-10%

0%

10%

20%

30%

40%

50%

60%

FY07 FY08 FY09 FY10 FY11 FY12

CRZ REA SEK All online classifieds

Source: CEASA Source: Company data, CEASA

Australian Automotive Display Advertising

Display advertising represents around half of total Automotive advertising. Automotive

advertising has been flat over the past five years. However, the mix has shifted

substantially, with online advertising growth of nearly 30% per annum offsetting

considerable weakness among most traditional media. As a result, online display is

becoming an ever more significant component of total ad spend within the category. Digital

now accounts for almost one in five dollars spent on automotive advertising, up fourfold in

the past five years.

We estimate that online automotive display advertising by automotive corporates

amounted to $127mn in 2011, and amounted to around 17% of total manufacturer

spending. As both audiences and classified ads continue to move online, we expect

online’s share of auto advertising to continue to grow.

27 November 2012


Figure 557: 2007-2011 CAGR in auto display advertising

by media

Figure 558: Share of auto display advertising by media

-15.0%

-7.5%

0.0%

7.5%

15.0%

22.5%

30.0%

0%

10%

20%

30%

40%

50%

60%

Television Newspapers Radio Magazines Digital


History

Figure 559: CRZ Key Milestones

Date Event

1996 Carsales formed by the shareholders of Reynolds and Reynolds (renamed Pentana

Solutions). Pentana Solutions supplies IT and communications systems to

automotive dealers in the Asia Pacific region

1997 The carsales.com.au domain name was registered

2002 For dealers, the ‘fee per lead’ model was established (replacing the ‘fee per listing’).

For private, the ‘list until sold’ model was established (replacing the ‘time based

listings’).

2003 Carsales.com.au became the #1 automotive site.

2004 Bikesales.com.au and Quicksales.com.au and uniquecarsales.com.au launched.

2005 Acquisition of Trader Online from ACP Magazines (PBL Media) for a 41% stake in

Carsales. Trader Online included the CarPoint.com.au, BoatPoint.com.au and

BikePoint.com.au websites. PBL subsequently increased its stake to 49%.

2007 Datamotive established. Acquired Discount Vehicles Australia and Automotive Data

Services (The Red Book).

2008 Boatsales.com.au and Greencarsales.com.au launched.

2009 IPO with PBL Media retaining its 49% shareholding.

2011 PBL Media sold its entire stake to the public.

2012 Acquired 15% stake in Torpedo7 (NZ e-commerce business), which was

subsequently unwound two months later.



Figure 560: Historic Sales Growth by Division Figure 561: Historic EBITDA Margin

0%

20%

40%

60%

80%

100%

120%


Dealer Private Display Services

0%

10%

20%

30%

40%

50%

60%



27 November 2012



0%

20%

40%

60%

80%

100%


Series1

0%

50%

100%

150%

200%

250%





0%

20%

40%

60%

80%

100%

120%

140%


0%

10%

20%

30%

40%

50%

60%

70%


ROA ROE



0%

20%

40%

60%

80%

100%

120%

1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12

0%

100%

200%

300%

400%

500%

600%

1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12


27 November 2012



interest / EBITDA)


0%

20%

40%

60%

80%

100%

120%

140%


$0m

$2m

$4m

$6m

$8m

$10m

$12m

$14m

$16m





Internet Companies

-1.2x

-1.0x

-0.8x

-0.6x

-0.4x

-0.2x

0.0x

0.2x

0.4x

FY06 FY07 FY08 FY09 FY10 FY11 FY12F

-1.5x

-1.0x

-0.5x

0.0x

0.5x

1.0x

1.5x

CRZ REA SEK TME


calendarised




Dominant market position in auto

classifieds

No contracts so dealers can leave at

any stage

Increasing penetration of digital

in auto classifieds

Increasing competition keeping a lid

on yield

Defensive earnings in used car

sales

Highest price in private cars versus

competitors

Increasing ad spend by car

manufacturers

Changes in technology

Exposure to online display

advertising

Cyclical earnings in new car sales Growth offshore

IP in data and technology Heavily reliant on technology




Auto Medium Medium Medium Low Low

Non-Auto Medium Medium Medium Low Medium



Walter Pisciotta (Non-executive Chairman)

Mr Pisciotta has more than 35 years’ experience in supplying computer services to the

automotive industry. Mr Pisciotta is also the Chairman of Pentana Solutions and has been

the Chairman of CRZ since inception.

27 November 2012


Greg Roebuck (Managing Director and Chief Executive Officer)

Mr Roebuck has more than 25 years’ experience in providing technology solutions to the

Australian automotive industry. Mr Roebuck was the original architect of CRZ and has

been on its Board since its inception. Mr Roebuck has been a Managing Director and

Chief Executive Officer of CRZ since 2002.

Patrick O’Sullivan (Non-executive Director)

Mr O’Sullivan is the Chief Financial Officer of PBL Media and previously was the Chief

Financial Officer at Optus.

Ian Law (Non-executive Director)

Mr Law is the Chief Executive Officer of PBL Media and previously was the Chief

Executive Officer of Australian Consolidated Press. Prior to these positions Mr Law was

Managing Director and Chief Executive officer of West Australian Newspaper Holdings Ltd.

Richard Collins (Non-executive Director)

Mr Collins has been a Director of CRZ since 2000. Previously Mr Collins worked for Ford

Motor Company for 10 years and has more than 25 years’ experience as a Dealer

Principal. Mr Collins currently holds Ford, Toyota and Subaru franchises.

Kim Anderson (Non-executive Director)

Ms Anderson is the CEO of The Reading Room, a community/social networking site for

readers, and a non-executive Director of STW Communications Group Limited. Ms

Anderson has more than 25 years’ experience in various advertising and media executive

positions within companies such as Southern Star Entertainment, PBL and NineMSN.

Cameron McIntyre (Chief Financial Officer)

Mr McIntyre is the former Director Finance of Sensis and has over 17 years’ experience in

finance and administration. He is a Certified Practicing Accountant and a graduate of the

Harvard Business School’s General Management Program.

Damian Hardy (General Manager Datamotive)

Mr Hardy has been with the company for 5 years and has over 17 years’ experience in the

automotive industry, particularly in the field of automotive finance.

Ajay Bhatia (Chief Information Officer)

Mr Bhatia is the former Product & Technology Director of Drive.com.au. During his five-

year tenure at Fairfax Digital, Mr Bhatia held several technical and commercial leadership

positions. He has over 14 years of experience in Technology.

Anthony Saines (Advertising Director)

Mr Saines has held a number of senior roles in the online advertising industry since

moving to Australia in 1998. Most recently, Anthony was General Manager of Sensis

Digital Marketing Services (with P&L responsibility for MediaSmart, one of Australia’s

largest online advertising networks) and sat on the board of Adstream Pty.


Figure 574: CRZ Substantial Shareholders


Hyperion Asset Management 12.5%

Wilson HTM 12.2%

Fidelity 7.5%

Walter Pisciotta 6.8%

NAB 6.6%

Arnhem Investment Management 5.9%

UBS 5.4%

ANZ 5.1%

Platypus Asset Management 5.0%

Source: Bloomberg

27 November 2012



REA Group (REA.AX / REA AU)

Good business, fair price

■ We initiate coverage of REA Group (REA.AX) with a NEUTRAL rating and $19.76 per share target price.

■ Investment Case: Good business, fair price. Our investment view is shaped by four considerations: 1) REA is a quality business and on 25x FY13 EPS, is fair value. REA has delivered 50% TSR over the past 12 months. 2) The core Australian business is likely to continue to grow strongly, albeit at a slower rate than historically achieved. We forecast 15% EBITDA CAGR over the next five years (compared with 27% EBITDA CAGR over the last five). REA’s dominant market position coupled with new services and premium offerings should enable pricing power and yield expansion. We expect yield expansion to more than offset agent consolidation. 3) REA has $182mn net cash on its balance sheet. An acquisition or return to shareholders appears likely. REA’s net cash would increase with a potential sale of the atHome business (which may be sold due its smaller growth opportunities geographically and strong competition, particularly in France). An acquisition appears more likely than a return of capital to shareholders, in our view. An acquisition which cements REA’s dominant position in Italy is likely to be well received. 4) There is the possibility of a change in shareholding by News Corporation in line with the split of the business at the end of FY13. News Corporation currently owns 61% of REA.

■ Catalysts: Possible cash utilisation: REA has $182mn net cash on its balance sheet. An acquisition or distribution to shareholders appear likely outcomes. An acquisition of a dominant real estate business in an attractive market (high growth or similar to Australia so easier to understand) at a good price would be value enhancing, in our view.

■ Valuation: We have a $19.76 per share target price. This is based on our Sum of the Parts valuation of $20.81 per share. We apply a 5% discount to our valuation due to governance issues.


100

120

140

160

180

8

10

12

14

16








Year 06/12A 06/13E 06/14E 06/15E Revenue (A$mn) 277.6 308.5 343.6 371.7 EBITDA (A$mn) 126.0 148.6 172.1 187.9 EBIT (A$mn) 110.8 132.7 155.7 171.1 Net income (A$mn) 87.0 99.4 117.3 130.1 EPS (CS adj.) (Ac) 66.22 75.49 89.07 98.74 Change from previous EPS (%) n.a. — — — Consensus EPS (Ac) n.a. 76.80 88.40 97.90 EPS growth (%) 27.4 14.0 18.0 10.9 P/E (x) 28.3 24.8 21.1 19.0 Dividend (Ac) 33.00 38.50 45.00 50.00 Dividend yield (%) 1.8 2.1 2.4 2.7 P/B (x) 9.8 8.1 6.7 5.7 Net debt/equity (%) net cash net cash net cash net cash



Rating NEUTRAL*

Price (26 Nov 12, A$) 18.75





Projected return:







Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

RE

A.A

X

27 November 2012



REA Group (REA) Year ending 30 Jun In AUDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015





c_DPS*100DPS c 26.0 33.0 38.5 45.0 50.0

c_PAYOUT*100Payout % 50.0 49.8 51.0 50.5 50.6





EBITDA 101.8 126.0 148.6 172.1 187.9 c_PE P/E x 36.1 28.3 24.8 21.1 19.0




Net interest Exp. 4.6 7.7 9.4 11.9 14.7 c_FCF_YIELD*100FCF Yield % 2.8 3.4 4.0 4.7 5.1









Reported NPAT 68.7 87.0 99.4 117.3 130.1 c_GEARING*100Net Debt to Net debt + Equity % Net Cash Net Cash Net Cash Net Cash Net Cash

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash Net Cash Net Cash Net Cash Net Cash

Balance Sheet 06/11A 06/12A 06/13E 06/14E 06/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x -22.2 -16.5 -15.8 -14.5 -12.8

Cash & equivalents 137.5 181.6 230.4 287.2 349.1 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -19.9 -14.5 -14.1 -13.1 -11.6






Intangibles 64.0 68.1 71.5 75.6 79.9



Total assets 248.4 300.9 358.2 424.2 494.5

Payables 23.8 20.8 23.5 26.2 28.3




Net assets 196.9 250.5 305.2 368.5 436.6

Ordinary equity 192.7 250.2 304.9 368.2 436.3




Net debt -137.5 -181.6 -230.4 -287.2 -349.1 Source: MSCI IVA Rating


EBIT 91.3 110.8 132.7 155.7 171.1

Net interest 4.7 7.5 9.4 11.9 14.7

Depr & Amort 10.5 15.2 15.9 16.4 16.8

Tax paid -28.8 -31.1 -42.6 -50.3 -55.7

Working capital -1.3 -7.9 -2.4 -2.5 -2.0

Other 0.0 2.3 0.0 0.0 0.0


Capex -3.7 -3.7 -3.9 -4.1 -4.3


Capex - maintenance



Other -15.2 -26.1 -15.4 -16.3 -16.7


Dividends paid -9.8 -22.6 -44.8 -54.0 -61.9

Equity raised 1.4 0.0 0.0 0.0 0.0

Net borrowings 0.0 0.0 0.0 0.0 0.0



Total cashflow 50.3 44.4 48.8 56.8 61.9 Relative 9.8% 17.9% 46.8%

Adjustments -0.9 -0.4 0.0 0.0 0.0



27/11/2012 0:02

REA Group Ltd operates a predominant online real estate advertiser. The company offers

classified advertising, display advertising, web development and home loan services.

Credit Suisse View

TP Risk Comment: NWS owns over half the shares in REA

and has effective Board control, resulting in a low free float

and reduced liquidity in addition to higher risks to minority

shareholders.

10.00

11.00

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20.00

15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

REA.AX XJO

-1.0

-0.9

-0.8

-0.7

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Stock Local Sector



27 November 2012


Dominant player in core market

Dominant position in the core Australian market

The Australian Real Estate classifieds market is $700mn–$900mn (online $250mn–

$350mn, print $450mn–$550mn). REA is the dominant player with 50%–70% online

classifieds market share (20%–25% share overall). REA operates the realestate.com.au,

realcommercial.com.au, property.com.au, homeguru.com.au and ozhomevalue.com.au

websites.

Domain (owned by Fairfax) is the closest competitor. Homehound and Myhome are

smaller competitors. REWA is a strong competitor in Western Australia.

Figure 576: Unique monthly browsers Figure 577: Time spent on real estate portals

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000


realestate.com.au

Domain

Source: Com Google analytics Source: Nielsen

Varying degrees of success offshore

REA is the #1 or #2 player in all offshore markets.

■ In Italy, REA is the market leader with Casa. Immobilliare is the #2 player.

■ REA is the market leader in Greater Luxembourg and is the second largest player in

Alsace and Lorraine in France with atHome. Seligare is the market leader in France

(particularly Paris) and Laboquet is the market leader in Alsace and Lorraine.

■ In Hong Kong, REA is the joint market leader in English speaking property websites.

Print is still very strong in Hong Kong, particularly for real estate classifieds.

■ REA closed its New Zealand operations in 2008. REA’s allrealestate.co.nz was the

second largest player in the market behind Trade Me.

■ REA sold its stake in UK site Propertyfinder in 2009. The loss-making

Propertyfinder.com was second to dominant market leader Rightmove.co.uk.

Figure 578: Geographical Operational Overview Figure 579: Italian Online Real Estate Unique Browsers

Source: Company FY12 Presentation Source: Company FY12 Presentation

27 November 2012


Australia: Yield growth to offset agent consolidation

Agent consolidation

REA has ~9,000 subscribing real estate agents in Australia, representing ~95%

penetration. With high penetration and agent consolidation, volumes are likely to be flat-to-

down over the medium term.

As seen in Figure 580, the number of paying agents has declined each period since1H11

(with the natural disasters in Queensland in CY2011 resulting in a contraction to

Queensland agents).

Figure 580: Period end paying agents - Australia Figure 581: Period Average ARPA – Australia

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

6,000

6,500

7,000

7,500

8,000

8,500

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10,000

Agents % change

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$0

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$400

$600

$800

$1,000

$1,200

$1,400

$1,600

ARPA % change

Source: Company data Source: Company data. ARPA – Average Revenue per Paying Agent

Assessing the yield opportunity

REA’s leading market position in Australia has enabled pricing power and yield growth

(refer Figure 581). REA’s historic yield growth has primarily been driven by a 10%

increase in base subscription fees each year. More recently, a shift towards depth product

(listing fees rather than subscription fees) and premium services have been introduced.

We expect growth in base subscription fees to moderate going forward. Yield expansion is

likely to continue – however will be a result of increasing depth (listing) product and

premium service offerings.

We forecast static volumes and 7% yield growth on average p.a. for the next five years.

Figure 582: REA Australia Product Summary


27 November 2012


Figure 583: REA Residential Listing Product Hierarchy

(Premiere, Highlight, Feature, Standard)

Figure 584: REA Residential Branding Product Example

(Feature Agent)

Source: Company FY12 Presentation Source: Company FY12 Presentation

Display revenue growth to continue

We expect strong growth in display advertising revenues. Strong traffic coupled with

premium offerings is likely to support yield expansion over the short to medium term.

Figure 585: Media & Other Revenue Figure 586: Agency Display Advertising Revenue and

Share of Total Online Display

$0m

$5m

$10m

$15m

$20m

$25m

$30m

1H11 2H11 1H12 2H12

0%

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$0.3m

$0.6m

$0.9m

$1.2m

$1.5m

$1.8m

$2.1m

$2.4m

$2.7m

$3.0m

Monthly revenue (LHS) Market share

Source: Company data Source: SMI

International: Assessing the growth opportunity

Italy

REA owns Casa.it, the #1 online real estate business in Italy. Its closest competitor is

Immobilliare. The main difference between the Italian and Australian markets is the

agent/vendor mix. In Italy, a much higher proportion of properties are sold by vendors

(50% vendor sales Italy, <10% Australia). As such, Casa.it has a larger proportion of one-

off listings relative to subscriptions.

27 November 2012


In FY12, Casa.it experienced a decline in customer numbers as a result of the weak

environment and a firmer credit policy from Casa.it. We expect volumes to remain under

pressure in FY13.

Yield has typically expanded each year at Casa.it and also at Immobilliare (which

discounts more than Casa.it). We forecast double-digit yield growth in FY13.

There is the potential for REA to increase its market share through further acquisitions.

Figure 587: Italian Online Real Estate Unique Browsers


Hong Kong

REA owns squarefoot.com.hk (print and online). Squarefoot.com.hk was originally a print

business that has expanded online. Print remains the dominant medium for real estate

classifieds in Hong Kong. Squarefoot.com.hk is the joint market leader in English speaking

property websites in Hong Kong. It is particularly strong in Hong Kong Island.

The key growth potential for Squarefoot.com.hk is to leverage Australian agents and

developers for Australian housing to the Hong Kong market. Capturing the migration of

consumers to digital is also critical.

Sqaurefoot.com.hk is currently unprofitable. We expect the business to breakeven in FY13.

Luxembourg

REA owns atHome.lu (print and online), atHome.de, immoregion.fr and atoffice.lu

(commercial). REA is the market leader in Greater Luxembourg and is the second largest

player in Alsace and Lorraine in France with atHome. Seligare is the market leader in

France (particularly Paris) and Laboquet is the market leader in Alsace and Lorraine.

The business generated $2.6mn EBITDA in FY12. We expect little EBITDA growth in

FY13 due to a higher level of investment.

Whilst there is meaningful growth potential over the longer term, we do not expect the

atHome businesses to be a long-term part of REA.

Investment in other markets with lower competition or an acquisition of the leading player

in a market appears a more likely scenario for REA.

27 November 2012


Valuation

Sum of the parts


Figure 588: REA Valuation

FY12A FY17F Prior 5Yr CAGR Forecast 5 Yr CAGR


Australia $mn 130 209 261 323 27% 10% 15% 20%

Italy $mn 1 17 28 45 54% 80% 100% 120%

Hong Kong $mn 0 8 11 14 na na na na

Luxembourg $mn 3 28 50 84 57% 60% 80% 100%

Other/Corporate costs $mn -7 -7 -7 -7

EBITDA $mn 126 254 342 459 40% 15% 22% 29%

PV EBIT $mn 126 158 213 285

Multiple x 12.0 12.0 12.0 12.0


Net Debt $mn -182 -182 -182 -182

Equity Value $mn 1693 2073 2732 3599

SOI mn 131 131 131 131


ESG discount % 5% 5.0% 5.0% 5.0%

Target price $ / share $ 12.25 $ 14.99 $ 19.76 $ 26.04


Figure 589: REA Digital Comparable Companies

P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F



Ebay 22.4x 19.4x 16.6x 13.3x 11.5x 10.2x


Google 17.3x 14.7x 12.5x 10.2x 8.6x 7.4x

Yahoo 8.9x 8.3x 15.5x 11.5x 12.2x 12.1x

Baidu 24.5x 19.0x 17.5x 18.9x 14.5x 12.6x

Average 18.0x 14.9x 13.8x 11.8x 9.9x 8.7x


DCF


Figure 590: REA DCF Valuation

PV of FCF 1054

Terminal value 1159

Other 0


Net debt -182



Value per share $18.23


27 November 2012











stocks.


results in a $13.87 per share valuation for REA. The table below highlights the sensitivity

of REA’s valuation to varying sales growth and EBITDA margin assumptions.

Figure 591: REA valuation metrics through Credit Suisse HOLT®


PE Multiple

Figure 592: REA one year forward PE Figure 593: REA PE relative to All Ords Index (ex


0

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Risks

The key risks to our investment thesis for REA are as follows:


change to EBITDA, a 2% change to EPS and <1% change to our DCF valuation.

■ Changes to property sales, property prices and auction clearance rates.

27 November 2012






ESG Issues

Environment issues

■ In our view there are no material environmental issues facing REA.

Social issues

■ In our view there are no material social issues facing REA.

Governance issues

■ Only 25% of REA’s Board is Independent, with four Directors (including the Chairman)

representatives of News Limited. As a subsidiary of NWS it is possible that REA could

be impacted by governance issues at its parent company.

Remuneration

■ Base salary: A review was undertaken during the 2012 financial year. Fixed

remuneration levels for the CEO and a number of senior executives was increased

effective 1 July 2011, based on individual performance and to align to market

remuneration levels.

■ Short-term incentives: The annual short-term incentive (STI) program is a cash-

based plan that involves linking specific financial and non-financial targets with the

opportunity to earn incentives based on a percentage of fixed salary for the CEO and

senior executives. The ‘Target’ STI opportunity is currently 54% of fixed remuneration

for the CEO and between 30%–50% for the senior executives. Financial measures

(EBIT and revenue growth) accounted for 80% of the target STI for the CEO, with

100% of the target incentive awarded at the (undisclosed) target financial benchmark

and a pro rata sliding scale up to 200% of the target award at 120% of the target

benchmark. Non-financial measures (20% of target STI) are awarded based on the

Board’s assessment of individual performance and the % of target incentive awarded

ranges from 0% to 200%.

■ Long-term incentives: The LTI plan is designed to link long-term executive reward

with on-going creation of shareholder value, with the allocation of equity awards which

are subject to satisfaction of long-term performance conditions. The number of

performance rights issued to each executive is calculated by dividing their ‘target LTI’

value (which is currently 46% of fixed remuneration for the CEO and between

approximately 20% to 35% for the senior executives) by the value per right. All senior

executives (including the CEO) participate in the LTI plan. The performance hurdles

for the most recent grant are evenly split between revenue CAGR and EPS CAGR.

70% of performance rights vest at the threshold, 100% at the target and 120% at the

‘stretch’ target. No rights vest if financial performance does not reach the threshold.

The actual targets and threshold levels are not explicitly disclosed, however reference

is made to “double-digit growth at the threshold” for both.

■ CEO Greg Ellis’ total remuneration for FY12 was $1.25mn ($674,000 salary, $257,000

bonus – equating to 79% of the target STI – and $300,000 LTI).

27 November 2012


Board

■ REA’s Board has extensive executive and Board-level experience in media and


■ Only two of the eight directors are independent.

Figure 594: Board skill analysis for REA

Name Position

Tenure


Former

CEO

ASX 200


Fees / pay

($k)

Hamish McLennan Chairman 0.6 X X No N/A

Greg Ellis MD & CEO 4.1 X No 1,248

Roger Amos Non Exec 6.3 X Yes 103

Kathleen Conlon Non Exec 5.4 X Yes 103

Richard J Freudenstein Non Exec 6.0 X X X No N/A

John D McGrath Non Exec 13.1 X No* 87

John Pittard Non Exec 2.3 X X No N/A

Stephen P Rue Non Exec 9.2 X X X No N/A


Valuation impact

■ We have included a 5% ESG impact to our valuation for REA. NWS owns 61% of

REA and has effective Board control, resulting in a low free float and reduced liquidity

in addition to higher risks to minority shareholders.


■ REA is not currently rated by MSCI

27 November 2012


Appendix

Company Overview

REA Group is Australia’s leading provider of online real estate classifieds. The company

operates the realestate.com.au website in addition to similar websites in Italy, Hong Kong

and Luxembourg. The company also derives revenue from related sources including

services for real estate agents and online display advertising.

REA, which does not provide services to private sellers, has been close to full penetration

of the real estate agent landscape for several years. While the company has been

successful in growing yields and developing new products, it has also moved into

international markets in order to supplement the strong domestic growth. REA has had

mixed success in its international expansion, with the now divested UK operations

lossmaking throughout REA’s ownership. The company’s Italian and Luxembourg

operations are profitable at EBITDA level, while Hong Kong is at breakeven, however as

yet none are meaningful contributors to the bottom line.



Market Position

Australian online classifieds

The online classifieds market in Australia is a $650mn industry. Real estate classifieds are

the largest category (ahead of Employment and Automotive) representing ~$250mn of

annual ad spend. REA is the clear market leader with an estimated revenue market share

of 70%. FXJ’s Domain is REA’s biggest competitor. REA is the dominant player in terms of

both traffic (see Figure 597) and time spent on site (see Figure 598).

Figure 597: Unique monthly browsers Figure 598: Time spent on real estate portals

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000


realestate.com.au

Domain

Source: Com Google analytics Source: Nielsen

27 November 2012


Italy

REA owns Casa.it, the #1 online real estate business in Italy. Its closest competitor is

Immobilliare. The main difference between the Italian and Australian markets is the

agent/vendor mix. In Italy, a much higher proportion of properties are sold by vendors

(50% vendor sales Italy, <10% Australia). As such, Casa.it has a larger proportion of one-

off listings relative to subscriptions.

Figure 599: Italian Online Real Estate Unique Browsers


History

Figure 600: REA Key Milestones

Date Event

1995 Founded in Melbourne as Netwide Solutions

1998 Realestate.com.au launched

1999 Listed on the ASX as realestate.com.au

2000 44% stake acquired by NWS for $2.25m cash and contribution of sales and

marketing services, co-branding of print real estate pull-outs and shared technology

2005 Unsuccessful takeover by NWS

2006 Acquisition of UK-based Property Finder for $34mn in conjunction with NWS

2007 Casa.it (Italy), squarefoot (Hong Kong) and atHome (Luxembourg) acquired

2008 Name changed to REA Group

2009 UK operations sold at a significant loss. Ray White Group sells 11% stake in REA

2011 Acquired Sky Italia’s 31% stake in casa.it for $9m to move to full ownership


27 November 2012




0%

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Australia Total

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27 November 2012



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Internet Companies

-2.0x

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CRZ REA SEK TME


27 November 2012





Dominant market position in real

estate classifieds

Real estate market highly exposed to

macro conditions

Increasing penetration of digital

in real estate classifieds

Irrational pricing by competitors

suppressing yields

Stable subscription-based

revenues from agents

Heavily reliant on technology Increasing ad spend by real

estate and finance companies

Changes in technology

Exposure to online display

advertising

Offshore growth opportunities




Real estate Medium Medium Medium Low Low

Display Low High Medium Low Medium



Hamish McLennan (Non-executive Chairman). Non-Independent.

Mr McLennan replaced Richard Freudenstein as Chairman in April 2012 after the latter’s

appointment as CEO of Foxtel. Mr McLennan is the Executive Vice President, Office of the

Chairman at News Corporation, responsible for developing and enhancing its large-scale, global

brand partnerships. Prior to joining News Corporation, Mr McLennan was the global Chairman of

Young & Rubicam, part of WPP, the world’s largest communications services group.

Greg Ellis (Managing Director and Chief Executive Officer). Non-Independent.

Mr Ellis was appointed Chief Executive Officer and Managing Director of REA Group in

September 2008. Mr Ellis is a seasoned online executive having held senior management

roles in Internet-based companies in Australia and internationally. He joined REA from

Microsoft where he was Marketing Director Asia Online Services. Prior to that, he was

Managing Director Online, for Truvo BV, a leading local search and advertising business

operating in six countries: The Netherlands, Belgium, Ireland, Portugal, South Africa and

Romania. In Australia, his prior roles have included Managing Director of Sensis

Interactive and Group Manager Marketing for Telstra Corporation.

Richard Freudenstein (Non-executive Director). Non-Independent.

Mr Freudenstein is the Chief Executive Officer of Foxtel and was formerly the CEO of

News Digital Media (the digital division of News Limited) and the Australian newspaper. Mr

Freudenstein was formerly Chairman of REA prior to his appointment as Foxtel CEO. He

is a director of Astra, MCN, ESPN Star Sports and The Bell Shakespeare Company. Mr

Freudenstein returned to Australia in August 2006 after seven years at British Sky

Broadcasting, the last six as Chief Operating Officer.

Roger Amos (Non-executive Director). Independent.

Mr Amos is Chairman of Tyrian Diagnostics and was previously an independent Director of

Austar Communications. He previously worked with international accounting firm KPMG

for 25 years as a partner in the Assurance and Risk Advisory Services Division. While with

KPMG he led the Australian team specialising in the information, communications and

entertainment sectors.

Kathleen Conlon (Non-executive Director). Independent.

Ms Conlon has been a non-executive Director of CSR Limited since 2004. She is also a non-

executive director of DLA Phillips Fox and a member of Chief Executive Women. In her seven

years as a partner and director of the Boston Consulting Group (BCG), Ms Conlon led BCG’s

Asia Pacific Operations Practice Area and, previously, the Sydney Office.

John McGrath (Non-executive Director). Non-Independent.

Mr McGrath founded McGrath Estate Agents in 1988. He has grown McGrath Estate

Agents to be one of Australia’s most successful property services groups, becoming the

first real estate company to be ranked on BRW’s Australia’s Fastest Growing Private

Companies List. Mr McGrath is a Director of McGrath Group of Companies and the

Rawson Group.

27 November 2012


John Pittard (Non-executive Director). Non-Independent.

Mr Pittard is the Chief Information Officer for News Limited, providing technical leadership

for News Limited’s mastheads throughout Australia as well as its online properties such as

news.com.au, truelocal.com.au and carsguide.com.au. Mr Pittard contributes over 30

years of experience in senior technology roles with some of Australia’s largest companies

including Telstra, Pioneer Australia and Shell International.

Stephen Rue (Non-executive Director). Non-Independent.

Mr Rue is the Chief Financial Officer of News Limited, the Australian arm of News

Corporation. He was appointed to his current role in May 2003, and previously was the

company’s Group Finance Manager. Mr Rue first joined News Limited in 1996 and moved

into the role of Treasurer and Special Projects Manager prior to being appointed Group

Finance Manager.

Rebecca Liatis (Company Secretary).

Rebecca Liatis is a Company Secretary with over 10 years’ experience in ASX listed

companies. Before joining REA Group, Ms Liatis was an Assistant Company Secretary at

Australia and New Zealand Banking Group Limited, and has also held company secretarial

positions at Melbourne Docklands Studio and Symbion Group Limited (previously Mayne

Group Limited).

Jenny Macdonald (Chief Financial Officer)

Ms Macdonald joined REA Group March 2011 and is an experienced CFO with over 15

years in senior finance roles. She previously worked for Flight Centre for five years where

she commenced as General Manager Retail Finance, then Chief Financial Officer for

Flight Centre New Zealand and her most recent role was General Manager of FCM Travel

Solutions (NZ).

Daniele Mancini (Chief Executive casa.it)

Mr Mancini joined the REA Group in 2009. His most recent role was Corporate e-Business

& Direct Sales Director for Costa Crociere S.p.A., a leading cruise company in Europe and

South America.

Henry Ruiz (Chief Product Officer)

Mr Ruiz joined the REA Group in early 2009 with more than 14 years’ experience in the

Digital Media space. He has been instrumental in the progress REA has made in the

online and mobile space over the past two years and continues to lead the consumer and

product team in this regard. His previous role was Vice-President of Media Solutions and

Partnerships (Asia Pacific) at Local Matters, where he helped some of the biggest digital

publishers develop and implement their online and mobile strategies and more than

doubled regional revenue over 18 months.

Nigel Dalton (Chief Information Officer)

Mr Dalton has over 25 years of IT-related experience across multi-nationals and start-ups.

In 2007 he joined travel publisher Lonely Planet as General Manager of Information

Technology, becoming Deputy Director of Digital (web and mobile businesses) in 2010.

Most recently, he co-founded a consultancy, Luna Tractor, to help organisations apply

systems thinking, lean and agile software development techniques to all aspects of

business.


Figure 615: REA Substantial Shareholders


NWS 61.60%

Hyperion Asset Management 10.17%

Source: Bloomberg

27 November 2012


Asia Pacific / New Zealand

Trade Me Group (TME.AX / TME AU)

Fair price for dominant online player in NZ

■ We initiate coverage of Trade Me Group Limited (TME.AX) with a

NEUTRAL rating and A$3.70 / NZ$4.60 per share target price.

■ Investment Case: Fair priced for a dominant online player in New

Zealand. Our investment view is shaped by four considerations: 1) Trade Me

is the leading online Marketplace in New Zealand with ~95% market share.

Its dominant position should enable pricing power and yield expansion over

the medium term. The Channel Advisor partnership is likely to drive growth

in new goods, with software platforms integrated by the important Christmas

2012 shopping season. 2) Trade Me is New Zealand’s leading online

Classifieds business with ~50% market share (#1 Auto, #1 Real Estate, #2

Employment). Strong competitors in REA and SEK are likely to keep a lid on

yield in real estate and employment, however TME’s dominant position in

Auto should provide some offset (particularly following the Auto Base

acquisition). 3) TME’s strong traffic across its suite of websites coupled with

continued migration of advertising online should fuel strong growth in TME’s

display revenues. There is further upside from successful expansion of

TME’s digital transaction businesses including Pay Now, Travel Bug and

Find Someone, however we have not included significant growth in our

forecasts at this point. 4) TME is fairly priced at 22x FY13 PE.

■ Catalysts: Channel Advisor partnership to boost Christmas 2012 sales. TME should benefit from strong sales growth over the Christmas 2012 shopping season, with the Channel Advisor partnership and system integration complete for the important Christmas 2012 shopping season. We forecast 15% revenue growth for TME in 1H13.

■ Valuation: We have a A$3.70 / NZ$4.60 per share target price. This is based on our Sum of the Parts valuation of A$3.82 / NZ$4.75 per share. We apply a 3% discount to our valuation due to governance issues. We note that FXJ owns 51% of TME and is unlikely to be a long term holder of the stock.


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Dec-11 Apr-12





Performance Over 1M 3M 12M Absolute (%) -2.8 15.5 — Relative (%) -1.8 14.1 —


Year 06/12A 06/13E 06/14E 06/15E Revenue (NZ$mn) 142.5 163.7 182.4 199.6 EBITDA (NZ$mn) 106.6 120.8 133.5 146.4 EBIT (NZ$mn) 101.5 117.6 130.2 142.9 Net income (NZ$mn) 72.3 79.3 89.0 98.8 EPS (CS adj.) (c) 18.26 20.03 22.49 24.94 Change from previous EPS (%) n.a. — — — Consensus EPS (c) n.a. 19.60 21.10 22.90 EPS growth (%) 3.7 9.7 12.2 10.9 P/E (x) 23.8 21.7 19.4 17.5 Dividend (c) 6.80 16.03 17.99 19.96 Dividend yield (%) 1.6 3.7 4.1 4.6 P/B (x) 2.7 2.6 2.5 2.4 Net debt/equity (%) 19.9 15.7 12.3 8.7



Rating NEUTRAL*

Price (26 Nov 12, A$) 3.42





Projected return:








Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

James Schofield

+64 9 307 5726

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

TM

E.A

X

27 November 2012



Trade Me Group Ltd (TME) Year ending 30 Jun In NZDmn, unless otherwise stated2011 2012 2013 2014 2015 2011 2012 2013 2014 2015




DCF NZ$ 3.30 c_EBITDA_MARGIN*100EBITDA Margin % 78.8 74.9 73.8 73.2 73.3

c_DPS*100DPS c 0.0 6.8 16.0 18.0 20.0

c_PAYOUT*100Payout % 0.0 37.2 80.0 80.0 80.0





EBITDA 98.7 106.6 120.8 133.5 146.4 c_PE P/E x 24.6 23.8 21.7 19.3 17.4




Net interest Exp. 5.6 (2.7) (8.1) (7.3) (6.5) c_FCF_YIELD*100FCF Yield % 4.8 4.2 4.9 5.2 5.8









Reported NPAT 69.7 75.6 79.3 89.0 98.8 c_GEARING*100Net Debt to Net debt + Equity % Net Cash 16.6 13.6 10.9 8.0

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x Net Cash 1.2 0.9 0.6 0.4

Balance Sheet 06/11A 06/12A 06/13E 06/14E 06/15E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x -17.7 39.3 14.8 18.3 22.6

Cash & equivalents 6.0 39.1 62.3 82.4 104.5 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -17.1 37.4 14.5 17.9 22.1






Intangibles 757.5 773.4 776.1 778.9 781.6



Total assets 811.7 823.0 849.0 871.6 896.1

Payables 6.0 9.3 13.4 14.2 14.9




Net assets 769.6 638.6 660.5 682.3 706.0

Ordinary equity 769.6 638.6 660.5 682.3 706.0




Net debt -6.0 127.0 103.8 83.7 61.6 Source: MSCI IVA Rating


EBIT 95.2 101.5 117.6 130.2 142.9

Net interest -14.4 -32.8 -10.0 -10.0 -10.0

Depr & Amort 3.5 5.2 3.2 3.3 3.5

Tax paid -16.7 -25.6 -30.6 -34.4 -38.2

Working capital -2.2 -2.9 3.3 0.3 0.2

Other 22.4 27.0 1.8 2.7 3.5


Capex -4.6 -1.1 -1.9 -2.0 -2.1


Capex - maintenance



Other -80.6 -30.1 -2.7 -2.7 -2.7


Dividends paid 0.0 -8.2 -57.4 -67.3 -75.0

Equity raised 0.0 0.0 0.0 0.0 0.0

Net borrowings 0.0 0.0 0.0 0.0 0.0

Other 0.0 -3.9 0.0 0.0 0.0 1 Month 3 Month 12 Month

Financing cashflow 0.0 -12.1 -57.4 -67.3 -75.0 Absolute -2.8% 16.3% #NULL!

Total cashflow 2.5 33.1 23.2 20.1 22.1 Relative -1.8% 14.8% #NULL!

Adjustments 0.0 0.0 0.0 0.0 0.0



27/11/2012 9:19

Trade Me is the leading online marketplace and classifieds business in New Zealand. The

company provides its members with a platform through which to sell goods and services

through a comprehensive range of listings.

Credit Suisse View

TP Risk Comment: The board is not fully independent and

there is a risk that minority shareholders' wishes could be

ignored by majority shareholder FXJ.

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27 November 2012


Dominant player in New Zealand

Leading online marketplace in New Zealand

Trade Me is the leading online marketplace in New Zealand with over 14 million sales a

year of new and used goods, approximately 2.2mn concurrent live listings and 95% market

share. It has 3mn members with approximately 1.0mn logging in each month and more

than 1.1mn people buying something on Trade Me in the past 12 months. Trade Me is the

fourth most visited site in New Zealand.

Trade Me benefited from first mover advantage. Trade Me was established in 1999. Its

closest competitors in the marketplace industry in New Zealand are eBay NZ and Sella

(owned by APN). eBay entered the New Zealand market in 2001 and Sella entered in

2008. Unlike Trade Me, Sella offers free listings and no success fees, thus relying entirely

on advertising revenues.

We expect the online marketplace industry in New Zealand to continue to grow strongly as

consumers continue to migrate their discretionary spend online.

Figure 617: New Zealand online auction site traffic (daily

unique visitors in 000s)

Figure 618: Top Internet properties (average minutes per

month, entire population)

0

200

400

600

800

1,000

1,200


Trade Me eBay NZ Sella

0 mins 50 mins 100 mins 150 mins 200 mins 250 mins

Apple

Glam Media

Wikipedia

APN

Fairfax

Yahoo! sites

Trade Me

Microsoft sites

Google

Facebook

Source: Google Analytics Source: comScore

Dominant online classifieds business in New Zealand

Trade Me also has a strong presence in the New Zealand online classifieds market with

~50% market share. It is the leading Automotive and Real Estate classifieds business and

second largest Employment classifieds business.

We expect strong growth in online classifieds as digital advertising continues to shift online.

Figure 619: Digital advertising revenue per capita – NZ vs.

Australia (A$)

Figure 620: FY12 online share of Ad spend – Australia

versus New Zealand

$-

$20

$40

$60

$80

$100

$120

$140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia New Zealand

0%

5%

10%

15%

20%

25%

Australia New Zealand

Source: IAB, Stats NZ, ABS Source: CEASA, IAB, Advertising Standards Authority

27 November 2012


Assessing the earnings growth potential

General Items: Online marketplace business maturing

With 95% market share of the online marketplace in New Zealand, volume growth in Trade

Me is likely to be at best in line with the industry. There is a risk that it loses some market

share as international sites get traction (particularly in new goods).

There is the potential for further yield expansion if Trade Me can offer premium services.

Currently Trade Me generates the majority of revenue (66%) from success fees, with only

26% revenues generated from premium fees. Listings are free for most items (except pets,

livestock, domain names, businesses, carbon credits).

Over the past five years, Trade Me’s General Items business has achieved 13% revenue

CAGR. Over the next five years we expect Trade Me’s General business to achieve 12%

revenue CAGR.

In FY12 Marketplace (general items) revenues accounted for 45% of TME’s total group

revenues.

Figure 621: General Items revenue and yield Figure 622: Gross merchandise sold by new and used

0%

2%

4%

6%

8%

10%

$0m

$15m

$30m

$45m

$60m

$75m

FY07A FY08A FY09A FY10A FY11A FY12A

Revenue Yield


Used goods

With 95% market share, volume growth in used goods is likely to slow over the next five

years. However Trade Me’s dominant market position and premium services should elicit

pricing power and yield expansion.

New goods

The Channel Advisor partnership, formed in April 2012, provides the potential for

meaningful volume growth in new goods.

Channel Advisor is a global e-commerce platform provider. It enables retailers to sell

product through multiple online channels. One of the largest opportunities for Trade Me is

that the Channel Advisor partnership will provide an opportunity for international brands to

sell product through the Trade Me website.

Channel Advisor and Trade Me have integrated their software platforms in time for the

important Christmas 2012 selling season, but as per the plan there are only a small

number of Australian retailers initiating this at the moment. This will enable Channel

Advisor’s 3000 retail clients to access the Trade Me platform with ease, although bilateral

agreements are required prior to ‘turning them on’. The relationship between retailers,

Channel Advisor, Trade Me and consumers is set out in Figure 623.

27 November 2012


Figure 623: Retailer/Channel Advisor/Trade Me relationship


Classifieds: Growth in online classifieds to continue

Trade Me has ~50% market share of the New Zealand online classifieds industry. It is the

market leader in Auto and Property and the second largest player in Employment.

Over the past five years, Trade Me’s Classifieds business has achieved 27% revenue

CAGR. Over the next five years we expect Trade Me’s Classifieds business to achieve

20% revenue CAGR.

In FY12 Classified revenues accounted for 37% of TME’s total group revenues.

Figure 624: Classifieds Revenue Figure 625: TME share of total NZ online classified

advertising market

$0m

$10m

$20m

$30m

$40m

$50m

$60m


Jobs Property Motors

TME$53.9m

53%

Other$48.4m

47%

Source: Company data Source: Company data, IAB

Auto

Trade Me is the dominant player in Automotive classifieds. The acquisition of Auto Base in

April strengthened its position. Sella (owned by APN) and Auto Trader are its closest

competitors and have a significantly lower number of listings. Trade Me’s revenue mix has

changed since the acquisition of Auto Base, with dealer revenues now accounting for

~35% (up from 15% pre-transaction).

Whilst we expect little volume growth in used cars, there is some volume opportunity in

new cars. ~80,000 new cars are sold p.a. in New Zealand.

Trade Me’s dominant market position should enable pricing power and yield expansion.

Trade Me has expanded yield 6% p.a. on average over the past five years.

27 November 2012


Figure 626: Used Car Listings as of October 2012 Figure 627: Auto Historic Volume and Yield Growth

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

TME Sella Auto Trader

-20%

0%

20%

40%

60%

80%


Volume Yield

Source: Company websites Source: Company data, Credit Suisse estimates

Property

Trade Me is the leading Property classifieds platform in New Zealand. REA is a strong

competitor, with over 90% licenced real estate agents in New Zealand subscribing to the

REA platform. Listings are often duplicated on both sites, however Trade Me attracts a

higher audience with ~100K unique visitors per day (seven times REA) and includes

private ‘Mum and Dad’ listings. REA is a subscription model, whereas Trade Me is a ‘pay

per listing’ model.

Growth in the real estate business will primarily come from yield given market penetration

in volumes. However REA is likely to keep a lid on any rapid yield expansion.

Figure 628: Property for Sale Listings as of October 2012 Figure 629: Property Historic Volume and Yield Growth

-

20,000

40,000

60,000

80,000

100,000

120,000

TME Sella Realestate.co.nz

-20%

0%

20%

40%

60%

80%

100%


Volume Yield


Employment

Trade Me is a strong #2 in the Employment classifieds business, behind Seek New

Zealand. Historically Trade Me has pursued volume growth at the expense of yield, with a

~70% pricing differential to Seek over the past few periods. However recently this gap has

closed with TME continuing to take some price, and Seek using volume and loyalty

discounts.

As Trade Me aims to close the gap to Seek New Zealand, yields are unlikely to expand.

Volume growth is dependent on the overall job market in New Zealand.

27 November 2012


Figure 630: Employment Listings as of October 2012 Figure 631: Employment Historic Volume and Yield

Growth

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2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

TME SEK Search4Jobs Sella

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%


Volume Yield


Display: Well positioned for structural shift in display advertising online

Given Trade Me is one of the most frequently visited websites in New Zealand, it

commands a strong market position in the digital display advertising market.

We expect strong growth in digital display advertising to continue, in line with the structural

migration to online. Over the past five years, Trade Me’s Display business has achieved

20% revenue CAGR. Over the next five years we expect Trade Me’s Display business to

continue to achieve 20% revenue CAGR.

In FY12 Display advertising revenues accounted for 11% of TME’s total group revenues.

Figure 632: TME online display advertising revenue and

growth

Figure 633: TME online display advertising market share

0%

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15%

20%

25%

$0m

$4m

$8m

$12m

$16m

$20m


Revenue Growth

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

FY08A FY09A FY10A FY11A FY12A

Share

Source: IAB, Credit Suisse estimates Source: Company data, IAB, Credit Suisse estimates

Other: Digital transaction businesses offer potential upside over the medium term

TME’s Other business includes Group buying, Travel, Dating and Pay Now.

TME’s Pay Now business was launched in 2007. Pay Now enables buyers and sellers to

transact via credit card payments, with TME acting as the merchant. TME takes on the

responsibility for ensuring appropriate precautions are taken against fraud and derives

revenue by charging sellers a percentage fee for the use of Pay Now, with no fees

charged to the buyer. In the 12 months to September 2011, 14.3% of purchases in the

General Items marketplace were transacted through Pay Now. Members that do not elect

to use Pay Now typically use online banking or cash on pick up / delivery.

TME’s Group buying business is Treat Me, which was established in March 2011. Treat

Me generates traffic from a daily email to a large subscriber base offering discounted

services from supplier merchants, with Treat Me staff engaging directly with businesses to

structure deals. Revenue is based on commissions (currently c.20%) earned on each

voucher sold. The Group buying industry is a highly fragmented industry (refer Figure 634).

27 November 2012


TME’s travel businesses include Travelbug, Bookit and Holiday Houses. The Travel

businesses derive revenue from monthly subscription fees for listings as well as

commission fees for successful bookings. Travelbug is a retail accommodation website,

Bookit is a booking engine and Holiday Houses is a private accommodation aggregator.

As the portal for hotels bookings, we see Travelbug as having the highest potential for

future growth.

TME’s Dating business is FindSomeone. FindSomeone is one of New Zealand’s largest

online dating sites with over 300,000 members.

Figure 634: NZ group buying websites daily unique

visitors (000s)

Figure 635: New Zealand travel websites site traffic (daily

unique visitors)

0

10

20

30

40

50

60

70

80

90

100GrabOne Treat Me Groupon NZ

Groupy Yazoom Spreets NZ

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2,000

4,000

6,000

8,000

10,000

12,000

14,000

Wotif House ofTravel

Webjet Expedia Travelbug

Source: Google Analytics Source: Google Analytics. Note: Data is for most recent available

month

Whilst we see the potential for material growth in TME’s Other businesses, we have not

factored this in to our forecasts.

Over the past five years, Trade Me’s Other business has achieved 16% revenue CAGR.

Over the next five years we expect Trade Me’s Other business to achieve 20% revenue

CAGR.

Other revenues account for 6% of TME’s total group revenues.

Group EBITDA margins to decline in line with a maturing business

TME reported a 75% EBITDA margin in FY12. This is very high relative to global peers

(refer Figure 636). As TME increases investment in each of its businesses, there is the

potential for its EBITDA margin to reduce.

The sensitivity of a 1% change in EBITDA margin is a 2% change to EPS and a 2%


Figure 636: TME EBITDA margins vs. global peers

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%


TME CRZ REA SEK EBAY*

Source: Company websites. Note: *Marketplace segment only

27 November 2012


International expansion unlikely in near term

International markets have strong competitors

Whilst TME is the dominant player in the New Zealand market, we do not expect it to be

as successful in international markets if it were to expand internationally, given the

difference in competitive landscape in those markets.

We do not expect TME to expand internationally in the near term.

Valuation

Sum of the Parts

We have a Sum of the Parts valuation of A$3.82 / NZ$4.75 per share.

Figure 637: TME Sum of the Parts Valuation

FY12A FY17F Prior 5 Yr CAGR Forecast 5 Yr CAGR


General NZ$mn 62 84 111 143 13% 6% 12% 18%

Classifieds NZ$mn 54 108 134 165 27% 15% 20% 25%

Display NZ$mn 18 36 45 55 20% 15% 20% 25%

Other NZ$mn 8 16 20 25 16% 15% 20% 25%

Total Revenue NZ$mn 142 245 311 387 19% 11% 17% 22%

Costs NZ$mn 36 42 42 42 23% 3% 3% 3%

EBITDA NZ$mn 107 203 269 346 17% 14% 20% 27%

PV EBITDA NZ$mn 107 126 167 215

Multiple x 12.0 12.0 12.0 12.0

Enterprise Value NZ$mn 1280 1513 2005 2575

Net Debt NZ$mn 127 127 127 127

Equity Value NZ$mn 1153 1386 1878 2448

SOI mn 396 396 396 396

Value per share NZ$/share $ 2.91 $ 3.50 $ 4.75 $ 6.18

Value per share A$/share $ 2.34 $ 2.81 $ 3.82 $ 4.97

ESG impact % 3% 3% 3% 3%

Target price NZ$/share $ 2.83 $ 3.40 $ 4.60 $ 6.00

Target price A$/share $ 2.27 $ 2.73 $ 3.70 $ 4.82


Figure 638: TME Digital Comparable Companies

P/E EV/EBITDA

Company 2012 2013F 2014F 2012 2013F 2014F



Ebay 22.4x 19.4x 16.6x 13.3x 11.5x 10.2x


Google 17.3x 14.7x 12.5x 10.2x 8.6x 7.4x

Yahoo 8.9x 8.3x 15.5x 11.5x 12.2x 12.1x

Baidu 24.5x 19.0x 17.5x 18.9x 14.5x 12.6x

Average 18.0x 14.9x 13.8x 11.8x 9.9x 8.7x


27 November 2012


DCF

We have a DCF valuation of A$3.30 / NZ$4.10 per share (WACC 10%, terminal growth

3%).

Figure 639: TME DCF Valuation (NZD)

PV of FCF 816

Terminal value 924

Associates 10


Net debt 127



Value per share NZ$4.10











stocks.


results in a A$2.73 per share valuation for TME. The table below highlights the sensitivity

of TME’s valuation to varying sales growth and EBITDA margin assumptions.

Figure 640: TME valuation metrics through Credit Suisse HOLT®


27 November 2012


PE Multiple

Figure 641: TME one year forward PE Figure 642: TME PE relative to All Ords Index (ex



Risks

The key risks to our investment thesis for TME are as follows:

■ Changes to advertising spend in New Zealand. A 1% change in sales results in a 1%

change to EBITDA, a 1% change to EPS and a 1% change to our DCF valuation.

■ Changes to New Zealand consumer spending.

■ Changes to competitive landscape. The sensitivity of a 1% change in EBITDA margin

is a 2% change to EPS and a 2% change to our DCF valuation.




ESG Issues

Environment issues

■ In our view there are no material environmental issues facing TME.

Social issues

■ In our view there are no material social issues facing TME.

Governance issues

■ TME is a 51% owned subsidiary of FXJ.

■ Only two of the Board are independent.

Remuneration

■ Base salary: CEO Jon Macdonald received a base salary of $430,000 in FY12

■ Short-term incentives: A short-term incentive plan is in place for all key management

personnel in FY13. STI awards are based on individual performance and the

achievement of financial targets. CEO Jon Macdonald received a bonus of $114,000

in FY12.

27 November 2012


■ Long-term incentives: TME instituted an Executive Share Plan upon flotation for 25

senior employees, providing the members with an interest free loan to purchase

restricted shares in order to align their interests with those of shareholders. As a result

senior management hold a total of 255,000 restricted shares, with the CEO holding

71,000 of these. The shares will convert into ordinary shares on 1 January 2014 if the

company achieved EBITDA of at least NZ$110.9m for the calendar year 2012. This is

equal to the forecast EBITDA for CY12 in the TME prospectus dated 9 November

2011. We expect TME to achieve the target EBITDA and for the restricted shares to

vest.

■ TME was not public until December 2011 and thus we expect disclosure to improve in

FY13.

Board

■ TME’s Board has a good mix of legal, financial and media experience as well as three

former or current chief executives.

■ Three of the six directors are independent with the other three directors nominees of

FXJ. Chairman David Kirk also has considerable ties to FXJ as its former CEO (Mr

Kirk was CEO when it acquired TME).

Figure 643: Board skill analysis for TME

Name Position

Tenure


Former

CEO

ASX 200


Fees / pay

($k)

David Kirk Chairman 1.0 X X X Yes n/a

Sam Morgan Non Exec 1.0 X X No n/a

Greg Hywood Non Exec 1.0 X X X No n/a

Joanna Perry Non Exec 1.0 X Yes n/a

Gail Hambly Non Exec 1.0 X X No n/a

Paul McCarney Non Exec 0.0 X Yes n/a


Valuation impact

■ We have included a 3% ESG impact to our valuation for TME. The board is not

fully independent and there is a risk that minority shareholders' wishes could be

ignored by majority shareholder FXJ. FXJ owns 51% of TME.


■ TME is not currently rated by MSCI

27 November 2012


Appendix

Company Overview

TME is New Zealand’s largest e-commerce and classified advertising platform,

encompassing the country’s largest online marketplace for new and used goods as well as

automotive, real estate and employment classifieds advertising verticals. The company

also owns and operates online businesses specialising in accommodation and travel,

dating and group buying. TME also derives additional revenue by selling display

advertising space across its portfolio of websites.

TME has gradually lessened its reliance on the core marketplaces business over the years,

beginning with its expansion into automotive classifieds in 2003. As shown in Figure 644

and Figure 645, the General Items business segment now accounts for less than half of

total revenue, down from 55% in FY07. TME does not provide earnings contribution by

division.

Figure 644: Revenue mix (FY07) Figure 645: Revenue mix (FY12)

General Items, 55%

Auto Classifieds,

16%

Property Classifieds,

7%

Job Classifieds,

4%

Other, 18%

General Items, 44%

Auto Classifieds,

16%

Property Classifieds,

13%

Job Classifieds,

8%

Other, 18%


Market Position

Online marketplaces

The total New Zealand e-commerce market was worth ~NZ$2.7bn in 2011, with 12%

growth on 2010. Domestic retailers accounted for ~60% of this total spending, although

offshore spending is generating stronger growth. The overall e-commerce industry is

highly fragmented, however TME has a highly dominant market position within the more

narrowly defined marketplaces space, well over two million live listings and an average of

more than 650,000 domestic visitors per day (see Figure 617 for comparison with eBay NZ

and Sella). eBay entered the New Zealand market in 2001 but has had little success,

owing to late entry, lack of investment and limited understanding of the local market. Sella,

owned by APN, has attempted to differentiate itself from TME by using a purely ad-

supported business model (with free listings and no success fees), however it has thus far

failed to gain any real traction. TME benefits from a virtuous circle of large inventory

(which drives traffic) and high traffic (which entices sellers to add inventory), with the

Trade Me portfolio of websites the fourth most visited Internet property in New Zealand

(see Figure 647).

27 November 2012


Figure 646: New Zealand online auction site traffic (daily

unique visitors in 000s)

Figure 647: Top Internet properties (average minutes per

month, entire population)

0

200

400

600

800

1,000

1,200


Trade Me eBay NZ Sella

0 mins 50 mins 100 mins 150 mins 200 mins 250 mins

Apple

Glam Media

Wikipedia

APN

Fairfax

Yahoo! sites

Trade Me

Microsoft sites

Google

Facebook

Source: Google Analytics Source: comScore

Online classifieds

TME operates New Zealand’s largest online classifieds business, comprising Motors,

Property and Jobs. Based on IAB data, TME currently controls around half of the total New

Zealand online classified market (see Figure 648). Trade Me Motors was TME’s first

classifieds offering, launched in 2003, and is the dominant market leader in the vertical in

terms of both traffic and inventory.

Figure 648: TME Share of Total NZ Online Classified

Advertising Market

Figure 649: Used Car Listings as of October 2012

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

TME Sella Auto Trader

Source: Company data, IAB Source: Company websites

TME is also the market leader in real estate, with a significant and growing lead in terms of

inventory over number two player realestate.co.nz. TME Jobs is second to SEK in the

employment space in terms of total job numbers, although TME has surpassed SEK in

monthly unique browsers, demonstrating the positive network effects associated with a

well-known and trusted brand.

Figure 650: Property for Sale Listings as of October 2012 Figure 651: Employment Listings as of October 2012

-

20,000

40,000

60,000

80,000

100,000

120,000

TME Sella Realestate.co.nz

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

TME SEK Search4Jobs Sella

Source: Company websites Source: Company websites

27 November 2012


Other businesses

TME also derives significant revenue from display advertising and a selection of other

businesses. As the fourth most visited Internet property in New Zealand, TME is a major

force in Display, with an estimated 16.5% share in FY12. Display advertising is a

fragmented and competitive market, however TME’s scale and reach should ensure that it

is a beneficiary of the on-going growth within the market.

TME’s market position in two of its other newer segments, travel and group buying, is

more challenging. TME has a number of entrenched, deep pocketed competitors in a

fragmented market, including both of the Australian listed online travel businesses (Wotif

and Webjet) and global giant Expedia, as well as locally owned competitors such as

House of Travel. Additionally, TME suffers from not having an integrated

flights/accommodation offering, especially given that up to half of the demand for hotels in

the major population centres comes from international travellers. However in September

Travelbug announced a deal with the Expedia Travel Network to enable visitors to book at

155,000 international properties. As Figure 652 shows, web traffic in the online

accommodation space in New Zealand is both low and fragmented. The small size of New

Zealand’s hotel industry is also likely to limit the potential size of TME’s Travel business.

Group buying is currently a hotly contested, fragmented market, and although

consolidation is occurring and should benefit the surviving market participants, TME is

currently some distance behind the number one player in the market, APN’s GrabOne, in

terms of both traffic (see Figure 653) and number of vouchers sold.

Figure 652: New Zealand travel websites site traffic (daily

unique visitors)

Figure 653: NZ group buying websites daily unique

visitors (000s)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Wotif House ofTravel

Webjet Expedia Travelbug

0

10

20

30

40

50

60

70

80

90

100GrabOne Treat Me Groupon NZ

Groupy Yazoom Spreets NZ

Source: Google Analytics. Note: Data is for most recent available

month

Source: Company websites

History

Figure 654: TME Key Milestones

Date Event

1999 Trade Me website founded by Sam Morgan

2003 Trade Me Motors launched

2005 Trade Me Property launched

2006 Acquired by FXJ for NZ$750m. Trade Me Jobs launched

2011 Floated on the NZX and ASX with FXJ retaining a controlling 66% stake

2012 Additional 15% stake in TME sold to the market by FXJ


27 November 2012



Figure 655: Historic Sales Growth by Division Figure 656: Historic EBITDA Margin

0%

5%

10%

15%

20%

25%

30%

35%

40%


General Classifieds Other

70%

71%

72%

73%

74%

75%

76%

77%

78%

79%

80%



Figure 657: Historic Normalised NPAT Growth Figure 658: Historic Operating Leverage

0%

10%

20%

30%

40%

50%

60%


0%

10%

20%

30%

40%

50%





0%

50%

100%

150%

200%

250%

300%


0%

20%

40%

60%

80%

100%

120%

140%


ROA ROE


27 November 2012



0%

5%

10%

15%

20%

25%

30%

35%

40%


0%

50%

100%

150%

200%

250%


Source: Company data, Credit Suisse. Note FY12 dividend only

includes final dividend. TME typically has a payout ratio of 80%.



interest / EBITDA)


0%

20%

40%

60%

80%

100%

120%

-$5m

-$4m

-$3m

-$2m

-$1m

$0m

$1m

$2m

Source: Company data Source: Company data, Credit Suisse. Note: Net working capital

defined as Trade Receivables + Inventories – Trade Creditors


Internet Companies

-0.2x

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x


-1.5x

-1.0x

-0.5x

0.0x

0.5x

1.0x

1.5x

CRZ REA SEK TME


27 November 2012





Dominant position in online

marketplaces

Subject to macroeconomic forces

across all main business units

Continued migration of print to

online advertising

Increasing competition from existing

players or new entrants

Market leader in online automotive

and real estate classifieds in NZ

New growth opportunities (e.g. travel,

group buying) likely to be impeded by

strong position of incumbents

Continued migration of retail

expenditure from bricks and

mortar stores to e-tailers

Economic weakness in New

Zealand likely to impact consumer

sentiment and job and real estate

markets

High brand awareness Constrained by the size of the New

Zealand market

Increased penetration in online

classifieds verticals

Virtuous circle of high traffic and

large inventory across all major

segments




Auto Classifieds Medium Low Medium Low Low

Real Estate Classifieds Medium Low Medium Low Low

Employment Classifieds Medium Medium Medium Low Low

E-commerce Medium Low Medium Medium High

Display Low High Medium Low Medium



David Kirk (Non-executive Chairman). Independent.

Mr Kirk was the CEO of Fairfax Media from 2005 to 2008, prior to which he was the CEO

and Managing Director of PMP Limited (a role to which he was appointed in 2003). He is

the co-founder and Managing Partner of Bailador Investment Management, Chairman of

Hoyts Group Limited, Chairman of SMI Limited and a director of Forsyth Barr Limited,

Pacific Fibre Limited and Viocorp Limited. He is also Chairman of Trustees of Sydney

Grammar School.

Sam Morgan (Non-executive Director). Non-Independent.

Mr Morgan is the founder of TME and was CEO at the time of the acquisition by Fairfax

Media. Mr Morgan is also a non-executive director of Fairfax Media as well as the

Chairman of software company Visfleet Limited and of Pacific Fibre Limited. Mr Morgan is

also a director of Outsmart 2005 Limited, GMI General Partner Limited, Xero Limited and

Sonar Limited. Mr Morgan is a nominee of Fairfax Media.

Greg Hywood (Non-executive Director). Non-Independent.

Mr Hywood is the CEO of Fairfax Media. Prior to assuming his current role, Mr Hywood

held a number of senior management positions at Fairfax Media including Publisher and

Editor in Chief of a number of the company’s publications. He previously held the positions

of Executive Director Policy and Cabinet in the Victorian Premier’s Department and Chief

Executive of Tourism Victoria. Mr Hywood is a nominee of Fairfax Media.

Joanna Perry (Non-executive Director). Independent.

Ms Perry is the Deputy Chair of Genesis Energy and holds a number of other directorships,

including Kiwi Income Property Trust, PSIS, AsureQuality, SPARC, Partners Life and

Rowing New Zealand. Ms Perry was previously a senior partner at KPMG and was a

member of the Securities Commission for 11 years and until June 2011 both chaired the

Financial Reporting Standards Board and was a member of the Australian Accounting

Standards Board.

Gail Hambly (Non-executive Director). Non-Independent.

Ms Hambly is currently Group General Counsel and Company Secretary of Fairfax Media

and has over 15 years’ experience as a senior media executive. She is Chairman of

Copyco Pty Limited, a Director of Company B Belvoir Limited, a member of the Advisory

27 November 2012


Board of the Centre of Media and Communications Law at Melbourne University, a

member of the Media and Communications and Privacy Law Committees of the Law

Council of Australia and a director of the Story Factory. Ms Hambly is a nominee of Fairfax

Media.

Paul McCarney (Non-executive Director). Independent.

Mr McCarney was appointed to the board on 6 November 2012. Mr McCarney has 15

years’ experience in technology and digital marketing including co-founding search

marketing agency Decide Interactive (acquired by NASDAQ-listed 24/7 Real Media in

2004), and founding digital marketing company Life Event Media (acquired by directory

business Sensis in 2011). He is also the chairman of Sydney-based digital publishing

specialist Mogeneration.

Jon Macdonald (Chief Executive Officer).

Mr Macdonald was appointed CEO in 2008. He joined TME in 2003 as Head of

Technology before being appointed General Manager and subsequently CEO. Prior to

joining TME, Mr Macdonald worked for HSBC in London in a variety of technical and

management positions and at Deloitte as a consultant focusing on the telecommunications

and financial services industries.

Jonathan Klouwens (Chief Financial Officer).

Mr Klouwens was appointed as TME’s CFO in December 2011. Mr Klouwens was

previously the CFO at House of Travel, a role he had held for three years. He was

previously with Lion Nathan in Australia and New Zealand for 15 years where he held a

variety of roles, including NZ strategy director and four years as NZ finance director.

Mike O’Donnell (Head of Operations).

Mr O’Donnell joined Trade Me in 2004 and was originally Head of Commercial

(encompassing the three Classifieds verticals). As Head of Operations, he is responsible

for overseeing customer service, trust and safety, communications & community, and legal

& regulatory. He also oversees Trade Me’s dating and travel businesses. Prior to joining

TME, Mr O’Donnell held senior management roles at AMP Capital Investors, Gareth

Morgan Investments, Fonterra and Forestry Corporation.

Craig Jordan (Head of Marketplace).

Mr Jordan joined TME in 2007, originally to manage the business partnerships and Motors.

As Head of Marketplace, he is responsible for running the General Items business. Prior to

joining TME, Mr Jordan worked for GE Finance and Beca, an engineering consultancy firm,

in a variety of positions.

Jimmy McGee (Head of Commercial).

Mr McGee joined TME in 2006 and was initially responsible for the launch of Jobs. As

Head of Commercial, he is responsible for Property, Jobs and Motors, as well as display

advertising and Treat Me. Prior to joining TME, Mr McGee was a senior manager at eBay

in Australia. He has also worked for Monster.com in Australia and New Zealand.

Dave Wasley (Head of Technology).

Mr Wasley joined TME in 2007 as Head of Platform and Operations, ascending to his

current role in 2010. He was previously IT Manager at Commercial Fisheries Services and

began his career at Deloitte Consulting.

Fiona Ireland ( Head of Human Resources).

Ms Ireland was appointed as TME’s inaugural Head of Human Resources in 2010. She

was previously the Human Resources Manager at AMS (a JV between Vector and

Siemens).


Figure 669: TME Substantial Shareholders


FXJ 51.0%

Source: Bloomberg

27 November 2012



27 November 2012



STW Communications Group

(SGN.AX / SGN AU)

Significant growth opportunity in SE Asia

■ We initiate coverage of STW Communications Group (SGN.AX) with an

OUTPERFORM rating and $1.24 per share target price.

■ Investment Case: Significant growth opportunity in SE Asia. Our

investment view is shaped by four considerations: 1) STW Communications

Group is a dominant player in its core Australia and New Zealand market,

which represents ~95% group EBITDA. There is a domestic consolidation

opportunity as clients look to integrate their approach to advertising, market

insight and digital offerings and look for an agency that can provide solutions

in all areas. 2) STW Communications Group appears well positioned to

benefit from the structural shift from print to digital. STW Communications

Group is increasing collaboration with clients including areas such as

website design, targeted digital marketing and market insight. 3) The

greatest growth opportunity we see for STW Communications Group over

the medium term is international expansion, particularly in South East Asia.

STW Communications Group should be able to leverage existing

relationships in the region as well as bolt on acquisitions. We expect

international EBITDA to grow from ~$4mn in FY11 to $15mn–$20mn over

the next five years. 4) STW Communications Group has a strong balance

sheet and cash flow. Net debt and deferred payments of $137mn (including

$29mn deferred payments) represents 25% gearing (ND/ND+E) and 1.7x

Net debt / rolling 12-month EBITDA.

■ Catalyst: New contract wins in core market. We expect STW

Communications Group to report net contract wins in its core Australia and

New Zealand market at its FY12 result. Bolt on acquisitions in the SE Asia

region appear likely in the near-to-medium term.


DCF valuation of $1.27 per share (WACC 10%, terminal growth 2%). We

apply a 2% discount to our valuation due to governance issues. Share price performance

80

100

120

140

0

1

2

3

4











Rating OUTPERFORM*

Price (26 Nov 12, A$) 1.10





Projected return:







Research Analysts

Samantha Carleton

61 2 8205 4148

[email protected]

Lucas Goode

61 2 8205 4431

[email protected]

SG

N.A

X

27 November 2012



STW Communications Group (SGN) Year ending 31 Dec In AUDmn, unless otherwise stated2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

Share Price: A$1.10 Earnings 12/10A 12/11A 12/12E 12/13E 12/14ERating OUTPERFORM c_EPS_SHARESEquiv. FPO (period avg.) mn 357.7 363.0 396.3 396.3 396.3


vs Share price % 12.73 EPS_GROWTH*100EPS Growth % 5.2 -2.7 14.5 8.3


c_DPS*100DPS c 6.5 8.0 7.6 8.2 8.9

c_PAYOUT*100Payout % 60.1 70.3 68.2 65.0 65.0



Profit & Loss 12/10A 12/11A 12/12E 12/13E 12/14E c_TAX_RATE*100Effective tax rate % -28.5 -26.7 -25.3 -29.0 -30.0


EBITDA 71.4 71.4 86.7 97.7 105.7 c_PE P/E x 10.2 9.7 9.9 8.7 8.0






Profit before tax 56.5 55.9 66.0 77.7 86.6 ReturnsIncome tax 16.1 14.9 16.7 22.5 26.0 c_ROE*100Return on Equity % 11.1 11.4 10.5 11.4 11.8






Unusual item after tax 0.0 (0.4) 0.0 0.0 0.0 Gearing










Intangibles 382.8 409.9 435.0 434.4 433.8



Total assets 728.4 744.7 845.8 907.4 956.8

Payables 216.1 180.9 190.3 215.1 225.8




Net assets 384.4 396.3 463.6 500.5 539.2

Ordinary equity 347.7 361.0 419.5 439.8 460.3






EBIT 65.5 64.8 79.0 86.2 93.7

Net interest -9.0 -8.9 -13.0 -8.5 -7.1

Depr & Amort -5.9 -6.5 -7.7 -11.6 -12.0

Tax paid -6.3 -20.4 -16.7 -22.5 -26.0

Working capital 42.0 -44.6 9.3 3.5 1.5

Other 3.4 48.2 14.4 34.7 35.8


Capex -5.3 -6.5 -7.0 -11.0 -11.4


Capex - maintenance



Other -17.1 -32.7 -56.5 -12.8 -15.0


Dividends paid -24.7 -40.1 -34.4 -29.9 -33.9

Equity raised 0.0 -1.3 38.0 0.0 0.0

Net borrowings -33.9 34.6 24.0 0.0 0.0


Financing cashflow -61.0 -6.8 27.6 -29.9 -33.9 Absolute 5.3% 1.4% 36.6%

Total cashflow 2.0 -16.7 34.7 28.2 25.8 Relative 6.3% -0.2% 27.6%

Adjustments 0.0 0.0 0.0 0.0 0.0



27/11/2012 0:20

STW Communications Group Ltd. is engaged in offering advertising & diversified

communications services for clients through various channels, including television,

radio,print,outdoor & electronic forms.It has 2 segments:Advertising, Production & media.

Credit Suisse View

TP Risk Comment: While WPP to date has not looked to exert

undue influence on the company, as SGN expands

internationally it is possible that its interests may conflict with

those of WPP. Additionally, given that the company is

increasingly investing in South East Asia where ESG risks

may be more prevalent and harder to measure, this is

something that we will be keeping our eye on.

0.60

0.70

0.80

0.90

1.00

1.10

1.20

15/11/2011 15/01/2012 15/03/2012 15/05/2012 15/07/2012 15/09/2012 15/11/2012

SGN.AX XJO

-1.0

-0.9

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0


Stock Local Sector



27 November 2012


Assessing the earnings growth potential

Domestic consolidation opportunity

STW Communications Group has ~20% market share in its core Australia and New

Zealand market. Ogilvy & Mather is the largest advertising agency in Sydney, Melbourne

and Auckland and represents ~25% group revenues.

We expect consolidation of the advertising agency industry in the near-to-medium term as

clients look to integrate their approach to advertising, market insight and digital offerings.

STW Communications Group appears well placed to strengthen its market position

through an increased breadth of offerings and premium services. We expect STW

Communications Group to report net contract wins in the near-to-medium term.

We forecast 5% EBIT CAGR over the next five years.

Exposure to growth in digital advertising

STW Communications Group is well positioned to benefit from the structural shift from

print to digital. With an increasing breadth of offerings and premium services, STW

Communications Group is more of a ‘partner’ to clients and can assist in most areas from

advertising and promotion to market insight and improving online sites.

We expect clients to focus their advertising budgets in areas that are more measurable;

search, building effective websites and targeted digital marketing are the clear winners; or

areas that provide the largest audience for the targeted offer; which may be the core FTA

TV channels for generic goods and services or more niche TV channels or radio stations

for a particular good or service.

As STW Communications Group increases collaboration with its clients, revenues are

likely to increase as a result.

International expansion

The greatest growth opportunity for STW Communications Group over the medium term is

international expansion, particularly in South East Asia.

Historically STW Communications Group has expanded internationally when clients

expanded internationally. Today STW Communications Group has a presence in London,

New York, Toronto, Singapore, Jakarta, Vietnam, Thailand and South Africa.

There is an opportunity for significant expansion in South East Asia. STW

Communications Group should be able to leverage existing relationships into this growth

region. Singapore is likely to be the base given it is the marketing hub for major FMCG

companies. We expect majority of the growth to be via acquisition.

The international business currently contributes ~$4mn EBITDA. We expect this to grow to

~$15mn–$20mn over the next five years.

We forecast 30% EBIT CAGR over the next five years.

Focus on sales growth, maintaining margin at best

STW Communications Group’s key focus over the next five years will be driving growth in

the number of clients and services it provides.

As shown in Figure 671, STW Communications Group EBITDA margins are higher than

their global peers. Growth in field marketing is likely to put some downward pressure on

margin from a mix perspective. Asian expansion may have a slight negative impact on

group margins. We expect STW Communications Group to maintain its margins at best.

From a cyclical leverage perspective, STW Communications Group has the highest

variable cost base (opposite to TEN).

27 November 2012


Figure 671: SGN EBITDA margins vs. global peers Figure 672: SGN 2012F PE Multiple vs. global peers

0%

5%

10%

15%

20%

25%

STW G

roup

Publicis

AegisW

PPHava

s

Omnicom

Inte

rpublic

Cheil Com

ms

Dentsu

2009 2010 2011

0.0x

2.0x

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6.0x

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Chei

l

Dent

suIP

G

Glo

bal A

vg

Om

nico

m

Pub

licis

Aeg

is G

roup

WPP

Hava

s

STW

Gro

up


Strong balance sheet

Strong balance sheet including deferred payments

SGN has $108mn net debt on its balance sheet, representing 21% gearing (ND/ND+E)

and 1.3x Net debt / rolling twelve month EBITDA. SGN has access to $224mn debt

facilities (of which $137mn is drawn). $3.5mn matures in July 2013, $85mn matures in

January 2014, $85mn matures in January 2015 and $50mn matures in July 2015.

All deferred payments are estimated and brought on balance sheet. SGN typically pays

50-70% upon acquisition with deferred payments based on profit hurdles over two to five

years. As at 1H12, SGN had $29mn deferred liabilities on its balance sheet (down from

$22mn FY11 and $43mn FY10).

SGN’s net debt and deferred payments is $137mn, representing 25% gearing (ND/ND+E)

and 1.7x Net debt / rolling 12-month EBITDA.

Valuation

DCF


Figure 673: SGN DCF Valuation

PV of FCF 331

Terminal value 256

Associates 0


Net debt 85



Value per share $1.27

ESG impact 2%

Target price $1.24


27 November 2012








results in a $1.23 per share valuation for SGN.

PE Multiple

Figure 674: SGN one year forward PE Figure 675: SGN PE relative to All Ords Index (ex


0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0.0

0.2

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012


Risks

The key risks to our investment thesis for SGN are as follows:

■ Changes to advertising spend in New Zealand. A 1% change in sales results in a 4%

change to EBITDA, a 4% change to EPS and a 4% change to our DCF valuation.

STW Communications Group has the highest variable cost base (opposite to TEN).





ESG Issues

Environment issues

■ In our view there are no material environmental issues facing SGN.

Social issues

■ In our view there are no material social issues facing SGN.

Governance issues

■ Largest shareholder WPP is also SGN’s joint venture partner in a number of its

agencies.

27 November 2012


Remuneration

■ Base salary: CEO Connaghan’s fixed remuneration for the 2011 year was $850,000

per annum. This fixed remuneration represents total fixed cost to the Company

including superannuation and other benefits

■ Short-term incentives: CEO Connaghan was eligible for a payment of up to

$500,000 under the short-term incentive plan, depending on achievement of defined

performance criteria set by the Chairman and the Remuneration and Nominations

Committee. Seventy five percent of the maximum annual entitlement payable under

the short-term incentive plan is based on achieving a NPAT target. Mr Connaghan is

rewarded for performance between 100% and 105% of an undisclosed NPAT target

(at which point the maximum entitlement is received). 50% of STI awards are paid in

cash with the remainder deferred for two years and paid in shares. The payment of the

incentives depends upon the executive meeting financial and non-financial objectives

set at the beginning of each year. An executive will receive between 75% of the

maximum annual entitlement payable under the short-term incentive plan based on

meeting Group financial targets.

■ Long-term incentives: CEO Connaghan has been granted 178,125 shares in the

Company’s executive share plan that will vest subject to the achievement of

performance conditions. The company has an executive share plan (“ESP”) that is

intended to support the achievement of the Group’s business objectives by linking

remuneration to improvements in the financial performance and value of the company.

Vesting of 75% of shares granted under the 2012 plan relate to the company’s

normalised EPS between 2012 and 2014. An EPS CAGR of at least 3% is needed for

the EPS component of the shares to vest, with 7.5% vesting at 3% CAGR, 22.5%

vesting at 5% CAGR, 52.5% vesting at 7% CAGR and 75% vesting at a CAGR of 8%

or above. The remaining 25% of performance shares vest according to the company’s

TSR relative to the ASX All Ords Consumer Discretionary Index. The shares vest on a

straight line basis between a 51st percentile relative TSR (12.5% of total) and a 75

th

percentile relative TSR (25% of total). SGN also operates an ‘over performance’ plan

rewarding EPS growth of greater than 8%, with 20% of the additional shares vesting at

8% CAGR and 100% at 13% CAGR (straight line pro rata in between).

Board

■ SGN’s Board has extensive executive and Board-level experience in media and


■ Four of the seven directors are independent. All Committee members are non-

executive and the majority of Committee members are independent.

Figure 676: Board skill analysis for SGN

Name Position

Tenure


Former

CEO

ASX 200


Fees / pay

($k)

Robert Mactier Chairman 5.9 X X Yes 185

Michael Connaghan CEO 4.3 X No 1,150

Graham Cubbin Non Exec 4.5 X Yes 100

Ian Tsicalas Non Exec 5.0 X Yes 100

Paul Richardson Non Exec 13.8 X No N/A

Peter Cullinane Exec 2.4 X No 628

Kim Anderson Non Exec 2.0 X X Yes 85


Valuation impact

■ We have included a 2% ESG impact to our valuation for SGN. While WPP to date

has not looked to exert undue influence on the company, as SGN expands

internationally it is possible that its interests may conflict with those of WPP. WPP has

a 19% stake in SGN. Additionally, given that the company is increasingly investing in

27 November 2012


South East Asia where ESG risks may be more prevalent and harder to measure, this

is something that we will be keeping our eye on.


■ SGN is not currently rated by MSCI.

27 November 2012


Appendix

Company Overview

STW Communications is Australasia’s largest marketing, communications, digital and

media group, comprising over 75 operating companies in Australia, New Zealand and

South East Asia. Its companies include well known advertising and PR agencies such as

Ikon, Moon, Ogilvy and White Agency.

Market Position

Advertising Agency in Australia

STW Communications is Australasia’s largest marketing and communications services

group, with over 75 operating companies in Australia, New Zealand and South East Asia.

Figure 677: Australian Top 20 Media Agencies by Billings $M Agency Holding Company 2003 2004 2005 2006 2007 2008 2009 2010 2011 % Chg YoY

Mitchell & Partners Mitchell Communications 565 665 685 685 835 925 895 1075 1060 -1%

Optimum Media Direction (OMD) Omnicom 415 385 425 545 665 745 685 765 760 -1%

MediaCom WPP 215 225 615 635 705 725 615 615 710 15%

Starcom Publicis Groupe 565 575 605 605 665 675 555 575 470 -18%

Universal McCann Interpublic 385 535 555 545 655 515 525 525 455 -13%

ZenithOptimedia Publicis Groupe 565 585 445 475 405 435 405 445 445 0%

Ikon Communications STW Communications 75 125 105 135 145 135 175 335 340 1%

Mindshare WPP 325 345 315 355 335 275 255 305 320 5%

Initiative Interpublic 195 235 285 295 265 305 305 315 290 -8%

Mediaedge:cia WPP 205 215 215 205 245 275 225 265 270 2%

Maxus (formerly was Motivator) WPP na na 205 165 135 195 185 215 210 -2%

Carat Aegis 235 275 275 245 265 285 275 365 200 -45%

PHD* Omnicom 135 175 165 155 165 165 105 115 150 30%

The Media Store (TMS) Independent 85 85 75 85 75 85 65 75 80 7%

Pearman Media Independent na na na na na 45 45 55 75 36%

Nunn Media Independent na na na na 45 45 55 65 70 8%

Paykel Media Company Independent na na na na na 45 45 45 65 44%

Adcorp Adcorp 45 55 na na 85 85 65 75 65 -13%

Russell Curtis & Janes Independent 45 45 55 55 65 65 65 65 60 -8%

Blaze Advertising WPP 25 45 65 75 75 65 na na 50 na Source: AdNews * formerly Total Advertising & Communications

History

Figure 678: SGN Key Milestones

Date Event

1985 John Singleton Advertising founded by John Singleton

1994 Listed on the ASX

1998 WPP became a substantial shareholder in exchange for merging the Australasian

operations of Ogilvy & Mather with SGN

2002 Name changed to STW Communications Group

2005 $60m rights issue in order to reduce debt incurred by acquisitions

2006 Acquired Moon Design and Ikon Communications for $39m up front

2007 Acquired majority stakes in Haines, Hawker Britton and Alpha Salmon for $27m up

front

2008 $80m rights issue in order to reduce debt incurred by acquisitions

2011 Made three digital acquisitions in South East Asia

2012 Acquired a 60% stake in Buchanan Group. Sold a minority interest in DT Digital to

WPP. Acquired stakes in Markitforce, Maverick, SOM and Amblique for a total

consideration of $31m, funded by an institutional placement


27 November 2012




-20%

-10%

0%

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30%

40%

50%

2008 2009 2010 2011

10%

15%

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25%

30%

2007 2008 2009 2010 2011



-100%

-50%

0%

50%

100%

150%

2004 2005 2006 2007 2008 2009 2010 2011

NPAT EPS

-20%

-10%

0%

10%

20%

30%

40%

50%

2008 2009 2010 2011


Source: Company data. Note: Diluted normalised EPS Source: Company data


0%

2%

4%

6%

8%

10%

12%

14%

16%

2005 2006 2007 2008 2009 2010 2011

0%

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25%

2005 2006 2007 2008 2009 2010 2011

ROA ROE


27 November 2012



0%

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70%

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100%

2005 2006 2007 2008 2009 2010 2011

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300%

2005 2006 2007 2008 2009 2010 2011



interest / EBITDA)


0%

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160%

2005 2006 2007 2008 2009 2010 2011

-$80m

-$60m

-$40m

-$20m

$0m

$20m

$40m

$60m

2005 2006 2007 2008 2009 2010 2011

Source: Company data, Credit Suisse estimates. Note: EBITDA

including Income from Associates

Source: Company data, Credit Suisse estimates. Note: Net working

capital defined as Trade Receivables + Inventories – Trade Creditors

Figure 689: Historic Net Debt / EBITDA Figure 690: Gearing Comparison: ASX-Listed Media

Companies

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x


calendarised

27 November 2012





Strong, market leading brands

across all segments of the

Australian agency landscape

Domestic operations reliant on the

overall advertising market

Further international expansion Weakness in the advertising market

Exposure to digital advertising Decentralised corporate structure On-going investment in high

growth areas

Move from branded campaigns to

performance-based advertising,

particularly in digital

Exposure to fast growing markets

in South East Asia

Potential interference by major

shareholder WPP

Strong execution track record of

acquisitions




Advertising Medium High Medium Low Medium

Marketing Medium High Medium Low Medium

PR Medium High Medium Low Medium



Robert Mactier (Non-executive Chairman). Independent.

Mr Mactier was appointed as a Director of STW in December 2006 and Chairman with

effect from 1 July 2008. Mr Mactier is a consultant to the Investment Banking division of

UBS AG in Australia, a role he has held since June 2007. He has extensive investment

banking experience in Australia, having previously worked for Citigroup, E.L. & C. Baillieu

and Ord Minnett Securities between 1990 and 2006. During this time, he was primarily

focused on the media and entertainment and private equity sectors and initial public

offerings generally.

Michael Connaghan (Chief Executive Officer and Executive Director). Non-Independent.

After starting his career as a copywriter at Clemenger BBDO Sydney, Mr Connaghan

joined John Singleton Advertising in 1993 to guide the Telecom Australia account through

the country’s telecommunication deregulation. In 2001, Mr Connaghan moved to the listed

holding company, STW Group Limited, as Managing Director of Diversified Companies.

He represented the group’s interest and management participation in over 30 marketing

communications companies, and oversaw acquisitions, expansion and growth of the

Diversified Group. Mr Connaghan joined STW Group Company JWT in January 2004 as

Managing Director of ANZ. Mr Connaghan moved back to STW and was appointed CEO

in January 2006.

Paul Richardson (Non-Executive Director). Non-Independent.

Mr Richardson was appointed as a Director of STW in 1999. Mr Richardson is currently a

Director of WPP plc, a Non-executive Director of Chime Communications plc, a Non-

executive Director of CEVA Group plc, and serves on the British Airways Global Travel

Advisory Board. Mr Richardson joined WPP in 1992 as Director of Treasury and has been

Group Finance Director since 1996.

Kim Anderson (Non-Executive Director). Independent.

Kim Anderson was appointed as a Director of STW in November 2010. Anderson is a

Director of Carsales Limited, Chief Executive of The Reading Room (thereadingroom.com)

a community/social networking site for readers, Fellow of the Sydney University Senate

and a former Director of The Sax Institute and Chair of Sydney Talent P/L. Ms Anderson

has more than 25 years’ experience in various advertising and media executive positions

27 November 2012


within companies such as Southern Star Entertainment, Publishing and Broadcasting, and

NineMSN.

Graham Cubbin (Non-Executive Director). Independent.

Mr Cubbin was appointed as a Director of STW in May 2008. Mr Cubbin was a senior

executive with Consolidated Press Holdings (“CPH ”) from 1990 until September 2005,

including holding the position of Chief Financial Officer for 13 years. Prior to joining CPH,

Mr Cubbin held senior finance positions with a number of major financial companies

including Capita Finance Group and Ford Motor Company.

Ian Tsicalas (Executive Director). Independent.

Mr Tsicalas was appointed as a Director of STW in November 2007. Mr Tsicalas was

Managing Director of Australian Discount Retail Pty Limited until May 2007. Prior to this,

Mr Tsicalas was Chief Executive of The Warehouse Group Australia and a Director of The

Warehouse Group Limited. Mr Tsicalas was also previously Managing Director of

Commander Communications Limited and Howard Smith Limited.

Peter Cullinane (Executive Director and New Zealand CEO). Independent.

Peter Cullinane was appointed as a Director of STW in June 2010. He was previously

Chief Operating Officer of Saatchi & Saatchi Worldwide and since returning to New

Zealand and establishing Assignment Group Limited, Mr Cullinane has specialised in

providing strategic advice to a wide range of New Zealand and international clients.

Lukas Aviani (Chief Financial Officer).

Mr Aviani joined STW Group in 2006 as Group Finance Director and was appointed to the

role of Chief Financial Officer in December 2009. Prior to joining STW, Mr Aviani worked

with Ernst & Young and then was Chief Financial Officer of Pacific Travel Holdings, an

ASX-listed company. Mr Aviani is a Chartered Accountant.

Chris Savage (Chief Operating Officer).

Mr Savage was appointed Chief Operating Officer of STW Group in 2008. He started his

career in 1984 as a junior consultant in the Adelaide office of global PR industry leader

Burson-Marsteller, ultimately becoming CEO of the company’s Australian operations. In

2000, Savage launched his own financial PR firm with partner Jennifer Horrigan, and with

Ogilvy PR/STW as small founding shareholder. Savage & Horrigan quickly grew to be a

market leader and by 2007 the firm was fully acquired by Ogilvy and STW. Concurrently,

Chris founded Ogilvy PR, of which Savage & Horrigan was a member. Under his

leadership, Ogilvy PR grew to become the largest and most profitable PR group in

Australia, and maintains that leadership position today.


Figure 693: SGN Substantial Shareholders


WPP 18.9%

Perpetual 13.4%

CBA / Colonial 5.2%

Source: Bloomberg

27 November 2012


Explanation of HOLT® HOLT® is an advanced corporate performance, valuation and strategic analysis

framework for the benefit of Credit Suisse and its clients. Corporate performance is

calculated in terms of our CFROI® metric. This provides a unique perspective on valuation

issues that result from strategic decisions driven by corporate management. We believe

the HOLT methodology helps identify valuation insights about a company quickly and

easily, saving time and wasted effort.

HOLT®’s default model initially uses consensus estimates to drive CFROI forecasts,

before proprietary algorithms determine the “rate of fade” towards the long run average

(the rate of this fade is a function of the level and volatility of returns and the rate of

growth).

Simply stated, we take accounting information, convert it to cash, and then value that

cash. This brings valuation back to basics at a time when differing / revised accounting

practices are moving further away from commercial realities. From our perspective, a

company’s ability to deliver strong, sustainable and preferably increasing free cash flows is

what matters. It is sustainable free cash that ultimately should drive the share price, longer

term. Our approach takes away all the accounting anomalies and those so-called (and

seemingly consistent) one-offs where accountability is not taken by many.

For further information on this report or for other HOLT® related matters, please contact:

Scott Chessum CFA, CA

+613 9280 1662

[email protected]

Peter Jabour CA

+613 9280 1702

[email protected]

27 November 2012


Industry Data Advertising

Figure 694: Australia current advertising cycle versus

previous two

Figure 695: Credit Suisse media fragmentation index

-10%

-5%

0%

5%

10%

15%

20%

1 2 3 4 5 6 7

1988-1994

1998-2004

2006-2012F

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011

Internet Newspapers Pay TV FTA TV Magazines

Source: CEASA, Credit Suisse estimates Source: ABC, OzTAM, Nielsen, ABS, company data

Figure 696: Australian advertising growth by segment Figure 697: Advertising market share by medium

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%2010 2011

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%2000 2010 2020


Figure 698: Global Advertising EBITDA margins

0%

5%

10%

15%

20%

25%

STW G

roup

Publicis

Aegis

WPP

Havas

Om

nicom

Inte

rpublic

Cheil Com

ms

Dentsu

2009 2010 2011

Source: IBES, compiled by Credit Suisse

DA

TA

27 November 2012


Figure 699: Australian advertising spend ($m) YE December 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers

Metropolitan/national dailies 1,430 1,561 1,636 1,748 1,667 1,566 1,624 1,796 1,891 1,834 1,901 1,873 1,523 1,672 1,520

Metropolitan Sunday 276 290 309 322 313 301 331 379 435 411 441 439 388 397 384

Regional dailies 299 363 376 394 333 364 409 417 447 474 501 532 467 487 416

Regional non-dailies 235 244 267 274 243 261 286 321 337 377 432 450 426 439 463

Suburban 507 553 525 661 611 591 646 693 679 697 801 823 668 670 590

Total newspapers 2,746 3,012 3,113 3,399 3,168 3,084 3,296 3,605 3,790 3,793 4,076 4,117 3,471 3,665 3,374

Magazines

Consumer magazines 452 523 554 604 567 563 600 664 727 749 780 788 646 653 599

Business 215 169 165 155 131 163 158 158 174 169 176 167 138 138 139

Rural 64 74 77 77 73 63 64 73 77 76 77 77 73 79 75

Total magazines 732 766 796 836 771 789 822 895 978 994 1,034 1,032 857 871 813

Total print 3,478 3,778 3,909 4,236 3,939 3,872 4,118 4,500 4,768 4,787 5,110 5,149 4,328 4,536 4,187

Television

Metropolitan 1,764 1,866 1,911 2,160 1,939 2,016 2,211 2,460 2,515 2,483 2,682 2,617 2,400 2,821 2,730

Regional 485 533 543 586 552 576 620 682 702 724 793 795 751 838 826

FTA Television 2,248 2,400 2,454 2,746 2,490 2,592 2,831 3,142 3,216 3,207 3,475 3,412 3,152 3,659 3,556

Pay Television 15 24 44 60 67 93 123 160 212 276 317 333 380 394

Total television 2,248 2,415 2,478 2,790 2,550 2,659 2,924 3,266 3,376 3,420 3,750 3,729 3,484 4,039 3,950

Radio

Metropolitan 354 381 407 459 447 456 485 557 591 599 645 644 626 675 683

Regional 177 167 227 215 232 228 238 270 289 303 320 327 310 326 326

Total radio 532 548 634 673 679 684 723 827 880 902 964 971 936 1,001 1,008

Outdoor 254 274 311 276 271 261 297 327 354 379 436 454 400 477 494

Cinema 47 53 58 69 64 58 66 74 84 86 93 96 89 99 79

Internet

General 62 81 129 194 303 367 465 498 605 632

Classifieds 60 86 132 206 299 357 439 429 531 615

Search/Directories 45 69 128 220 399 622 806 944 1,128 1,413

Total internet 20 50 75 100 167 236 388 620 1,001 1,346 1,710 1,871 2,265 2,660

Grand total 6,560 7,087 7,440 8,119 7,604 7,702 8,363 9,382 10,081 10,574 11,700 12,109 11,108 12,418 12,378 Source: CEASA, Deloitte, IAB, KPMG, OMA, SMI, Credit Suisse estimates *Outdoor has been restated for 2000

27 November 2012


Figure 700: Australian advertising spend (% change YoY) YE December 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers

Metropolitan/national dailies 4.8% 9.2% 4.8% 6.9% -4.6% -6.1% 3.7% 10.6% 5.3% -3.0% 3.6% -1.5% -18.7% 9.8% -9.1%

Metropolitan Sunday 4.3% 5.4% 6.3% 4.4% -3.0% -3.7% 9.8% 14.7% 14.7% -5.4% 7.1% -0.3% -11.8% 2.5% -3.3%

Regional dailies -4.3% 21.5% 3.4% 4.8% -15.3% 9.3% 12.3% 1.9% 7.2% 6.1% 5.6% 6.3% -12.3% 4.3% -14.5%

Regional non-dailies 58.5% 3.9% 9.4% 2.5% -11.2% 7.2% 9.8% 12.1% 5.1% 11.7% 14.7% 4.1% -5.4% 3.2% 5.4%

Suburban 29.5% 8.9% -4.9% 25.8% -7.5% -3.3% 9.2% 7.2% -1.9% 2.6% 15.0% 2.7% -18.8% 0.3% -11.9%

Total newspapers 10.7% 9.7% 3.4% 9.2% -6.8% -2.7% 6.9% 9.4% 5.1% 0.1% 7.5% 1.0% -15.7% 5.6% -8.0%

Magazines

Consumer magazines NA 15.6% 5.9% 9.0% -6.2% -0.7% 6.6% 10.7% 9.5% 3.0% 4.2% 1.0% -18.1% 1.2% -8.4%

Business 85.2% -21.4% -2.5% -6.0% -15.3% 24.3% -3.4% 0.0% 10.3% -2.9% 4.4% -5.5% -17.3% 0.3% 0.8%

Rural 6.7% 14.8% 4.7% 0.1% -4.7% -14.8% 2.2% 13.7% 5.4% -0.8% 1.4% 0.5% -5.6% 8.3% -4.7%

Total magazines 27.5% 4.7% 3.9% 5.0% -7.8% 2.2% 4.2% 8.9% 9.3% 1.6% 4.0% -0.2% -17.0% 1.7% -6.6%

Total print 13.9% 8.6% 3.5% 8.3% -7.0% -1.7% 6.3% 9.3% 5.9% 0.4% 6.7% 0.8% -15.9% 4.8% -7.7%

Television

Metropolitan 8.3% 5.8% 2.4% 13.1% -10.3% 4.0% 9.7% 11.3% 2.2% -1.2% 8.0% -2.4% -8.3% 17.5% -3.2%

Regional 3.5% 10.1% 1.7% 7.9% -5.8% 4.5% 7.5% 10.1% 2.8% 3.2% 9.5% 0.4% -5.5% 11.5% -1.4%

FTA Television 7.2% 6.7% 2.3% 11.9% -9.3% 4.1% 9.2% 11.0% 2.4% -0.3% 8.3% -1.8% -7.6% 16.1% -2.8%

Pay television 60.0% 83.3% 36.4% 11.6% 39.2% 32.2% 29.8% 32.7% 29.8% 15.0% 4.9% 14.2% 3.6%

Total television 7.2% 7.4% 2.6% 12.6% -8.6% 4.3% 9.9% 11.7% 3.4% 1.3% 9.7% -0.6% -6.6% 15.9% -2.2%

Radio

Metropolitan 4.4% 7.6% 6.8% 12.8% -2.5% 2.0% 6.2% 14.8% 6.2% 1.3% 7.6% -0.1% -2.7% 7.8% 1.1%

Regional -0.5% -5.8% 36.0% -5.6% 8.0% -1.6% 4.6% 13.3% 6.9% 4.9% 5.5% 2.3% -5.2% 5.2% -0.1%

Total radio 2.7% 3.1% 15.7% 6.2% 0.9% 0.8% 5.7% 14.3% 6.4% 2.5% 6.9% 0.7% -3.6% 7.0% 0.7%

Outdoor 2.0% 8.1% 13.2% -11.2% -1.8% -3.7% 13.6% 10.3% 8.1% 7.1% 15.3% 4.0% -11.9% 19.3% 3.4%

Cinema 14.7% 10.8% 11.3% 18.6% -7.0% -10.1% 13.6% 12.7% 12.7% 2.3% 8.8% 3.7% -8.0% 12.1% -20.8%

Internet

General NA NA NA NA 30.2% 59.2% 51.0% 56.2% 21.1% 26.6% 7.2% 21.5% 4.4%

Classifieds NA NA NA NA 43.7% 53.1% 56.1% 45.1% 19.3% 23.1% -2.3% 23.8% 15.9%

Search/Directories NA NA NA NA 53.4% 84.7% 72.5% 81.4% 56.0% 29.6% 17.1% 19.5% 25.2%

Total Internet 150.0% 50.0% 33.3% 67.0% 41.3% 64.4% 59.8% 61.5% 34.5% 27.0% 9.4% 21.0% 17.5%

Grand total 10.1% 8.0% 5.0% 9.1% -6.3% 1.3% 8.6% 12.2% 7.5% 4.9% 10.6% 3.5% -8.3% 11.8% -0.3% Source: CEASA, Deloitte, IAB, KPMG, OMA, SMI, Credit Suisse estimates *Outdoor has been restated for 2000

Figure 701: Australian advertising market shares YE December 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers

Metropolitan/national dailies 21.8% 22.0% 22.0% 21.5% 21.9% 20.3% 19.4% 19.1% 18.8% 17.3% 16.2% 15.5% 13.7% 13.5% 12.3%

Metropolitan Sunday 4.2% 4.1% 4.1% 4.0% 4.1% 3.9% 4.0% 4.0% 4.3% 3.9% 3.8% 3.6% 3.5% 3.2% 3.1%

Regional dailies 4.6% 5.1% 5.0% 4.8% 4.4% 4.7% 4.9% 4.4% 4.4% 4.5% 4.3% 4.4% 4.2% 3.9% 3.4%

Regional non-dailies 3.6% 3.4% 3.6% 3.4% 3.2% 3.4% 3.4% 3.4% 3.3% 3.6% 3.7% 3.7% 3.8% 3.5% 3.7%

Suburban 7.7% 7.8% 7.1% 8.1% 8.0% 7.7% 7.7% 7.4% 6.7% 6.6% 6.8% 6.8% 6.0% 5.4% 4.8%

Total newspapers 41.9% 42.5% 41.8% 41.9% 41.7% 40.0% 39.4% 38.4% 37.6% 35.9% 34.8% 34.0% 31.3% 29.5% 27.3%

Magazines

Consumer magazines 6.9% 7.4% 7.4% 7.4% 7.5% 7.3% 7.2% 7.1% 7.2% 7.1% 6.7% 6.5% 5.8% 5.3% 4.8%

Business 3.3% 2.4% 2.2% 1.9% 1.7% 2.1% 1.9% 1.7% 1.7% 1.6% 1.5% 1.4% 1.2% 1.1% 1.1%

Rural 1.0% 1.0% 1.0% 0.9% 1.0% 0.8% 0.8% 0.8% 0.8% 0.7% 0.7% 0.6% 0.7% 0.6% 0.6%

Total magazines 11.2% 10.8% 10.7% 10.3% 10.1% 10.2% 9.8% 9.5% 9.7% 9.4% 8.8% 8.5% 7.7% 7.0% 6.6%

Total print 53.0% 53.3% 52.5% 52.2% 51.8% 50.3% 49.2% 48.0% 47.3% 45.3% 43.7% 42.5% 39.0% 36.5% 33.8%

Television

Metropolitan 26.9% 26.3% 25.7% 26.6% 25.5% 26.2% 26.4% 26.2% 24.9% 23.5% 22.9% 21.6% 21.6% 22.7% 22.1%

Regional 7.4% 7.5% 7.3% 7.2% 7.3% 7.5% 7.4% 7.3% 7.0% 6.8% 6.8% 6.6% 6.8% 6.7% 6.7%

FTA Television 34.3% 33.9% 33.0% 33.8% 32.7% 33.7% 33.8% 33.5% 31.9% 30.3% 29.7% 28.2% 28.4% 29.5% 28.7%

Pay-television 0.2% 0.3% 0.5% 0.8% 0.9% 1.1% 1.3% 1.6% 2.0% 2.4% 2.6% 3.0% 3.1% 3.2%

Total television 34.3% 34.1% 33.3% 34.4% 33.5% 34.5% 35.0% 34.8% 33.5% 32.3% 32.1% 30.8% 31.4% 32.5% 31.9%

Radio

Metropolitan 5.4% 5.4% 5.5% 5.7% 5.9% 5.9% 5.8% 5.9% 5.9% 5.7% 5.5% 5.3% 5.6% 5.4% 5.5%

Regional 2.7% 2.4% 3.1% 2.6% 3.0% 3.0% 2.9% 2.9% 2.9% 2.9% 2.7% 2.7% 2.8% 2.6% 2.6%

0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total radio 8.1% 7.7% 8.5% 8.3% 8.9% 8.9% 8.6% 8.8% 8.7% 8.5% 8.2% 8.0% 8.4% 8.1% 8.1%

Outdoor 3.9% 3.9% 4.2% 3.4% 3.6% 3.4% 3.5% 3.5% 3.5% 3.6% 3.7% 3.7% 3.6% 3.8% 4.0%

Cinema 0.7% 0.7% 0.8% 0.9% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.6%

General 0.8% 1.0% 1.4% 1.9% 2.9% 3.1% 3.8% 4.5% 4.9% 5.1%

Classifieds 0.8% 1.0% 1.4% 2.0% 2.8% 3.0% 3.6% 3.9% 4.3% 5.0%

Search/Directories 0.6% 0.8% 1.4% 2.2% 3.8% 5.3% 6.7% 8.5% 9.1% 11.4%

Internet 0.3% 0.7% 0.9% 1.3% 2.2% 2.8% 4.1% 6.2% 9.5% 11.5% 14.1% 16.8% 18.2% 21.5%

Grand total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: CEASA, Deloitte, IAB, KPMG, OMA, SMI, Credit Suisse estimates *Outdoor has been restated for 2000

27 November 2012


Figure 702: Global advertising spend by country (US$m) YE December 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

United States 109,346 119,437 132,368 147,056 136,452 139,842 146,021 156,704 164,041 172,125 173,491 164,706 139,071 148,557 152,682

Canada 6,444 7,044 7,253 7,694 7,806 7,994 8,516 8,989 9,504 10,232 10,789 11,320 10,510 10,266 10,764

US/Canada 115,791 126,481 139,621 154,750 144,257 147,837 154,537 165,693 173,545 182,357 184,280 176,026 149,581 158,822 163,446

France 10,697 11,572 12,767 12,960 12,204 11,960 12,207 12,841 12,369 12,985 13,418 13,458 12,188 13,083 13,355

Germany 23,080 24,215 25,526 27,577 25,473 23,182 22,042 22,324 23,359 24,875 26,029 25,946 23,753 24,357 25,430

Italy 7,778 8,616 9,649 11,083 10,721 10,369 10,748 11,507 11,785 11,913 12,286 11,949 10,331 10,723 10,456

Poland 1,606 1,728 1,934 2,306 2,549 2,253 2,301 2,357

Spain 5,362 5,987 6,960 7,802 7,543 7,480 7,688 8,486 9,270 10,052 11,013 9,796 7,759 8,069 7,662

United Kingdom 13,250 14,539 15,429 16,842 16,116 16,154 16,619 18,163 18,731 19,032 20,246 19,622 17,236 18,407 18,953

Major Europe 60,168 64,929 70,331 76,265 72,055 69,146 69,303 74,927 77,242 80,792 85,298 83,320 73,521 76,940 78,212

Australia 6,853 7,404 7,773 8,482 7,944 8,046 8,737 9,801 10,531 11,047 12,223 12,650 11,605 12,816 12,990

China 4,185 4,808 5,379 6,179 6,704 8,041 10,127 11,313 13,175 15,841 18,069 20,242 21,181 24,770 30,155

India 1,178 1,124 1,119 1,329 1,532 1,660 2,052 2,321 2,593 3,130 3,768 4,479 4,525 5,126 5,629

Japan 57,283 55,031 53,942 58,079 57,111 53,227 53,183 55,252 58,874 59,251 59,427 56,452 49,385 51,314 50,426

Korea 4,845 3,140 4,163 5,274 5,149 6,167 6,129 6,163 6,356 6,879 7,199 7,023 6,538 7,346 8,614

Malaysia 865 716 834 1,015 1,045 1,134 1,223 1,480 1,200 1,266 1,449 1,622 1,741 2,013 2,219

New Zealand 1,082 1,076 1,143 1,195 1,197 1,259 1,421 1,595 1,721 1,710 1,798 1,776 1,556 1,633 1,673

Singapore 1,015 945 970 1,197 1,229 1,345 1,409 1,621 1,487 1,547 1,595 1,713 1,653 1,838 1,973

Thailand 1,494 1,161 1,562 1,678 1,967 2,220 2,557 2,964 3,135 3,245 3,332 3,195 3,177 3,502 3,695

Asia Pacific 78,800 75,405 76,884 84,429 83,879 83,100 86,838 92,512 99,072 103,916 108,860 109,153 101,362 110,358 117,373

Argentina 828 858 769 706 611 422 555 697 879 1,130 1,339 1,607 1,912 2,065 2,278

Brazil 6,616 6,417 4,657 5,808 5,495 5,680 6,519 7,988 9,169 9,945 10,913 12,367 12,919 15,260 16,042

Mexico 1,580 1,922 2,233 2,578 2,630 2,631 2,707 2,986 3,191 3,656 4,313 4,776 4,636 5,571 5,888

Russia 1,400 1,300 476 785 1,316 1,991 2,592 3,338 4,286 5,566 7,384 7,819 5,865 6,860 8,385

South Africa 829 968 1,075 1,197 1,301 1,553 1,761 2,070 2,578 3,301 4,124 4,489 4,872 5,881 6,351

Turkey 84 139 228 387 391 626 769 1,064 1,310 1,611 1,913 1,874 1,600 2,088 2,506

Rest of World 11,337 11,605 9,438 11,461 11,745 12,904 14,904 18,143 21,413 25,210 29,984 32,931 31,805 37,725 41,449

WORLD 266,095 278,419 296,275 326,905 311,937 312,986 325,583 351,275 371,272 392,276 408,423 401,430 356,269 383,845 400,480 Source: ZenithOptimedia, Local advertising associations, Credit Suisse estimates

Figure 703: Global advertising spend by country (% change YoY) YE December 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

United States 8.4% 9.2% 10.8% 11.1% -7.2% 2.5% 4.4% 7.3% 4.7% 4.9% 0.8% -5.1% -15.6% 6.8% 2.8%

Canada 10.4% 9.3% 3.0% 6.1% 1.5% 2.4% 6.5% 5.5% 5.7% 7.7% 5.4% 4.9% -7.2% -2.3% 4.9%

North America 8.5% 9.2% 10.4% 10.8% -6.8% 2.5% 4.5% 7.2% 4.7% 5.1% 1.1% -4.5% -15.0% 6.2% 2.9%

France 3.8% 8.2% 10.3% 1.5% -5.8% -2.0% 2.1% 5.2% -3.7% 5.0% 3.3% 0.3% -9.4% 7.3% 2.1%

Germany 3.7% 4.9% 5.4% 8.0% -7.6% -9.0% -4.9% 1.3% 4.6% 6.5% 4.6% -0.3% -8.5% 2.5% 4.4%

Italy 9.3% 10.8% 12.0% 14.9% -3.3% -3.3% 3.7% 7.1% 2.4% 1.1% 3.1% -2.7% -13.5% 3.8% -2.5%

Poland 7.6% 11.9% 19.2% 10.5% -11.6% 2.1% 2.4%

Spain 6.3% 11.7% 16.2% 12.1% -3.3% -0.8% 2.8% 10.4% 9.2% 8.4% 9.6% -11.0% -20.8% 4.0% -5.0%

United Kingdom 10.2% 9.7% 6.1% 9.2% -4.3% 0.2% 2.9% 9.3% 3.1% 1.6% 6.4% -3.1% -12.2% 6.8% 3.0%

Major Europe 6.0% 7.9% 8.3% 8.4% -5.5% -4.0% 0.2% 8.1% 3.1% 4.6% 5.6% -2.3% -11.8% 4.7% 1.7%

Australia 10.1% 8.0% 5.0% 9.1% -6.3% 1.3% 8.6% 12.2% 7.5% 4.9% 10.6% 3.5% -8.3% 10.4% 1.4%

China 27.6% 14.9% 11.9% 14.9% 8.5% 19.9% 25.9% 11.7% 16.5% 20.2% 14.1% 12.0% 4.6% 16.9% 21.7%

India 19.0% -4.6% -0.5% 18.8% 15.3% 8.4% 23.6% 13.1% 11.7% 20.7% 20.4% 18.9% 1.0% 13.3% 9.8%

Japan 3.6% -3.9% -2.0% 7.7% -1.7% -6.8% -0.1% 3.9% 6.6% 0.6% 0.3% -5.0% -12.5% 3.9% -1.7%

Korea -4.3% -35.2% 32.6% 26.7% -2.4% 19.8% -0.6% 0.6% 3.1% 8.2% 4.7% -2.4% -6.9% 12.4% 17.3%

Malaysia 8.2% -17.2% 16.5% 21.7% 2.9% 8.5% 7.8% 21.0% -18.9% 5.5% 14.5% 11.9% 7.4% 15.6% 10.2%

New Zealand 2.1% -0.5% 6.2% 4.6% 0.2% 5.2% 12.8% 12.2% 7.9% -0.7% 5.1% -1.2% -12.4% 4.9% 2.4%

Singapore 12.2% -6.9% 2.6% 23.4% 2.7% 9.4% 4.7% 15.1% -8.3% 4.1% 3.1% 7.4% -3.5% 11.2% 7.3%

Thailand -3.6% -22.3% 34.5% 7.4% 17.2% 12.9% 15.2% 15.9% 5.8% 3.5% 2.7% -4.1% -0.6% 10.2% 5.5%

Asia Pacific 4.8% -4.3% 2.0% 9.8% -0.7% -0.9% 4.5% 6.5% 7.1% 4.9% 4.8% 0.3% -7.1% 8.9% 6.4%

Argentina 12.6% 3.7% -10.3% -8.2% -13.4% -31.0% 31.5% 25.5% 26.1% 28.6% 18.5% 20.0% 19.0% 8.0% 10.3%

Brazil 12.4% -3.0% -27.4% 24.7% -5.4% 3.4% 14.8% 22.5% 14.8% 8.5% 9.7% 13.3% 4.5% 18.1% 5.1%

Mexico 50.0% 21.7% 16.2% 15.4% 2.0% 0.0% 2.9% 10.3% 6.8% 14.6% 18.0% 10.7% -2.9% 20.2% 5.7%

Russia 33.3% -7.1% -63.4% 64.8% 67.7% 51.2% 30.2% 28.8% 28.4% 29.9% 32.6% 5.9% -25.0% 17.0% 22.2%

South Africa 19.9% 16.8% 11.0% 11.4% 8.7% 19.4% 13.4% 17.5% 24.6% 28.0% 24.9% 8.9% 8.5% 20.7% 8.0%

Turkey 146.8% 65.1% 63.5% 69.7% 1.0% 60.4% 22.8% 38.3% 23.1% 22.9% 18.7% -2.0% -14.6% 30.5% 20.0%

Rest of World 20.0% 2.4% -18.7% 21.4% 2.5% 9.9% 15.5% 21.7% 18.0% 17.7% 18.9% 9.8% -3.4% 18.6% 9.9%

WORLD 7.3% 4.6% 6.4% 10.3% -4.6% 0.3% 4.0% 7.9% 5.7% 5.7% 4.1% -1.7% -11.3% 7.7% 4.3% Source: ZenithOptimedia, Local advertising associations, Credit Suisse estimates

27 November 2012


Figure 704: Global advertising market shares by country YE December 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

United States 41.1% 42.9% 44.7% 45.0% 43.7% 44.7% 44.8% 44.6% 44.2% 43.9% 42.5% 41.0% 39.0% 38.7% 38.1%

Canada 2.4% 2.5% 2.4% 2.4% 2.5% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.8% 3.0% 2.7% 2.7%

North America 43.5% 45.4% 47.1% 47.3% 46.2% 47.2% 47.5% 47.2% 46.7% 46.5% 45.1% 43.8% 42.0% 41.4% 40.8%

France 4.0% 4.2% 4.3% 4.0% 3.9% 3.8% 3.7% 3.7% 3.3% 3.3% 3.3% 3.4% 3.4% 3.4% 3.3%

Germany 8.7% 8.7% 8.6% 8.4% 8.2% 7.4% 6.8% 6.4% 6.3% 6.3% 6.4% 6.5% 6.7% 6.3% 6.3%

Italy 2.9% 3.1% 3.3% 3.4% 3.4% 3.3% 3.3% 3.3% 3.2% 3.0% 3.0% 3.0% 2.9% 2.8% 2.6%

Poland 0.5% 0.5% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6%

Spain 2.0% 2.2% 2.3% 2.4% 2.4% 2.4% 2.4% 2.4% 2.5% 2.6% 2.7% 2.4% 2.2% 2.1% 1.9%

United Kingdom 5.0% 5.2% 5.2% 5.2% 5.2% 5.2% 5.1% 5.2% 5.0% 4.9% 5.0% 4.9% 4.8% 4.8% 4.7%

Major Europe 22.6% 23.3% 23.7% 23.3% 23.1% 22.1% 21.3% 21.3% 20.8% 20.6% 20.9% 20.8% 20.6% 20.0% 19.5%

Australia 2.6% 2.7% 2.6% 2.6% 2.5% 2.6% 2.7% 2.8% 2.8% 2.8% 3.0% 3.2% 3.3% 3.3% 3.2%

China 1.6% 1.7% 1.8% 1.9% 2.1% 2.6% 3.1% 3.2% 3.5% 4.0% 4.4% 5.0% 5.9% 6.5% 7.5%

India 0.4% 0.4% 0.4% 0.4% 0.5% 0.5% 0.6% 0.7% 0.7% 0.8% 0.9% 1.1% 1.3% 1.3% 1.4%

Japan 21.5% 19.8% 18.2% 17.8% 18.3% 17.0% 16.3% 15.7% 15.9% 15.1% 14.6% 14.1% 13.9% 13.4% 12.6%

Korea 1.8% 1.1% 1.4% 1.6% 1.7% 2.0% 1.9% 1.8% 1.7% 1.8% 1.8% 1.7% 1.8% 1.9% 2.2%

Malaysia 0.3% 0.3% 0.3% 0.3% 0.3% 0.4% 0.4% 0.4% 0.3% 0.3% 0.4% 0.4% 0.5% 0.5% 0.6%

New Zealand 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%

Singapore 0.4% 0.3% 0.3% 0.4% 0.4% 0.4% 0.4% 0.5% 0.4% 0.4% 0.4% 0.4% 0.5% 0.5% 0.5%

Thailand 0.6% 0.4% 0.5% 0.5% 0.6% 0.7% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.9% 0.9% 0.9%

Asia Pacific 29.6% 27.1% 26.0% 25.8% 26.9% 26.6% 26.7% 26.3% 26.7% 26.5% 26.7% 27.2% 28.5% 28.8% 29.3%

Argentina 0.3% 0.3% 0.3% 0.2% 0.2% 0.1% 0.2% 0.2% 0.2% 0.3% 0.3% 0.4% 0.5% 0.5% 0.6%

Brazil 2.5% 2.3% 1.6% 1.8% 1.8% 1.8% 2.0% 2.3% 2.5% 2.5% 2.7% 3.1% 3.6% 4.0% 4.0%

Mexico 0.6% 0.7% 0.8% 0.8% 0.8% 0.8% 0.8% 0.9% 0.9% 0.9% 1.1% 1.2% 1.3% 1.5% 1.5%

Russia 0.5% 0.5% 0.2% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.8% 1.9% 1.6% 1.8% 2.1%

South Africa 0.3% 0.3% 0.4% 0.4% 0.4% 0.5% 0.5% 0.6% 0.7% 0.8% 1.0% 1.1% 1.4% 1.5% 1.6%

Turkey 0.0% 0.1% 0.1% 0.1% 0.1% 0.2% 0.2% 0.3% 0.4% 0.4% 0.5% 0.5% 0.4% 0.5% 0.6%

Rest of World 4.3% 4.2% 3.2% 3.5% 3.8% 4.1% 4.6% 5.2% 5.8% 6.4% 7.3% 8.2% 8.9% 9.8% 10.3%

WORLD 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: ZenithOptimedia, Local advertising associations, Credit Suisse estimates

Figure 705: Global advertising spend by medium (US$m) YE December 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers 107,069 99,846 97,207 99,930 104,232 105,527 106,476 103,722 93,855 75,923 73,129 70,580

Magazines 43,010 41,368 39,932 39,882 41,278 44,021 45,499 46,320 43,974 35,072 34,939 34,526

Television 116,165 112,330 117,259 121,331 133,503 138,742 145,230 150,142 151,064 139,408 155,497 160,663

Radio 30,041 28,285 29,307 31,155 32,606 33,335 34,298 34,570 32,712 28,321 30,230 30,680

Outdoor 19,822 19,990 19,807 20,788 22,582 25,520 27,258 29,386 28,405 24,790 25,843 27,348

Cinema 779 814 831 860 949 1,040 1,043 1,170 1,110 1,094 1,243 1,319

Internet 10,018 9,304 8,643 11,636 16,125 23,086 32,471 43,113 50,310 51,661 62,965 75,364

TOTAL 326,905 311,937 312,986 325,583 351,275 371,272 392,276 408,423 401,430 356,269 383,845 400,480 Source: ZenithOptimedia, Local advertising associations, Credit Suisse estimates

Figure 706: Global advertising spend by medium (% change YoY) YE December 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers -6.7% -2.6% 2.8% 4.3% 1.2% 0.9% -2.6% -9.5% -19.1% -3.7% -3.5%

Magazines -3.8% -3.5% -0.1% 3.5% 6.6% 3.4% 1.8% -5.1% -20.2% -0.4% -1.2%

Television -3.3% 4.4% 3.5% 10.0% 3.9% 4.7% 3.4% 0.6% -7.7% 11.5% 3.3%

Radio -5.8% 3.6% 6.3% 4.7% 2.2% 2.9% 0.8% -5.4% -13.4% 6.7% 1.5%

Outdoor 0.8% -0.9% 5.0% 8.6% 13.0% 6.8% 7.8% -3.3% -12.7% 4.2% 5.8%

Cinema 4.6% 2.1% 3.5% 10.3% 9.6% 0.3% 12.1% -5.1% -1.5% 13.7% 6.1%

Internet -7.1% -7.1% 34.6% 38.6% 43.2% 40.7% 32.8% 16.7% 2.7% 21.9% 19.7%

TOTAL -4.6% 0.3% 4.0% 7.9% 5.7% 5.7% 4.1% -1.7% -11.3% 7.7% 4.3% Source: ZenithOptimedia, Local advertising associations, Credit Suisse estimates

Figure 707: Global advertising market shares by medium YE December 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers 33% 32% 31% 31% 30% 28% 27% 25% 23% 21% 19% 18%

Magazines 13% 13% 13% 12% 12% 12% 12% 11% 11% 10% 9% 9%

Television 36% 36% 37% 37% 38% 37% 37% 37% 38% 39% 41% 40%

Radio 9% 9% 9% 10% 9% 9% 9% 8% 8% 8% 8% 8%

Outdoor 6% 6% 6% 6% 6% 7% 7% 7% 7% 7% 7% 7%

Cinema 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Internet 3% 3% 3% 4% 5% 6% 8% 11% 13% 15% 16% 19%

TOTAL 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Source: ZenithOptimedia, Local advertising associations, Credit Suisse estimates

27 November 2012


Figure 708: Top Australian advertising categories $M YE December 2008 2009 2010 2011

Retail 1,299 1,267 1,450 1,480

Banking & finance 745 708 898 945

Automotive 928 735 847 880

FMCG 629 662 726 680

Entertainment & Leisure 393 395 387 404

Communication 372 312 402 345

Travel 298 304 335 344

Toiletries & Cosmetics 235 230 255 253

Government 166 201 266 226

Media 241 200 227 224

Pharmaceuticals 191 193 187 194

Electrical Products 160 134 190 174

Non Alcoholic Beverages 126 143 168 157

Building 115 113 140 145

Real Estate 151 113 131 140

Alcoholic Beverages 130 131 138 134

Business 66 53 109 115

Sundries 93 107 97 100

Education 66 76 83 92

Health Care 64 74 66 77

Technology 82 72 81 72

Utilities 45 37 44 61

Charities 47 42 52 49

Recruitment 70 61 59 46

Sport 28 26 29 32

Fuel & Gas Products & Suppliers 22 17 25 26

Seniors / Retirees 10 9 11 10

Agriculture 16 10 11 9

Motor Cycles & Bicycles 2 2 3 3

Boats & Equipment 4 3 3 2

Totals 6,794 6,430 7,422 7,422 Source: SMI, Credit Suisse estimates

Figure 709: Top Australian advertising categories % change YE December 2009 2010 2011

Retail -2% 14% 2%

Banking & finance -5% 27% 5%

Automotive -21% 15% 4%

FMCG 5% 10% -6%

Entertainment & Leisure 1% -2% 4%

Communication -16% 29% -14%

Travel 2% 10% 3%

Toiletries & Cosmetics -2% 11% -1%

Government 21% 33% -15%

Media -17% 13% -1%

Pharmaceuticals 1% -3% 4%

Electrical Products -16% 42% -8%

Non Alcoholic Beverages 14% 18% -7%

Building -2% 24% 3%

Real Estate -26% 16% 7%

Alcoholic Beverages 1% 6% -3%

Business -20% 105% 5%

Sundries 15% -10% 4%

Education 16% 9% 10%

Health Care 15% -10% 17%

Technology -12% 13% -11%

Utilities -18% 19% 38%

Charities -11% 24% -5%

Recruitment -13% -4% -22%

Sport -5% 11% 10%

Fuel & Gas Products & Suppliers -25% 50% 4%

Seniors / Retirees -10% 27% -12%

Agriculture -38% 14% -18%

Motor Cycles & Bicycles 2% 54% -6%

Boats & Equipment -28% 8% -35%

Totals -5% 15% 0% Source: SMI, Credit Suisse estimates

27 November 2012


Figure 710: Australian Top 25 advertisers - 2011

Rank 2011 Rank 2010 Advertiser $m Change YOY%1 1 Wesfarmers 215.0 -9.9

2 2 Woolworths 155.0 -5.6

3 5 Commonwealth Government 150.0 29.4

4 3 Harvey Norman 145.0 0.6

5 4 Telstra 90.0 -23.6

6 18 Reckitt Benckiser 80.0 29.1

7 9 Toyota 75.0 -3.3

8 6 Victorian government 75.0 -26.9

9 21 Westpac Banking Corp 70.0 21.1

10 12 McDonald's 70.0 -0.5

11 7 NSW government 70.0 -14.1

12 11 Commonwealth Bank of Australia 70.0 -11.4

13 10 SingTel Group 65.0 -15.7

14 24 ANZ 65.0 22.8

15 13 Suncorp 65.0 -9.4

16 32 Queensland government 65.0 41.5

17 15 Qantas 65.0 -0.6

18 8 Unilever 60.0 -23.4

19 14 Nestle 60.0 -11.3

20 19 Procter & Gamble 60.0 -2.2

21 16 Village Roadshow 55.0 -6.5

22 27 NAB 55.0 6.8

23 20 Myer 55.0 -9.7

24 28 Hyundai 55.0 4.7

25 23 News Corp 50.0 -5.0 Source: Nielsen

Figure 711: Australian Top 20 Media Agencies by Billings $M

Agency Holding Company 2003 2004 2005 2006 2007 2008 2009 2010 2011 % Chg YoY

Mitchell & Partners Mitchell Communications 565 665 685 685 835 925 895 1075 1060 -1%

Optimum Media Direction (OMD) Omnicom 415 385 425 545 665 745 685 765 760 -1%

MediaCom WPP 215 225 615 635 705 725 615 615 710 15%

Starcom Publicis Groupe 565 575 605 605 665 675 555 575 470 -18%

Universal McCann Interpublic 385 535 555 545 655 515 525 525 455 -13%

ZenithOptimedia Publicis Groupe 565 585 445 475 405 435 405 445 445 0%

Ikon Communications STW Communications 75 125 105 135 145 135 175 335 340 1%

Mindshare WPP 325 345 315 355 335 275 255 305 320 5%

Initiative Interpublic 195 235 285 295 265 305 305 315 290 -8%

Mediaedge:cia WPP 205 215 215 205 245 275 225 265 270 2%

Maxus (formerly was Motivator) WPP na na 205 165 135 195 185 215 210 -2%

Carat Aegis 235 275 275 245 265 285 275 365 200 -45%

PHD* Omnicom 135 175 165 155 165 165 105 115 150 30%

The Media Store (TMS) Independent 85 85 75 85 75 85 65 75 80 7%

Pearman Media Independent na na na na na 45 45 55 75 36%

Nunn Media Independent na na na na 45 45 55 65 70 8%

Paykel Media Company Independent na na na na na 45 45 45 65 44%

Adcorp Adcorp 45 55 na na 85 85 65 75 65 -13%

Russell Curtis & Janes Independent 45 45 55 55 65 65 65 65 60 -8%

Blaze Advertising WPP 25 45 65 75 75 65 na na 50 na Source: AdNews * formerly Total Advertising & Communications

27 November 2012


Newspapers

Figure 712: Australian Newspaper Circulations Figure 713: New Zealand Newspaper Circulations


Figure 714: US Newspaper Circulations Figure 715: UK Newspaper Circulations

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

-10%

-8%

-6%

-4%

-2%

0%

2%

Source: Newspaper Association of America Source: Audit Bureau of Circulations

Figure 716: Australian Newspaper Advertising Revenues Figure 717: New Zealand Newspaper Advertising

Revenues

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Revenue ($m)


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

100

200

300

400

500

600

700

800

900

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Revenue ($m)


Source: CEASA, Credit Suisse estimates Source: Advertising Standards Authority, Credit Suisse estimates

Figure 718: Australian Newspaper Advertising Category

mix

Figure 719: Australian newspaper advertising trends

Auto, 12%

Finance, 12%

Real Estate,

6%

Retail, 25%

Travel, 9%

Other, 36%

-15%

-10%

-5%

0%

5%

10%

15%

MetroClassified

MetroDisplay

RegionalClassified

RegionalDisplay

Other Total

2010 2011

Source: SMI CEASA, Credit Suisse estimates

27 November 2012


Figure 720: Australian newspaper advertising revenues $m YE December 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Newspapers

Metropolitan/national dailies 1,430 1,561 1,636 1,748 1,667 1,566 1,624 1,796 1,891 1,834 1,901 1,873 1,523 1,672 1,520

Classified 714 801 852 885 820 835 835 876 881 849 871 826 589 637 550

Display 716 761 784 863 847 731 789 920 1,010 985 1,030 1,047 934 1,035 970

Metropolitan Sunday 276 290 309 322 313 301 331 379 435 411 441 439 388 397 384

Classified 68 69 72 73 65 66 64 70 68 62 70 66 49 48 43

Display 208 221 236 249 247 235 267 309 367 349 371 374 338 349 342

Regional dailies 299 363 376 394 333 364 409 417 447 474 501 532 467 487 416

Classified 126 150 148 152 148 156 179 170 199 179 205 215 168 176 152

Display 173 213 228 242 186 208 230 247 249 296 296 317 299 311 264

Regional non-dailies 235 244 267 274 243 261 286 321 337 377 432 450 426 439 463

Classified 53 58 53 50 49 52 54 80 86 95 101 109 99 104 122

Display 182 186 214 224 194 209 232 241 251 282 332 341 327 335 341

Suburban 507 553 525 661 611 591 646 693 679 697 801 823 668 670 590

Classified 323 333 301 371 370 345 373 390 374 374 460 357 166 144 134

Display 184 220 224 290 241 246 273 303 305 322 341 465 502 526 456

Total newspapers 2,746 3,012 3,113 3,399 3,168 3,084 3,296 3,605 3,790 3,793 4,076 4,117 3,471 3,665 3,374 Source: CEASA, Credit Suisse estimates

Figure 721: Global newspaper EBITDA margins

0%

10%

20%

30%

40%

50%

2011 2012

Source: IBES, company data

Figure 722: Australian metro newspaper circulation

market share

Figure 723: Australian regional newspaper circulation

market share

NWS, 68%

FXJ, 24%

SWM, 8%

FXJ, 39%

APN, 21%

NWS, 20%

Other, 20%


27 November 2012


Figure 724: New Zealand newspaper circulation market

share

APN, 39%

FXJ, 35%

Other, 25%


Australian metropolitan newspaper circulations

Figure 725: Metropolitan newspaper circulations – Monday to Friday (000s)

Publisher Qtr 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

National

Australian Financial Review (M-F)FXJ June 92 98 93 89 86 86 86 86 88 89 82 77 74

Dec 93 93 91 90 88 85 86 86 88 86 77 75 72

The Australian (M-F) NWS June 131 133 132 130 132 134 134 132 133 136 136 135 130

Dec 131 133 132 129 126 132 133 135 135 137 131 129 134

Canberra

Canberra Times (M-F) FXJ June 40 39 39 39 39 38 37 36 34 34 34 33 31

Dec 40 40 39 39 38 37 36 35 36 35 34 32 30

Sydney

Sydney Morning Herald (M-F) FXJ June 234 232 222 229 226 217 210 213 213 213 210 207 200

Dec 227 223 224 222 222 214 214 212 211 211 211 210 185

Daily Telegraph (M-F) NWS June 432 414 411 406 408 403 398 397 392 385 389 374 355

Dec 427 412 419 409 401 390 397 392 375 369 359 354 348

Melbourne

Age (M-F) FXJ June 196 199 196 198 198 199 194 201 207 208 207 198 197

Dec 191 191 192 193 197 196 195 202 204 204 202 196 184

Herald-Sun (M-F) NWS June 561 551 545 549 550 551 552 545 535 530 527 516 489

Dec 549 545 550 552 553 553 554 535 530 516 514 495 472

Brisbane

Courier Mail (M-F) NWS June 219 219 214 215 219 215 211 216 221 218 220 217 199

Dec 218 212 215 218 214 209 208 219 221 215 211 202 193

Adelaide

Advertiser (M-F) NWS June 209 207 202 204 205 202 201 196 191 190 188 180 174

Dec 205 200 206 204 199 198 197 191 190 182 181 181 176

Perth

West Australian (M-F) SWM June 221 217 211 208 205 205 208 206 203 195 197 203 195

Dec 214 206 207 203 202 204 203 201 198 193 188 185 185

Hobart

Mercury (M-F) NWS June 51 51 50 50 50 50 50 49 47 47 46 45 44

Dec 49 49 49 50 49 48 48 47 47 46 45 44 42 Source: Audit Bureau of Circulations, compiled by Credit Suisse

27 November 2012


Figure 726: Metropolitan newspaper circulations – Saturday (000s)

Publisher Qtr 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

National

Australian Financial Review (Sat)FXJ June 85 98 92 91 87 88 90 91 92 92 91 90 80

Dec 87 91 91 86 85 80 84 93 96 94 85 79 82

Weekend Australian (Sat) NWS June 310 304 305 298 296 301 292 294 300 301 307 334 293

Dec 310 301 303 296 292 290 293 298 300 309 301 290 294

Canberra

Canberra Times (Sat) FXJ June 71 71 72 72 73 71 69 67 63 60 58 54 51

Dec 70 70 71 70 71 68 66 64 62 59 55 52 49

Sydney

Sydney Morning Herald (Sat) FXJ June 406 394 396 400 392 374 361 364 364 358 359 359 343

Dec 387 379 387 387 373 352 358 360 360 360 354 341 315

Daily Telegraph (Sat) NWS June 354 347 339 335 341 341 343 343 340 327 337 340 329

Dec 348 339 339 341 336 337 342 342 319 325 322 327 327

Melbourne

Age (Sat) FXJ June 341 330 326 319 315 304 298 301 301 302 292 280 275

Dec 324 309 314 305 305 292 297 298 299 297 291 282 263

Herald-Sun (Sat) NWS June 521 512 511 516 518 521 524 522 513 511 515 504 485

Dec 502 504 509 510 512 512 514 509 510 502 503 489 470

Brisbane

Courier Mail (Sat) NWS June 343 341 343 343 346 342 334 327 317 310 309 297 275

Dec 335 330 338 340 336 332 321 322 305 296 289 276 260

Adelaide

Advertiser (Sat) NWS June 277 276 277 280 281 278 274 270 260 256 251 245 238

Dec 272 271 279 277 275 272 267 263 263 254 251 239 231

Perth

West Australian (Sat) SWM June 390 388 385 386 385 381 380 373 357 343 343 334 318

Dec 381 374 381 380 376 373 371 357 344 336 327 314 302

Hobart

Mercury (Sat) NWS June 65 65 65 65 65 65 64 64 62 62 62 61 59

Dec 64 64 64 65 64 63 62 61 62 61 61 60 58 Source: Company data, Credit Suisse estimates

27 November 2012


Figure 727: Metropolitan newspaper circulations – Sunday (000s)

Publisher Qtr 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Canberra

Canberra Times (Sun) FXJ June 37 37 39 39 39 39 38 37 35 34 35 33 32

Dec 38 39 39 39 38 38 36 35 36 35 33 32 30

Sydney

Sun-Herald (Sun) FXJ June 600 584 561 560 543 525 515 516 505 483 462 447 427

Dec 584 568 559 550 526 514 519 510 500 473 442 443 406

Sunday Telegraph NWS June 721 719 719 727 734 726 720 702 672 663 657 639 622

Dec 711 721 722 731 730 716 702 684 670 653 632 618 619

Melbourne

Sunday Age FXJ June 197 196 199 199 195 195 200 210 225 228 225 225 227

Dec 194 190 197 193 196 195 202 214 226 227 229 231 222

Sunday Herald-Sun NWS June 534 537 550 571 583 603 620 623 620 622 617 597 574

Dec 526 533 555 575 590 605 618 615 624 607 601 579 546

Brisbane

Sunday Mail (Qld) NWS June 591 590 590 602 611 615 616 608 592 565 552 514 485

Dec 590 587 600 614 613 621 613 601 581 551 525 499 463

Adelaide

Sunday Mail (SA) NWS June 348 347 346 345 341 335 331 325 318 313 306 301 284

Dec 345 342 346 342 332 332 327 322 321 304 300 289 276

Perth

Sunday Times (WA) NWS June 344 344 340 346 350 354 354 348 337 328 321 304 284

Dec 344 342 345 348 351 353 348 341 342 322 315 293 283

Hobart

Sunday Tasmanian NWS June 57 57 58 58 59 60 61 61 60 60 59 59 56

Dec 56 57 58 59 59 60 60 60 60 60 59 57 55 Source: Audit Bureau of Circulations, compiled by Credit Suisse

27 November 2012


Australian metropolitan newspaper cover prices

Figure 728: Metropolitan newspaper cover prices ($) – Monday to Friday

At December Publisher 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

National

Australian Financial Review (M-F)FXJ 2.00 2.20 2.20 2.50 2.50 2.50 2.50 2.70 2.70 3.00 3.00 3.00 3.00

The Australian (M-F) NWS 1.00 1.10 1.10 1.20 1.20 1.20 1.20 1.20 1.20 1.30 1.50 1.50 1.50

Canberra

Canberra Times (M-F) FXJ 0.90 1.00 1.10 1.10 1.10 1.10 1.20 1.20 1.20 1.30 1.40 1.40 1.50

Sydney

Sydney Morning Herald (M-F)FXJ 1.00 1.10 1.10 1.20 1.20 1.20 1.20 1.20 1.20 1.30 1.40 1.50 1.50

Daily Telegraph (M-F) NWS 0.80 0.90 0.90 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Melbourne

Age (M-F) FXJ 1.00 1.10 1.10 1.20 1.20 1.20 1.20 1.40 1.40 1.50 1.50 1.50 1.70

Herald-Sun (M-F) NWS 0.90 0.99 1.00 1.00 1.00 1.00 1.00 1.10 1.10 1.10 1.10 1.10 1.10

Brisbane

Courier Mail (M-F) NWS 0.80 0.88 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.10 1.10

Adelaide

Advertiser (M-F) NWS 0.80 0.90 0.90 1.00 1.00 1.00 1.00 1.10 1.10 1.10 1.10 1.10 1.10

Perth

West Australian (M-F) SWM 0.80 0.88 0.88 1.00 1.00 1.00 1.10 1.20 1.20 1.30 1.30 1.30 1.30

Hobart

Mercury (M-F) NWS 0.80 0.80 0.90 1.00 1.00 1.00 1.00 1.10 1.10 1.10 1.10 1.10 1.10 Source: Audit Bureau of Circulations, compiled by Credit Suisse

Figure 729: Metropolitan newspaper cover prices ($) – Saturday


National

Australian Financial Review (Sat)FXJ 2.00 2.20 2.20 2.50 2.50 2.50 2.50 2.70 2.70 3.00 3.00 3.00 3.00

Weekend Australian (Sat) NWS 1.70 1.90 2.00 2.00 2.20 2.20 2.20 2.20 2.20 2.40 2.60 2.60 2.60

Canberra

Canberra Times (Sat) FXJ 1.30 1.40 1.55 1.60 1.60 1.80 2.00 2.00 2.00 2.20 2.40 2.50 2.60

Sydney

Sydney Morning Herald (Sat)FXJ 1.70 1.80 2.00 2.00 2.20 2.20 2.20 2.20 2.20 2.30 2.40 2.50 2.50

Daily Telegraph (Sat) NWS 1.20 1.30 1.30 1.30 1.30 1.30 1.50 1.50 1.60 1.60 1.60 1.60 1.60

Melbourne

Age (Sat) FXJ 1.70 1.80 1.90 2.00 2.00 2.00 2.00 2.20 2.20 2.40 2.50 2.50 2.70

Herald-Sun (Sat) NWS 1.10 1.20 1.20 1.20 1.30 1.30 1.40 1.40 1.40 1.50 1.50 1.50 1.50

Brisbane

Courier Mail (Sat) NWS 1.30 1.40 1.50 1.50 1.60 1.60 1.80 1.80 1.80 2.00 2.00 2.00 2.00

Adelaide

Advertiser (Sat) NWS 1.20 1.30 1.40 1.40 1.50 1.60 1.70 1.70 1.80 1.80 1.80 1.80 2.00

Perth

West Australian (Sat) SWM 1.50 1.75 1.75 1.80 2.00 2.00 2.00 2.20 2.20 2.30 2.30 2.30 2.30

Hobart

Mercury (Sat) NWS 1.10 1.10 1.20 1.00 1.30 1.40 1.40 1.50 1.50 1.50 1.50 1.70 1.70 Source: Audit Bureau of Circulations, compiled by Credit Suisse

27 November 2012


Figure 730: Metropolitan newspaper cover prices ($) – Sunday


Canberra

Canberra Times (Sun) FXJ 1.10 1.20 1.30 1.30 1.40 1.40 1.40 1.60 1.80 1.80 1.80 1.80 2.00

Sydney

Sun-Herald (Sun) FXJ 1.20 1.30 1.50 1.50 1.60 1.60 1.60 1.60 1.80 2.00 2.00 2.00 2.00

Sunday Telegraph NWS 1.20 1.30 1.50 1.50 1.60 1.60 1.60 1.60 1.80 1.80 1.80 1.80 2.00

Melbourne

Sunday Age FXJ 1.40 1.50 1.50 1.50 1.50 1.50 1.50 1.70 1.70 2.00 2.00 2.00 2.20

Sunday Herald-Sun NWS 1.30 1.40 1.50 1.50 1.50 1.50 1.60 1.60 1.80 1.80 1.80 1.80 2.00

Brisbane

Sunday Mail (Qld) NWS 1.40 1.50 1.50 1.60 1.60 1.70 1.70 1.80 2.00 2.00 2.00 2.00 2.00

Adelaide

Sunday Mail (SA) NWS 1.40 1.50 1.50 1.50 1.60 1.60 1.70 1.70 1.70 1.80 1.80 1.80 2.00

Perth

Sunday Times (WA) NWS 1.30 1.50 1.50 1.50 1.60 1.70 1.80 2.00 2.20 2.20 2.20 2.20 2.20

Hobart

Sunday Tasmanian NWS 1.20 1.20 1.20 1.20 1.30 1.50 1.50 1.60 1.60 1.70 1.80 1.80 1.80 Source: Audit Bureau of Circulations, compiled by Credit Suisse

Figure 731: Metropolitan newspaper population reach (Mon-Fri)

At December 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

National

Australian Financial Review 0.5% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.3% 0.3%

The Australian 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%

Canberra

Canberra Times 12.8% 12.4% 12.1% 12.0% 11.9% 11.8% 11.3% 10.8% 10.0% 9.9% 9.7% 9.1% 8.5%

Sydney

Sydney Morning Herald 5.9% 5.7% 5.3% 5.5% 5.4% 5.1% 4.9% 5.0% 4.9% 4.8% 4.7% 4.5% 4.3%

Daily Telegraph 10.8% 10.2% 9.9% 9.7% 9.7% 9.5% 9.3% 9.3% 9.0% 8.8% 8.6% 8.1% 7.6%

Melbourne

Age 5.8% 5.8% 5.6% 5.6% 5.5% 5.5% 5.3% 5.4% 5.4% 5.3% 5.2% 4.8% 4.8%

Herald-Sun 16.7% 16.1% 15.6% 15.6% 15.4% 15.3% 15.2% 14.5% 14.0% 13.6% 13.2% 12.6% 11.8%

Brisbane

Courier Mail 13.9% 13.5% 13.0% 12.8% 12.6% 12.1% 11.6% 11.9% 11.6% 11.2% 11.0% 10.6% 9.6%

Adelaide

Advertiser 19.2% 18.8% 18.2% 18.3% 18.2% 18.0% 17.8% 17.1% 16.5% 16.2% 15.8% 14.8% 14.2%

Perth

West Australian 16.5% 15.8% 15.1% 14.7% 14.3% 14.1% 14.1% 13.5% 13.0% 12.2% 11.9% 12.0% 11.4%

Hobart

Mercury 25.9% 25.7% 25.4% 25.2% 25.2% 24.9% 24.4% 23.8% 22.5% 22.3% 21.7% 20.9% 19.8% Source: Audit Bureau of Circulations, ABS, compiled by Credit Suisse

27 November 2012


Figure 732: Metropolitan newspaper population reach (Sat)

At December 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

National

Australian Financial Review 0.4% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%

Weekend Australian 1.6% 1.6% 1.6% 1.5% 1.5% 1.5% 1.4% 1.4% 1.4% 1.4% 1.4% 1.5% 1.3%

Canberra

Canberra Times 22.9% 22.4% 22.5% 22.4% 22.4% 21.9% 21.1% 20.2% 18.5% 17.4% 16.4% 15.1% 14.1%

Sydney

Sydney Morning Herald 10.2% 9.7% 9.5% 9.6% 9.4% 8.8% 8.5% 8.5% 8.4% 8.1% 8.0% 7.8% 7.4%

Daily Telegraph 8.9% 8.5% 8.2% 8.0% 8.1% 8.1% 8.1% 8.0% 7.8% 7.4% 7.5% 7.4% 7.1%

Melbourne

Age 10.2% 9.6% 9.3% 9.0% 8.8% 8.5% 8.2% 8.0% 7.9% 7.7% 7.3% 6.9% 6.7%

Herald-Sun 15.6% 15.0% 14.7% 14.6% 14.5% 14.5% 14.4% 14.0% 13.4% 13.1% 12.9% 12.3% 11.7%

Brisbane

Courier Mail 21.8% 21.1% 20.8% 20.3% 19.9% 19.3% 18.4% 18.0% 16.6% 15.9% 15.4% 14.5% 13.2%

Adelaide

Advertiser 25.4% 25.0% 24.9% 25.2% 25.1% 24.8% 24.3% 23.5% 22.4% 21.8% 21.1% 20.2% 19.4%

Perth

West Australian 29.1% 28.3% 27.6% 27.3% 26.8% 26.2% 25.7% 24.5% 22.9% 21.4% 20.7% 19.7% 18.6%

Hobart

Mercury 32.9% 33.0% 32.9% 33.0% 32.6% 32.1% 31.6% 30.9% 29.6% 29.5% 29.1% 28.2% 26.9% Source: Audit Bureau of Circulations, ABS, compiled by Credit Suisse

Figure 733: Metropolitan newspaper population reach (Sun)

At December 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Canberra

Canberra Times 12.1% 11.8% 12.1% 12.2% 12.0% 12.0% 11.6% 11.0% 10.2% 9.9% 9.9% 9.2% 8.7%

Sydney

Sun-Herald 15.1% 14.4% 13.5% 13.4% 13.0% 12.4% 12.1% 12.1% 11.6% 11.0% 10.2% 9.7% 9.2%

Sunday Telegraph 18.1% 17.7% 17.3% 17.4% 17.5% 17.2% 16.9% 16.4% 15.5% 15.1% 14.6% 13.9% 13.4%

Melbourne

Sunday Age 5.9% 5.7% 5.7% 5.7% 5.4% 5.4% 5.5% 5.6% 5.9% 5.8% 5.6% 5.5% 5.5%

Sunday Herald-Sun 15.9% 15.7% 15.8% 16.2% 16.3% 16.8% 17.1% 16.6% 16.2% 16.0% 15.4% 14.6% 13.9%

Brisbane

Sunday Mail (Qld) 37.6% 36.4% 35.7% 35.6% 35.0% 34.6% 33.9% 33.4% 31.1% 29.0% 27.5% 25.1% 23.4%

Adelaide

Sunday Mail (SA) 31.9% 31.5% 31.1% 31.0% 30.4% 29.8% 29.3% 28.4% 27.4% 26.7% 25.8% 24.8% 23.2%

Perth

Sunday Times (WA) 25.7% 25.1% 24.3% 24.5% 24.4% 24.3% 24.0% 22.9% 21.6% 20.5% 19.3% 17.9% 16.5%

Hobart

Sunday Tasmanian 29.2% 29.1% 29.5% 29.4% 29.6% 29.5% 30.0% 29.9% 28.7% 28.6% 27.9% 27.1% 25.7% Source: Audit Bureau of Circulations, ABS, compiled by Credit Suisse

27 November 2012


Australian regional newspaper circulations

Figure 734: Regional newspaper circulations (000s)

6 months ended Dec Publisher Frequency 2004 2005 2006 2007 2008 2009 2010 2011

New South Wales

Albury Border Morning Mail FXJ Mon-Sat 26.8 26.4 26.6 25.9 25.1 24.7 24.3 23.5

Bathurst Western Advocate FXJ Mon-Fri 4.5 4.1 4.1 4.0 3.9 4.1 3.7 3.5

Broken Hill Barrier Daily Truth Ind. Council Mon-Sat 5.9 5.8 5.8 5.8 5.8 5.9 5.9 5.8

Dubbo Daily Liberal FXJ Mon-Fri 5.6 5.7 5.3 5.1 5.3 5.3 5.2 4.6

Grafton Daily Examiner APN Mon-Sat 6.1 5.9 5.7 5.5 5.6 5.6 5.5 5.1

Lismore Northern Star APN Mon-Sat 16.8 16.7 15.7 15.4 14.7 14.5 13.6 12.8

Maitland Maitland Mercury FXJ Mon-Fri 4.5 4.5 4.3 4.4 4.3 4.4 4.2 4.1

New castle New castle Herald FXJ Mon-Sat 52.6 53.0 50.0 50.0 49.5 48.5 48.1 46.1

Orange Central Western Daily FXJ Mon-Sat 5.4 5.4 5.4 5.3 5.1 4.9 4.8 4.5

Tamw orth Northern Daily Leader FXJ Mon-Sat 8.4 8.3 8.0 8.0 7.7 7.5 7.3 7.1

Wagga Wagga Daily Advertiser Wagga DA Mon-Sat 13.5 13.6 13.4 13.5 12.9 12.4 12.1 11.8

Warw ick Daily New s - Warw ick APN Mon-Sat 3.6 3.7 3.3 3.1 3.2 3.2 3.1 2.9

Woollongong Illaw arra Mercury FXJ Mon-Sat 29.6 29.7 28.6 28.1 27.6 27.0 26.3 25.0

Victoria

Ballarat Ballarat Courier FXJ Mon-Sat 20.4 19.4 19.3 19.4 18.8 18.6 18.6 16.1

Bendigo Bendigo Advertiser FXJ Mon-Sat 14.7 14.5 14.5 14.5 13.8 13.9 13.5 13.1

Geelong Geelong Advertiser NWS Mon-Sat 29.9 29.9 29.7 30.4 29.2 29.3 28.3 27.4

Mildura Sunraysia Daily Sunraysia Mon-Sat 7.2 7.2 7.2 7.1 7.3 7.3 7.4 7.3

Shepparton Shepparton New s McPherson Mon-Fri 10.7 10.5 10.4 10.3 10.6 10.4 9.9 9.5

Warrnambool Warrnambool Standard FXJ Mon-Sat 12.8 12.8 12.8 12.8 12.6 12.8 12.6 12.1

Queensland

Bundaberg Bundaberg New s Mail APN Mon-Sat 11.9 11.9 11.6 11.6 11.2 10.9 10.8 10.2

Cairns Cairns Post NWS Mon-Fri 0.0 0.0 27.6 27.0 26.1 25.6 24.1 22.6

Gladstone Gladstone Observer APN Mon-Sat 0.0 0.0 7.4 7.2 7.2 6.9 7.1 7.2

Gold Coast Gold Coast Bulletin NWS Mon-Sat 47.1 48.4 48.0 47.1 46.2 44.2 41.3 39.1

Ipsw ich Queensland Times APN Mon-Sat 12.8 12.2 10.8 11.0 10.8 10.5 10.3 9.7

Mackay Daily Mercury APN Mon-Sat 15.9 15.9 16.2 16.2 16.0 15.4 14.9 14.1

Maroochydore Sunshine Coast Daily APN Mon-Sat 23.4 23.6 22.4 22.5 21.2 20.6 19.3 17.7

Maryborough Fraser Coast Chronicle APN Mon-Sat 10.1 10.2 9.8 10.0 9.6 9.4 9.3 8.6

Mt Isa North West Star Carpentaria Mon-Fri 3.6 3.6 3.6 3.3 3.4 3.4 2.8 2.6

Rockhampton Morning Bulletin APN Mon-Sat 18.4 18.4 18.3 18.1 18.2 18.0 17.6 16.0

Toow oomba Toow oomba Chronicle APN Mon-Sat 25.0 24.7 23.9 23.0 22.8 22.6 22.3 21.3

Tow nsville Tow nsville Bulletin NWS Mon-Sat 29.4 29.7 29.3 29.1 28.9 29.1 28.3 26.7

Tw eed Heads Daily New s APN Mon-Sat 5.0 4.9 4.9 4.8 4.6 4.4 3.9 0.0

Western Australia

Kalgoorlie Kalgoorlie Miner SWM Mon-Sat 5.7 5.7 5.6 5.8 5.7 5.6 5.4 5.4

Tasmania

Burnie Advocate FXJ Mon-Sat 24.8 24.6 24.5 24.9 23.9 23.5 23.2 22.0

Launceston Examiner FXJ Mon-Sat 35.7 35.2 34.5 33.9 33.1 32.2 32.2 31.4

Source: Audit Bureau of Circulations, compiled by Credit Suisse

27 November 2012


Australian regional newspaper cover prices

Figure 735: Regional newspaper cover prices $

As at Dec (A$) 2004 2005 2006 2007 2008 2009 2010 2011

New South Wales

Albury Border Morning Mail FXJ Mon-Sat 1.10 1.10 1.10 1.10 1.20 1.20 1.20 1.30

Bathurst Western Advocate FXJ Mon-Fri 1.20 1.20 1.30 1.30 1.30 1.40 1.40 1.50

Broken Hill Barrier Daily Truth Ind. Council Mon-Sat 0.75 0.90 0.90 0.90 1.00 1.00 1.00 1.10

Dubbo Daily Liberal FXJ Mon-Fri 1.20 1.20 1.30 1.30 1.30 1.40 1.40 1.50

Grafton Daily Examiner APN Mon-Sat 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.10

Lismore Northern Star APN Mon-Sat 1.00 1.10 1.10 1.10 1.10 1.10 1.10 1.20

Maitland Maitland Mercury FXJ Mon-Fri 1.10 1.10 1.20 1.20 1.20 1.20 1.30 1.30

New castle New castle Herald FXJ Mon-Sat 1.20 1.20 1.20 1.20 1.20 1.30 1.30 1.30

Orange Central Western Daily FXJ Mon-Sat 1.20 1.20 1.30 1.30 1.30 1.40 1.40 1.52

Tamw orth Northern Daily Leader FXJ Mon-Sat 1.10 1.10 1.20 1.20 1.30 1.30 1.30 1.40

Wagga Wagga Daily Advertiser Wagga DA Mon-Sat 1.10 1.10 1.20 1.20 1.30 1.30 1.30 1.40

Warw ick Daily New s - Warw ick APN Mon-Sat 1.00 1.00 1.00 1.00 1.10 1.10 1.10 1.10

Woollongong Illaw arra Mercury FXJ Mon-Sat 1.00 1.00 1.00 1.00 1.10 1.10 1.20 1.20

Victoria

Ballarat Ballarat Courier FXJ Mon-Sat 1.00 1.10 1.10 1.10 1.30 1.30 1.30 1.40

Bendigo Bendigo Advertiser FXJ Mon-Sat 1.00 1.10 1.10 1.10 1.20 1.20 1.30 1.30

Geelong Geelong Advertiser NWS Mon-Sat 1.00 1.00 1.10 1.10 1.10 1.10 1.10 1.10

Mildura Sunraysia Daily Sunraysia Mon-Sat 1.00 1.00 1.00 1.10 1.10 1.10 1.10 1.20

Shepparton Shepparton New s McPherson Mon-Fri 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10

Warrnambool Warrnambool Standard FXJ Mon-Sat 1.00 1.10 1.10 1.10 1.10 1.20 1.20 1.30

Queensland

Bundaberg Bundaberg New s Mail APN Mon-Sat 1.00 1.00 1.00 1.00 1.10 1.10 1.10 1.20

Cairns Cairns Post NWS Mon-Fri 1.00 1.00 1.00 1.10 1.10 1.10 1.10 1.10

Gladstone Gladstone Observer APN Mon-Sat 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.10

Gold Coast Gold Coast Bulletin NWS Mon-Sat 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Ipsw ich Queensland Times APN Mon-Sat 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.10

Mackay Daily Mercury APN Mon-Sat 1.05 1.10 1.10 1.10 1.10 1.10 1.10 1.20

Maroochydore Sunshine Coast Daily APN Mon-Sat 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Maryborough Fraser Coast Chronicle APN Mon-Sat 1.00 1.00 1.00 1.00 1.10 1.10 1.10 1.20

Mt Isa North West Star Carpentaria Mon-Fri 1.10 1.10 1.10 1.20 1.20 1.20 1.40 1.40

Rockhampton Morning Bulletin APN Mon-Sat 1.05 1.10 1.10 1.10 1.10 1.10 1.10 1.20

Toow oomba Toow oomba Chronicle APN Mon-Sat 1.05 1.05 1.05 1.05 1.10 1.10 1.10 1.20

Tow nsville Tow nsville Bulletin NWS Mon-Sat 1.10 1.10 1.10 1.20 1.20 1.20 1.20 1.20

Tw eed Heads Daily New s APN Mon-Sat 0.90 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Western Australia

Kalgoorlie Kalgoorlie Miner SWM Mon-Sat 0.90 0.90 1.00 1.00 1.00 1.00 1.00 1.00

Tasmania

Burnie Advocate FXJ Mon-Sat 1.00 1.10 1.20 1.20 1.20 1.30 1.30 1.40

Launceston Examiner FXJ Mon-Sat 1.00 1.10 1.10 1.10 1.20 1.20 1.30 1.30 Source: Audit Bureau of Circulations, compiled by Credit Suisse

27 November 2012


New Zealand newspaper circulation

Figure 736: New Zealand metropolitan newspaper circulations 6 month avg (000s) Publisher 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

March March March March March March March March Dec Dec Dec Dec

Auckland New Zealand Herald APN 213.3 209.9 210.8 210.9 211.5 204.5 200.3 195.7 180.9 170.4 170.7 170.8

Christchurch The Press FXJ 93.0 91.0 92.7 91.1 92.4 92.5 92.5 90.0 85.1 83.0 81.1 78.2

Wellington The Dominion Post FXJ 0.0 0.0 0.0 99.1 99.1 98.2 98.3 98.3 92.1 88.1 84.0 81.7

Dunedin Otago Daily Times Allied 44.1 43.4 44.5 44.6 45.4 44.9 43.2 43.5 40.7 40.6 39.1 38.8

Hamilton Waikato Times FXJ 40.6 40.4 41.1 40.9 41.0 41.0 41.1 41.4 41.2 40.0 40.1 39.7

Hastings Hawkes Bay Today APN 31.6 31.7 31.7 30.0 30.2 30.1 28.0 26.9 25.7 24.8 24.7 24.6

Invercargill The Southlands Times Southland 30.5 30.9 30.8 29.9 29.6 29.6 29.6 29.1 28.8 28.6 28.1 28.0

New Plymouth Taranaki Daily News Taranaki 26.8 26.6 25.7 26.9 26.7 26.8 26.5 26.5 25.6 24.3 23.0 22.6

Sunday

National Sunday News FXJ 115.1 109.3 108.9 110.1 110.8 101.3 95.5 90.9 83.1 63.0 51.7 48.0

National Sunday Star-Times FXJ 207.4 198.5 202.5 203.9 209.1 203.6 201.0 181.1 174.2 167.5 160.6 153.3

Auckland Herald on Sunday APN na na na na na 101.4 93.2 91.5 93.8 90.3 96.1 101.0 Source: The New Zealand Audit Bureau, compiled by Credit Suisse

Figure 737: New Zealand regional newspaper circulations 12 month avg (000s) Publisher 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

March March March March March March March March Dec Dec Dec Dec

Ashburton Ashburton Guardian Indep na 5.6 5.5 5.6 5.5 5.5 5.5 5.7 5.5 5.3 5.2 5.1

Gisbourne The Gisbourne Herald Indep na 8.7 8.6 8.6 8.6 8.6 8.6 8.7 8.5 7.8 7.7 7.3

Greymouth Greymouth Evening Star Indep na 4.6 4.2 4.3 4.3 4.3 0.0 4.4 4.3 4.3 4.3 4.4

Levin Howowhenua-Kapiti Chronicle APN 4.0 3.9 3.8 0.0 0.0 2.9 2.9 2.7 2.7 2.7 2.7 2.7

Masterton Wairapa Times-Age APN na 8.1 7.7 7.6 7.6 7.7 7.7 7.3 7.3 6.9 6.6 6.5

Nelson The Nelson Mail FXJ na 18.1 18.3 18.3 18.4 18.4 18.4 17.5 16.9 16.1 15.6 15.1

Oamaru The Oamaru Mail APN 3.7 3.7 3.6 3.5 3.5 3.6 3.5 3.4 3.2 3.0 2.9 2.9

Palmerston Nth Manawatu Evening Standard FXJ na 20.9 20.8 20.4 20.6 20.6 20.6 20.2 18.6 17.7 17.0 16.3

Rotorua The Daily Post APN 12.2 11.9 12.0 12.0 12.1 12.1 12.1 11.8 10.5 10.6 10.3 10.1

Tauranga Bay of Plenty Times APN 22.0 22.5 22.7 23.3 23.6 23.9 24.0 23.2 21.9 20.8 20.4 20.0

Timaru The Timaru Herald FXJ na 14.0 14.3 14.4 14.3 14.3 14.1 14.1 14.1 14.0 14.0 13.8

Wanganui Wanganui Chronicle APN 13.5 13.8 14.1 13.1 12.5 12.7 12.5 12.5 11.8 11.4 11.2 11.2

Whangarei The Northern Advocate APN 14.6 15.0 15.3 15.1 15.3 14.9 15.0 15.0 14.2 13.6 13.3 13.1 Source: The New Zealand Audit Bureau, compiled by Credit Suisse

27 November 2012


UK national newspaper circulations

Figure 738: UK national newspaper circulations Monthly averages (000s) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

National morning popular

The Mirror 2,314 2,244 2,188 2,104 1,640 1,777 1,717 1,608 1,544 1,418 1,292 1,202 1,136

Daily Record 637 614 597 538 503 479 456 420 403 373 335 316 293

Daily Star 599 547 620 756 893 882 840 787 781 726 847 806 668

Sun 3,591 3,609 3,473 3,615 3,452 3,301 3,258 3,145 3,096 3,074 3,030 2,924 2,702

Total 7,141 7,014 6,879 7,014 6,489 6,440 6,271 5,960 5,824 5,591 5,504 5,248 4,800

National morning mid-market

The Express 1,059 1,032 958 995 967 929 825 803 790 741 706 650 615

Daily Mail 2,365 2,382 2,477 2,434 2,460 2,404 2,364 2,358 2,350 2,139 2,155 2,115 2,020

Total 3,425 3,415 3,434 3,428 3,427 3,333 3,189 3,161 3,139 2,880 2,861 2,766 2,634

National morning quality

Daily Telegraph 1,035 1,021 1,021 981 922 907 904 900 884 845 775 658 610

Financial Times 415 469 479 454 435 426 426 430 440 434 403 390 338

The Herald 0 0 0 0 0 79 76 71 68 62 57 53 47

Guardian 391 395 408 398 386 371 382 376 360 346 312 273 235

Independent 224 230 231 223 228 262 259 254 239 215 187 181 154

The Scotsman 0 0 0 0 0 68 66 60 55 50 47 43 40

Times 720 720 720 685 631 658 689 662 637 619 564 480 427

Total 2,786 2,834 2,858 2,741 2,601 2,772 2,803 2,753 2,684 2,572 2,345 2,078 1,850

National Sunday popular

Daily Star Sunday 0 0 0 0 0 491 411 390 446 370 379 356 691

News of the World 4,062 4,028 4,030 3,962 3,913 3,745 3,719 3,468 3,316 3,159 3,022 2,812 0

Sun on Sunday

Sunday Mail 0 0 0 0 0 585 550 518 503 462 410 380 394

Sunday Mirror 1,980 1,905 1,836 1,732 1,606 1,597 1,506 1,404 1,395 1,281 1,196 1,112 1,795

Sunday People 1,580 1,499 1,382 1,245 1,088 990 918 808 709 620 561 518 820

Sunday Sport 207 200 203 189 182 156 151 106 91 0 0 0 0

Total 7,829 7,633 7,452 7,129 6,789 7,564 7,255 6,694 6,461 5,891 5,567 5,179 3,700

National Sunday mid-market

Mail on Sunday 2,296 2,292 2,381 2,375 2,376 2,400 2,293 2,319 2,315 2,186 2,043 1,977 2,036

Sunday Post 0 0 0 0 0 0 0 0 402 383 347 322 318

Express on Sunday 981 957 864 980 951 992 865 797 728 657 618 558 662

Total 3,277 3,249 3,245 3,355 3,328 3,392 3,158 3,116 3,445 3,226 3,008 2,857 3,016

National Sunday quality

Independent on Sunday 248 248 239 225 212 212 214 219 209 179 158 154 146

The Business 0 0 0 0 0 213 184 0 0 0 0 0 0

Observer 402 442 463 462 459 447 438 455 455 435 373 313 273

Scotland on Sunday 0 0 0 0 0 81 81 73 69 63 59 54 50

Sunday Herald 0 0 0 0 0 56 59 55 51 44 42 42 30

Sunday Telegraph 822 806 812 775 711 695 679 659 638 618 582 503 479

Sunday Times 1,332 1,367 1,384 1,380 1,363 1,339 1,367 1,301 1,207 1,192 1,173 1,058 977

Total 2,804 2,862 2,898 2,842 2,745 3,044 3,021 2,762 2,629 2,532 2,387 2,123 1,955

TOTAL daily copies 94,018 93,321 92,619 92,428 87,967 89,267 87,009 83,821 82,417 77,908 75,220 70,707 64,372

% change (p.a.) -1.9% -0.7% -0.8% -0.2% -4.8% 1.5% -2.5% -3.7% -1.7% -5.5% -3.5% -6.0% -9.0% Source: Audit Bureau of Circulations

27 November 2012


Magazines

Figure 739: Australian magazine circulations Figure 740: Australian Magazine Advertising Revenue

-14%

-9%

-4%

1%

6%

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

Monthly Circulation

% change YoY

0%

2%

4%

6%

8%

10%

12%

0

200

400

600

800

1,000

1,200

FY9

7

FY9

8

FY9

9

FY0

0

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

Revenue ($m)


Source: Audit Bureau of Circulations, compiled by Credit Suisse. %

change is stated on a like-for-like basis.

Source: CEASA, Credit Suisse estimates

Figure 741: Australian Magazine Advertising Category Mix Figure 742: Australian Magazine Agency Advertising

Market Share

Auto10%

Finance6%

FMCG14%

Pharma6%

Retail19%

Cosmetics11%

Travel5%

Other29%

ACP36%

Fairfax15%

News22%

Pacific25%

Other2%


Figure 743: Magazine consumption by category – yearly

Yearly (mn) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Women's mass market 138.2 135.2 125.0 120.8 120.5 121.5 124.6 128.7 114.5 109.3 99.5 96.2 89.8 86.5

Women's lifestyle 14.6 14.5 14.5 14.4 14.7 15.4 16.9 20.2 16.9 17.0 19.6 19.4 17.1 16.1

TV & entertainment 16.9 15.4 17.0 16.4 15.6 17.3 17.6 16.7 15.7 13.9 13.2 12.1 10.8 9.7

Sport 2.2 3.1 2.9 1.7 1.7 1.7 1.7 1.7 2.5 2.7 2.5 2.5 2.3 2.1

Science & computing 1.6 1.6 1.6 1.5 1.4 0.8 0.8 0.8 1.1 1.1 1.0 0.9 0.7 0.6

Other mass market 6.0 5.6 5.6 4.9 4.9 4.6 4.9 5.9 5.2 5.1 4.9 4.6 3.9 3.2

Motor 4.9 5.1 5.1 5.3 5.9 5.8 6.0 5.9 5.5 5.5 6.1 6.1 5.9 5.5

Men's market 13.7 12.9 12.2 12.1 12.3 12.1 12.2 11.7 9.8 9.2 8.4 8.0 6.5 5.0

Home & garden 13.2 14.1 15.0 15.0 16.2 16.8 16.4 16.5 15.2 15.4 15.4 15.8 15.6 15.3

Food 3.0 7.0 6.7 8.1 11.1 11.5 11.9 13.6 14.5 15.1 15.0 15.9 15.2 14.2

Children/Teen 1.2 1.2 1.0 1.1 1.0 3.6 3.1 2.8 2.4 2.5 2.2 1.8 1.0 1.1

Business & new s 11.3 11.9 12.4 11.6 11.7 11.8 10.9 9.3 8.2 7.9 8.5 8.2 4.3 3.6

Total 226.8 227.8 219.1 212.9 217.1 222.9 226.9 234.0 211.4 204.6 196.3 191.4 173.2 163.0

Number of Titles 57 61 65 66 71 74 76 79 86 88 92 93 87 86 Source: Audit Bureau of Circulations, Credit Suisse estimates

27 November 2012


Figure 744: Annual consumption per capita

As at December 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Women's mass market 7.4 7.1 6.5 6.2 6.1 6.1 6.2 6.3 5.5 5.2 4.6 4.4 4.0 3.9

Women's lifestyle 0.8 0.8 0.8 0.7 0.7 0.8 0.8 1.0 0.8 0.8 0.9 0.9 0.8 0.7

TV & entertainment 0.9 0.8 0.9 0.8 0.8 0.9 0.9 0.8 0.8 0.7 0.6 0.6 0.5 0.4

Sport 0.1 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Science & computing 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0

Other mass market 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.3 0.2 0.2 0.2 0.2 0.2 0.1

Motor 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.2

Men's market 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.4 0.4 0.4 0.3 0.2

Home & garden 0.7 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.7

Food 0.2 0.4 0.3 0.4 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.6

Children/Teen 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0

Business & new s 0.6 0.6 0.6 0.6 0.6 0.6 0.5 0.5 0.4 0.4 0.4 0.4 0.2 0.2

Total 12.1 12.0 11.4 11.0 11.0 11.2 11.3 11.5 10.2 9.7 9.2 8.7 7.8 7.3 Source: Audit Bureau of Circulations, Australian Bureau of Statistics, Credit Suisse estimates

Figure 745: Top 40 Australian Magazines by agency ad revenue $M

Magazine Publisher 2010 2011 % change

Good Weekend Fairfax 28.9 23.0 -20.3%

Women's Weekly ACP 25.7 21.7 -15.5%

Womans Day ACP 25.5 21.2 -16.9%

Sunday Magazine New s 20.4 19.2 -5.7%

Better Homes & Gardens Pacif ic 17.7 16.1 -8.7%

New Idea Pacif ic 17.8 15.2 -14.3%

Marie Claire Pacif ic 14.4 13.3 -7.2%

Who Weekly Pacif ic 10.6 9.6 -9.1%

Sunday Life Fairfax 10.4 8.5 -18.4%

The Australian Magazine New s 5.8 7.5 29.0%

Q Weekend New s 7.8 7.1 -9.0%

The Australian Way (QANTAS) ACP 6.3 6.9 9.5%

Cosmopolitan ACP 6.5 6.7 2.4%

STM (Perth Sunday T) New s 7.6 5.9 -21.5%

Madison ACP 6.1 5.2 -15.6%

the(sydney)magazine Fairfax 6.0 5.1 -15.5%

OK! ACP 5.0 5.0 0.2%

Vogue Australia New s 4.0 5.0 22.4%

Aust Women's Health Pacif ic 4.0 4.9 20.5%

Grazia ACP 6.0 4.5 -24.6%

AFR Magazine Fairfax 4.1 4.4 8.2%

In Style Pacif ic 4.5 4.3 -4.4%

That's Life Pacif ic 5.0 4.3 -13.2%

Harpers Bazaar ACP 3.8 4.3 13.0%

Cleo ACP 4.5 3.9 -11.8%

Woolw orths Good Taste New s 5.2 3.8 -26.5%

Delicious New s 3.5 3.8 8.0%

Seven Days Pacif ic 4.0 3.6 -8.0%

the (melbourne) magazine Fairfax 3.4 3.5 4.1%

Business Review Weekly Fairfax 3.7 3.4 -8.1%

Super Food Ideas New s 3.8 3.4 -11.2%

Gourmet Traveller ACP 3.3 3.4 1.0%

NW Magazine ACP 4.1 3.4 -18.0%

Shop 'til You Drop ACP 3.4 3.3 -1.8%

Masterchef Magazine New s 2.5 3.2 28.3%

Men's Health Pacif ic 3.5 3.1 -10.3%

House & Garden ACP 3.1 2.9 -6.5%

West Weekend Magazine Pacif ic 2.5 2.8 15.1%

Famous Pacif ic 2.6 2.8 5.2%

Melbourne Home Magazine New s 2.3 2.5 11.4%

Other 151.6 139.0 -8.3%

460.6 420.8 -8.6%Total Source: SMI, compiled by Credit Suisse

27 November 2012


Magazine circulations

Figure 746: Magazine circulations in Australia 000s (December Quarter) Publisher 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Women's mass market

Australian Women's Weekly ACP 832 785 793 784 790 768 713 605 570 491 502 486 470

English Women's Weekly Other 46 38 0 0 0 0 0 21 19 16 16 0 0

Famous Pacific 0 0 0 0 0 0 0 85 73 74 86 90 89

New Idea Pacific 528 462 457 454 470 467 499 411 388 330 330 317 305

NW ACP 152 154 158 172 191 217 229 190 170 142 128 116 108

OK! ACP 0 0 0 0 0 78 84 113 141 121 111 97 102

Take 5 ACP 202 207 234 248 244 242 258 258 251 260 231 217 202

That's Life Pacific 478 445 436 434 426 395 390 326 321 310 284 261 245

Who Pacific 204 203 176 146 147 161 170 156 142 141 138 131 132

Woman's Day ACP 796 715 679 681 676 659 681 504 466 406 410 385 372

Women's lifestyle

Cleo ACP 233 231 238 231 227 217 223 180 160 133 128 110 105

Cosmopolitan ACP 225 231 235 237 235 255 258 203 175 166 152 150 126

Dolly ACP 196 181 159 156 179 189 185 141 122 119 140 103 90

Girlfriend Pacific 177 143 131 136 150 159 167 128 121 110 100 90 80

Grazia ACP 0 0 0 0 0 0 0 0 0 65 66 54 54

Harpers Bazaar ACP 54 56 56 57 58 57 63 51 54 48 55 59 54

Instyle Pacific 0 64 64 65 66 74 67 66 65 62 62 60 58

Madison ACP 0 0 0 0 0 0 98 96 98 90 90 89 85

marie claire Pacific 115 111 104 111 119 120 121 112 116 117 113 106 100

Notebook: News 0 0 0 0 0 0 101 73 73 73 69 0 0

Real Living ACP 0 0 0 0 0 0 60 55 60 55 61 62 65

Shop Till You Drop ACP 0 0 0 0 0 64 74 75 75 79 83 83 77

Vogue Australia News 55 55 57 62 63 65 65 53 52 50 54 52 51

Weight Watchers Pacific 76 68 79 85 92 103 101 89 86 81 67 66 63

Women's Health Pacific 0 0 0 0 0 0 0 0 75 87 92 94 92

TV & entertainment

Empire ACP 0 0 21 22 31 37 36 22 22 23 24 23 23

K-Zone Pacific 0 138 158 138 158 132 103 70 68 66 53 44 41

Rolling Stone ACP 35 38 40 36 35 35 34 29 27 22 23 20 20

TV Week ACP 288 286 265 255 280 291 282 273 240 228 210 188 167

Sport

Bowls NSW Other 78 73 70 67 67 66 64 62 61 58 58 55 52

Modern Fishing News 19 19 19 19 19 20 20 0 19 17 16 16 16

Rugby League Week ACP 29 26 0 0 0 0 0 23 23 20 20 18 17

Sporting Shooter Other 0 0 15 15 14 13 13 13 14 15 15 15 14

Trade a Boat ACP 25 25 25 24 24 24 24 19 20 16 17 15 13

Trailer Boat ACP 16 17 17 17 18 18 18 15 17 13 13 12 10

Science & computing

APC ACP 75 70 64 55 0 0 0 44 41 36 32 27 22

PC User - Australian ACP 62 63 58 63 67 64 64 51 50 46 42 35 31

Other mass market

Australian Traveller Other 0 0 0 0 0 0 0 10 11 10 11 11 11

Australian Geographic ACP 0 0 0 0 166 162 158 148 148 143 135 121 95

Reader's Digest Other 470 464 405 405 330 350 442 360 352 345 315 266 212 Source: Audit Bureau of Circulations, Credit Suisse estimates

27 November 2012


Figure 747: Magazine circulations (cont.) 000s (December Quarter) Publisher 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Motor

4 x 4 Australia ACP 19 19 20 23 22 22 22 20 21 19 18 18 17

Australian Auto Action ACP 14 13 13 14 15 15 14 14 13 12 12 11 10

Australasian Dirt Bike ACP 21 23 21 22 24 28 30 27 28 28 26 25 23

Australian Motorcycle News ACP 19 19 19 19 20 21 21 21 22 22 21 21 21

Australian Motorcycle Trader ACP 27 29 30 30 27 29 31 30 29 26 25 25 23

Campertrailer Australia ACP 0 0 0 0 0 0 0 0 0 0 10 13 11

Caravan World ACP 0 0 0 15 13 12 14 13 13 12 13 14 13

Deals on Wheels ACP 27 26 25 24 26 26 25 24 25 22 23 22 23

Farms & Farm Machinery ACP 16 14 15 15 14 14 13 12 12 11 12 11 11

Motor ACP 41 45 51 60 58 54 55 47 43 40 35 33 29

Street Machine ACP 55 53 59 69 68 72 70 60 58 56 56 47 47

Top Gear ACP 0 0 0 0 0 0 0 0 0 85 75 76 72

Unique Cars ACP 64 62 60 62 57 63 63 59 61 51 55 60 54

Wheels ACP 58 59 59 70 68 67 64 62 64 60 56 51 49

Men's market

F.H.M. magazine ACP 90 107 119 125 141 136 130 90 68 52 50 50 26

Men's Health Pacific 42 48 51 48 51 61 66 64 70 78 78 76 73

People ACP 60 55 62 66 65 65 64 55 52 49 45 40 30

Picture ACP 140 121 102 102 96 96 88 76 72 68 65 56 43

Ralph ACP 77 104 127 122 123 121 125 93 85 66 63 0 0

Home & garden

Country Style News 63 64 63 62 64 65 63 55 55 54 57 62 64

Australian Home Beautiful Pacific 74 81 82 79 81 81 76 66 68 70 72 72 76

Australian House & Garden ACP 107 109 109 114 124 120 106 100 99 94 100 108 112

Australian Handyman Other 0 0 0 47 39 46 48 56 60 64 67 68 55

Belle ACP 44 45 43 39 43 36 36 27 30 29 33 36 38

Better Homes & Gardens Pacific 347 318 306 309 311 293 333 335 350 380 392 385 378

Burke's Backyard ACP 96 97 112 132 141 122 96 75 75 59 59 53 45

Gardening Australia News 95 95 88 85 85 87 89 97 99 97 89 86 81

Good Health & Medicine ACP 95 60 52 56 61 65 67 68 65 60 64 60 66

Inside Out News 0 49 50 49 53 59 61 53 52 48 51 50 45

RM Williams Outback Other 29 37 45 61 68 71 71 73 71 73 70 66 64

Vogue Living News 66 70 70 77 77 73 76 46 44 43 43 44 44

Your Garden Pacific 64 58 56 46 38 42 47 52 53 56 56 48 42

Food

Australian Gourmet Traveller ACP 89 87 84 84 84 82 85 72 75 74 74 75 76

Australian Gourmet Traveller + WineACP 0 0 26 27 29 32 30 24 24 22 22 23 21

Australian Good Food ACP 0 0 0 0 0 0 0 0 0 71 81 78 71

Delicious ABC 0 0 0 94 111 127 129 119 125 130 132 134 121

Diabetic Living Pacific 0 0 0 0 0 0 0 45 42 47 54 57 54

Donna Hay News 0 0 0 84 94 98 98 80 90 90 91 91 103

Recipes+ Other 0 0 0 0 0 0 71 115 136 115 134 126 126

SuperFood Ideas News 328 304 361 351 340 346 352 321 301 271 287 255 202

Woolworths Good Taste News 170 167 176 178 178 179 171 166 166 154 145 128 107

Children/Teen

Disney Adventures ACP 101 86 92 85 86 59 54 40 38 37 29 0 0

Disney Girl ACP 0 0 0 0 37 37 39 29 29 34 25 0 0

Dmag Other 0 0 0 0 78 57 46 38 48 29 25 20 20

Girl Power ACP 0 0 0 0 0 0 0 26 25 25 22 21 23

Total Girl Pacific 0 0 0 0 100 108 99 67 64 60 52 46 47

Business & news

AFR Smart Investor FXJ 0 0 0 0 0 0 0 79 79 68 60 52 51

Australian Property Investor Other 0 0 0 27 38 24 24 25 35 31 26 27 23

BRW FXJ 66 64 56 54 56 54 50 44 41 41 40 40 41

Farm Weekly Other 0 13 13 13 13 14 0 0 0 14 14 13 0

Money Magazine ACP 101 101 83 69 53 50 49 47 51 50 50 50 51

Time Time 140 139 135 135 137 125 110 78 73 74 72 0 0 Source: Audit Bureau of Circulations, Credit Suisse estimates

27 November 2012


Magazine cover prices

Figure 748: Magazine cover prices (December Quarter) Frequency 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Women's mass market

Australian Women's Weekly Monthly $4.50 $4.95 $5.20 $5.70 $5.95 $6.20 $6.40 $6.60 $6.80 $6.80 $6.90 $6.95

English Women's Weekly Weekly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $3.20 $3.30 $3.30 $0.00 $0.00

Famous Weekly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $4.20 $4.50 $3.50 $3.50 $3.95 $3.95

New Idea Weekly $3.30 $3.30 $3.50 $3.50 $3.60 $3.70 $3.80 $3.95 $4.00 $4.00 $4.00 $4.00

NW Weekly $3.50 $3.70 $3.95 $4.20 $4.20 $4.30 $4.50 $4.70 $4.95 $4.95 $4.95 $4.95

OK! Weekly $0.00 $0.00 $0.00 $0.00 $4.95 $4.95 $2.95 $3.95 $4.50 $4.50 $4.50 $4.50

Take 5 Weekly $2.20 $2.20 $2.30 $2.40 $2.40 $2.50 $2.60 $2.70 $2.80 $2.90 $2.95 $3.00

That's Life Weekly $2.20 $2.20 $2.30 $2.40 $2.50 $2.50 $2.60 $2.70 $2.80 $2.90 $2.95 $3.00

Who Weekly $3.50 $3.50 $3.70 $3.95 $3.95 $4.20 $4.30 $4.50 $4.70 $4.70 $4.70 $4.80

Woman's Day Weekly $3.30 $3.50 $3.50 $3.50 $3.60 $3.70 $3.80 $3.95 $4.00 $4.00 $4.00 $4.00

Women's lifestyle

Cleo Monthly $5.70 $5.95 $6.20 $6.20 $6.50 $6.70 $6.90 $7.00 $7.20 $7.40 $7.50 $7.70

Cosmopolitan Monthly $5.70 $5.95 $6.20 $6.50 $6.70 $6.95 $7.00 $7.20 $7.20 $7.40 $7.60 $7.60

Dolly Monthly $4.40 $4.60 $4.60 $4.80 $5.20 $5.40 $5.50 $5.60 $5.70 $7.95 $5.95 $7.95

Girlfriend Monthly $4.40 $4.40 $4.60 $4.80 $5.00 $5.20 $5.40 $5.50 $5.70 $5.95 $7.95 $7.95

Grazia Weekly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $5.00 $6.00 $6.00 $6.00

Harpers Bazaar Monthly $6.95 $7.50 $7.50 $7.50 $7.50 $7.80 $7.95 $7.95 $7.95 $7.95 $8.50 $8.50

Instyle Monthly $5.40 $5.90 $6.70 $7.20 $7.50 $7.50 $7.80 $7.95 $7.95 $7.95 $7.95 $8.20

Madison Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $7.50 $7.80 $8.20 $8.30 $7.95 $8.20 $8.20

marie claire Monthly $6.80 $6.95 $6.95 $7.50 $7.80 $7.80 $7.80 $7.95 $8.20 $8.20 $8.20 $8.40

Notebook: Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $5.95 $6.95 $6.95 $6.95 $6.95 $0.00 $0.00

Real Living Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $4.95 $5.95 $6.50 $6.75 $6.95 $6.95 $6.95

Shop Till You Drop Monthly $0.00 $0.00 $0.00 $0.00 $6.95 $6.95 $7.00 $7.20 $7.40 $7.60 $7.80 $7.80

Vogue Australia Monthly $6.49 $6.80 $6.80 $7.50 $7.50 $7.95 $7.95 $7.95 $7.95 $7.95 $8.50 $8.50

Weight Watchers Bi Monthly $4.30 $4.30 $4.95 $4.95 $5.50 $5.50 $5.50 $5.95 $5.95 $5.95 $5.95 $6.20

Women's Health Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $6.95 $6.95 $6.95 $7.20 $7.20

TV & entertainment

Empire Monthly $0.00 $6.95 $7.50 $7.95 $7.95 $7.95 $7.95 $8.95 $8.95 $8.95 $8.95 $8.95

K-Zone Monthly $3.50 $3.70 $3.90 $3.90 $4.20 $4.50 $4.95 $4.95 $4.95 $5.95 $5.95 $5.95

Rolling Stone Monthly $6.50 $6.50 $6.50 $6.80 $6.95 $6.95 $7.50 $7.50 $7.80 $7.95 $7.95 $7.95

TV Week Weekly $2.75 $2.85 $2.95 $2.95 $3.20 $3.30 $3.50 $3.70 $3.90 $3.95 $3.95 $4.20

Sport

Bowls NSW Monthly $2.50 $2.50 $2.50 $2.75 $2.75 $2.75 $0.00 $4.95 $4.95 $4.95 $4.95 $4.95

Modern Fishing Monthly $5.95 $5.95 $5.95 $6.25 $6.95 $6.95 $0.00 $7.95 $7.95 $7.95 $7.95 $7.95

Rugby League Week Weekly $3.95 $0.00 $0.00 $0.00 $0.00 $0.00 $5.95 $5.95 $5.50 $5.60 $5.70 $5.50

Sporting Shooter Monthly $0.00 $5.75 $5.95 $5.95 $6.25 $6.25 $6.50 $6.75 $6.75 $6.95 $6.95 $7.25

Trade a Boat Monthly $6.50 $6.99 $6.99 $7.25 $7.20 $7.25 $7.50 $7.95 $7.95 $7.95 $7.95 $7.95

Trailer Boat Monthly $6.40 $5.99 $5.99 $5.99 $5.99 $5.99 $5.99 $6.50 $6.50 $6.50 $6.95 $6.95

Science & computing

APC Monthly $9.80 $9.80 $9.80 $0.00 $0.00 $0.00 $9.95 $9.95 $9.95 $9.95 $9.95 $9.95

PC User - Australian Monthly $7.50 $7.50 $7.95 $7.95 $8.50 $8.95 $8.95 $8.95 $8.95 $9.50 $9.75 $9.95

Other mass market

Australian Traveller Bi Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $7.95 $7.95 $7.95 $8.95 $8.95 $8.95

Australian Geographic Quarterly $0.00 $0.00 $0.00 $14.95 $14.95 $14.95 $14.95 $14.95 $14.95 $14.95 $14.95 $12.95

Reader's Digest Monthly $5.44 $5.44 $5.44 $5.79 $5.99 $5.99 $5.99 $5.99 $5.99 $5.99 $5.99 $5.99

Motor

4 x 4 Australia Monthly $6.50 $6.50 $6.95 $7.50 $7.95 $7.95 $8.50 $8.60 $8.75 $8.75 $8.95 $8.95

Australian Auto Action Weekly $4.70 $4.95 $4.95 $4.95 $4.95 $5.20 $5.95 $5.95 $5.60 $5.60 $5.75 $5.95

Australasian Dirt Bike Monthly $6.54 $6.99 $6.99 $6.99 $6.99 $7.50 $7.50 $7.95 $7.95 $7.95 $9.95 $7.95

Australian Motorcycle News Fortnightly $5.40 $5.50 $5.95 $5.95 $6.50 $6.95 $6.95 $6.95 $7.25 $7.25 $7.50 $7.50

Australian Motorcycle Trader Monthly $3.50 $3.95 $3.95 $4.50 $4.50 $4.50 $4.95 $5.75 $5.95 $5.95 $5.95 $6.50

Campertrailer Australia Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $7.50 $7.95 $7.95

Caravan World Monthly $0.00 $0.00 $6.25 $6.25 $6.50 $6.95 $7.50 $7.95 $7.95 $7.95 $7.95 $7.95

Deals on Wheels Monthly $5.60 $5.95 $5.95 $6.00 $6.00 $6.00 $6.50 $6.50 $6.95 $6.90 $6.90 $6.90

Farms & Farm Machinery Monthly $5.60 $5.90 $5.90 $6.00 $6.00 $6.00 $6.50 $6.50 $6.60 $6.60 $6.60 $6.90

Motor Monthly $6.95 $6.95 $7.50 $7.95 $7.95 $7.95 $8.50 $8.60 $8.60 $8.75 $8.95 $8.95

Street Machine Monthly $6.60 $6.95 $7.50 $7.95 $7.95 $8.50 $8.95 $8.50 $8.60 $8.75 $8.95 $8.95

Top Gear Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $8.95 $8.95 $8.95 $8.95

Unique Cars Monthly $6.60 $6.95 $6.95 $7.50 $7.50 $7.50 $7.95 $7.95 $7.95 $7.95 $8.45 $8.95

Wheels Monthly $6.60 $6.60 $7.50 $7.95 $7.95 $7.95 $8.95 $8.60 $8.75 $8.75 $8.95 $8.95 Source: Audit Bureau of Circulations, Credit Suisse estimates

27 November 2012


Figure 749: Magazine cover prices (cont.) (December Quarter) Frequency 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Men's market

F.H.M. magazine Monthly $7.15 $7.50 $7.50 $7.95 $7.95 $8.25 $8.25 $8.25 $8.50 $8.75 $8.95 $8.95

Men's Health Monthly $7.80 $7.95 $7.95 $8.20 $8.50 $8.50 $8.50 $8.50 $8.50 $8.95 $8.95 $8.95

People Weekly $3.30 $3.50 $3.60 $3.80 $3.90 $3.95 $3.95 $4.25 $4.40 $4.40 $4.50 $4.60

Picture Weekly $3.30 $3.30 $3.40 $3.60 $3.75 $3.95 $3.95 $4.25 $4.40 $4.40 $4.50 $4.60

Ralph Monthly $6.95 $7.50 $7.95 $7.95 $7.95 $7.95 $8.25 $8.25 $8.50 $8.95 $0.00 $0.00

Home & garden

Country Style Monthly $6.50 $6.50 $6.75 $6.95 $6.95 $7.50 $7.50 $7.50 $7.50 $7.95 $7.95 $7.95

Australian Home Beautiful Monthly $5.70 $5.80 $5.90 $6.00 $6.50 $6.50 $6.50 $6.80 $6.95 $6.95 $6.95 $7.50

Australian House & Garden Monthly $5.70 $5.95 $6.20 $6.50 $6.50 $6.50 $6.75 $6.95 $6.95 $6.95 $7.50 $7.50

Australian Handyman Monthly $0.00 $0.00 $5.95 $5.95 $6.50 $6.50 $6.50 $6.50 $6.50 $6.50 $6.50 $6.50

Belle Bi Monthly $6.95 $7.50 $7.50 $7.50 $7.95 $7.95 $8.50 $8.95 $8.95 $8.95 $8.95 $8.95

Better Homes & Gardens Monthly $5.00 $5.00 $5.20 $5.50 $5.70 $5.70 $5.90 $5.90 $5.95 $5.95 $6.20 $6.20

Burke's Backyard Monthly $4.60 $4.80 $5.20 $5.70 $5.95 $5.95 $6.20 $6.50 $6.75 $6.75 $6.75 $6.95

Gardening Australia Monthly $4.30 $4.50 $4.50 $4.75 $4.95 $5.25 $5.50 $5.75 $5.95 $5.95 $6.50 $6.75

Good Health & Medicine Monthly $5.40 $5.40 $5.50 $5.70 $5.95 $6.20 $6.40 $6.50 $6.70 $6.95 $6.95 $6.95

Inside Out Bi Monthly $5.50 $5.90 $5.90 $6.40 $7.00 $7.00 $7.00 $7.50 $7.50 $7.95 $7.95 $8.20

RM Williams Outback Bi Monthly $6.50 $6.50 $6.95 $7.95 $7.95 $7.95 $7.95 $8.95 $8.95 $8.95 $8.95 $9.95

Vogue Living Bi Monthly $6.49 $6.49 $6.80 $7.50 $7.50 $7.50 $7.95 $7.95 $8.50 $8.50 $8.95 $8.95

Your Garden Quarterly $4.30 $4.50 $4.60 $4.90 $4.90 $5.95 $6.50 $6.95 $6.95 $6.95 $7.95 $7.95

Food

Australian Gourmet Traveller Monthly $6.85 $6.95 $6.95 $6.95 $7.95 $7.95 $7.95 $8.50 $8.75 $8.95 $8.95 $8.95

Australian Gourmet Traveller + WineBi Monthly $0.00 $7.50 $7.95 $7.95 $8.95 $8.95 $8.95 $8.95 $8.95 $8.95 $8.95 $8.95

Australian Good Food Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 na $4.95 $5.25 $5.50 $5.95

Delicious Monthly $0.00 $0.00 $4.95 $5.95 $5.95 $6.50 $6.95 $6.95 $6.95 $6.95 $6.95 $7.50

Diabetic Living Bi Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $7.95 $7.95 $7.95 $7.95 $7.95 $7.95

Donna Hay Bi Monthly $0.00 $0.00 $7.95 $8.95 $8.95 $7.95 $7.95 $7.95 $7.95 $7.95 $7.95 $7.95

Recipes+ Bi Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $2.60 $2.60 $2.80 $2.95 $3.30 $3.30 $3.30

SuperFood Ideas Monthly $1.95 $2.20 $2.40 $2.75 $2.75 $2.95 $3.25 $3.25 $2.90 $2.95 $2.95 $2.95

Woolworths Good Taste Monthly $2.50 $2.50 $2.95 $3.50 $3.50 $3.50 $3.95 $4.25 $4.25 $4.25 $3.95 $3.95

Children/Teen

Disney Adventures Monthly $3.50 $3.60 $3.80 $3.90 $4.20 $5.50 $5.50 $5.50 $5.95 $5.95 $0.00 $0.00

Disney Girl Monthly $0.00 $0.00 $0.00 $3.90 $4.95 $5.95 $5.95 $5.95 $5.95 $5.95 $0.00 $0.00

Dmag Monthly $0.00 $0.00 $0.00 $3.95 $4.95 $4.95 $4.95 $5.50 $5.70 $5.95 $5.95 $5.95

Girl Power Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $4.95 $4.95 $5.50 $5.50 $5.95 $5.95

Total Girl Monthly $0.00 $0.00 $0.00 $4.20 $4.20 $4.50 $4.80 $4.95 $4.95 $5.95 $5.95 $5.95

Business & news

AFR Smart Investor Monthly $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $7.00 $7.95 $7.95 $7.95 $7.95 $7.95

Australian Property Investor Monthly $0.00 $0.00 $7.95 $7.95 $8.95 $8.95 $8.95 $8.95 $8.95 $9.95 $9.95 $9.95

BRW Weekly $4.95 $4.95 $4.95 $4.95 $5.95 $5.95 $6.95 $6.95 $6.95 $7.95 $7.95 $7.95

Farm Weekly Weekly $2.70 $2.70 $2.95 $2.95 $3.00 $3.00 $0.00 na $3.40 $3.40 $3.40 $0.00

Money Magazine Monthly $5.50 $5.95 $5.95 $5.95 $5.95 $5.95 $6.50 $6.50 $6.75 $6.95 $6.95 $6.95

Time Weekly $4.95 $4.95 $4.95 $5.50 $5.50 $5.50 $5.95 $5.95 $5.95 $5.95 $0.00 $0.00 Source: Audit Bureau of Circulations, Credit Suisse estimates

27 November 2012


Pay TV

Figure 750: Pay TV Penetration in Australia Figure 751: Australian Magazine Agency Advertising

Market Share

0%

5%

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40%

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2001

2002

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2007

2008

2009

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2011

Pay-TV Commercial FTA

Source: Credit Suisse estimates Source: OzTam


Platform

0

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2,500

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pay TV

Commercial FTA

-10%

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5%

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD

Metro FTA

Regional FTA

Pay TV



Spend


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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Australia UK US

Source: OEASA, MagnaGlobal, WARC, Credit Suisse estimates Source: Credit Suisse estimates

27 November 2012


Figure 756: Global pay TV penetration

0%

20%

40%

60%

80%

100%


Figure 757: Global Pay TV Operator EBITDA Margins

-20%

-10%

0%

10%

20%

30%

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50%

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Source: IBES

Figure 758: Cable network EBITDA margins (2010 and 2011)

0%

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20%

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Discovery Scripps Viacom Disney News Corp Comcast Time Warner Fox Sports

2011 2012


27 November 2012


Figure 759: Australian pay TV market summary YE June 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Australian Households (000s) 6,910 7,002 7,100 7,236 7,377 7,468 7,600 7,740 7,847 7,945 8,071 8,244 8,326 8,410 8,494 8,579

% growth 1.4% 1.9% 1.9% 1.2% 1.8% 1.8% 1.4% 1.2% 1.6% 2.1% 1.0% 1.0% 1.0% 1.0%

TV Households (000s) 6,841 6,932 7,029 7,164 7,303 7,393 7,524 7,663 7,769 7,866 7,990 8,162 8,243 8,326 8,409 8,493

% total households 99.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.0%

Pay-TV subscribers (000s)

Foxtel 205 320 495 634 744 798 1,058 1,100 1,180 1,271 1,443 1,540 1,630 1,632 1,652 2,327

Austar 150 215 329 406 432 417 427 493 514 571 639 695 729 747 764

Total 634 791 1,037 1,259 1,431 1,472 1,485 1,593 1,694 1,842 2,082 2,235 2,359 2,379 2,416 2,327

% change 24.9% 31.1% 21.4% 13.7% 2.9% 0.9% 7.3% 6.3% 8.7% 13.0% 7.3% 5.5% 0.8% 1.6% -3.7%

Pay-TV penetration of total TV homes (%) 9.3% 11.4% 14.8% 17.6% 19.6% 19.9% 19.7% 20.8% 21.8% 23.4% 26.1% 27.4% 28.6% 28.6% 28.7% 27.4%

Pay-TV revenue by operator ($M)

Foxtel 87 163 272 389 456 527 649 767 1,064 1,245 1,420 1,665 1,840 2,016 2,142 2,220

Austar (Dec YE) 86 136 221 281 294 291 324 388 454 503 568 632 675 711 713 726

Total 173 299 493 670 750 818 973 1,155 1,518 1,748 1,988 2,297 2,515 2,727 2,855 2,946

EBITDA by operator $M

Foxtel -124 -74 -39 -36 -42 -42 -76 -15 169 237 351 406 477 551 598

Austar (Dec YE) -89 19 57 100 127 139 161 195 213 231 255 263

Total -124 -74 -39 -125 -23 15 24 112 308 398 546 619 708 806 861

Advertising revenue (Dec YE) $M

Free-to-air 2,248 2,400 2,454 2,746 2,490 2,592 2,831 3,142 3,216 3,207 3,475 3,412 3,152 3,659 3,586 3,505

Pay-TV 15 24 44 60 67 93 123 160 212 276 317 333 380 394 415

Total TV advertising 2,248 2,415 2,478 2,790 2,550 2,659 2,924 3,266 3,376 3,420 3,750 3,729 3,485 4,039 3,980 3,920

% change

Free-to-air 6.7% 2.3% 11.9% -9.3% 4.1% 9.2% 11.0% 2.4% -0.3% 8.3% -1.8% -7.6% 16.1% -2.0% -2.3%

Pay-TV 60.0% 83.3% 36.4% 11.6% 39.2% 32.2% 29.8% 32.7% 29.8% 15.0% 5.0% 14.1% 3.6% 5.5%

Total TV advertising 7.4% 2.6% 12.6% -8.6% 4.3% 9.9% 11.7% 3.4% 1.3% 9.7% -0.6% -6.5% 15.9% -1.5% -1.5%

% total

Free-to-air 99.4% 99.0% 98.4% 97.6% 97.5% 96.8% 96.2% 95.3% 93.8% 92.7% 91.5% 90.4% 90.6% 90.1% 89.4%

Pay-TV 0.6% 1.0% 1.6% 2.4% 2.5% 3.2% 3.8% 4.7% 6.2% 7.3% 8.5% 9.6% 9.4% 9.9% 10.6%

Total TV advertising 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company data, CEASA, OzTAM, Credit Suisse estimates

27 November 2012


Australian pay TV viewing trends

Figure 760: Share of prime time viewing in pay TV homes (part 1)

Dec-10 Mar-11 Jun-11 Sep-11 Dec-11

ABC1 5.3% 3.9% 4.8% 3.6% 3.3%

ABC2 0.4% 1.2% 0.9% 2.1% 1.9%

ABC3 0.2% 0.2% 0.1% 0.2% 0.3%

ABC News 24 0.1% 0.4% 0.2% 0.2% 0.3%

Seven + AFFILIATES 13.2% 12.2% 16.0% 13.2% 10.3%

7TWO + AFFILIATES 1.2% 0.9% 1.5% 0.8% 1.0%

7mate + AFFILIATES 0.4% 0.4% 0.5% 0.6% 0.5%

Nine + AFFILIATES 13.7% 12.5% 14.9% 13.3% 14.5%

GO + AFFILIATES 1.4% 1.1% 1.6% 1.0% 1.2%

Gem + AFFILIATES 0.4% 0.4% 0.5% 0.4% 0.5%

TEN + AFFILIATES 8.9% 8.1% 11.8% 7.8% 5.9%

ONE + AFFILIATES 0.3% 0.4% 0.7% 0.5% 0.5%

ELEVEN + AFFILIATES NA 1.1% 1.3% 1.1% 1.4%

SBS ONE 2.4% 1.2% 1.8% 1.2% 1.4%

SBS TWO 0.2% 0.1% 0.1% 0.2% 0.1%

111 HITS 0.7% 1.0% 1.0% 1.1% 1.1%

111 HITS2 0.2% 0.3% 0.3% 0.3% 0.4%

13TH STREET 1.1% 1.0% 0.6% 1.1% 1.2%

13TH STREET+2 0.2% 0.2% 0.1% 0.2% 0.2%

[V] HITS 0.2% 0.4% 0.2% 0.3% 0.5%

Animal Planet 0.3% 0.3% 0.2% 0.2% 0.3%

ARENA 1.1% 0.8% 0.7% 0.8% 0.7%

ARENA+2 0.4% 0.2% 0.1% 0.2% 0.2%

Bio. 1.1% 1.1% 0.6% 1.0% 1.0%

BBC Knowledge 0.7% 0.6% 0.5% 0.5% 0.5%

BBC WORLD NEWS NA 0.2% 0.0% 0.1% 0.1%

Boomerang 0.3% 0.4% 0.3% 0.4% 0.4%

Cartoon Network 0.8% 0.9% 0.4% 1.2% 1.1%

CBeebies 0.2% 0.5% 0.1% 0.3% 0.3%

Channel[V] 0.2% 0.4% 0.2% 0.4% 0.6%

CNBC 0.0% 0.0% 0.0% 0.0% 0.0%

COMEDY CHANNEL 0.9% 0.8% 0.9% 0.8% 1.1%

COMEDY CHANNEL+2 0.4% 0.5% 0.3% 0.3% 0.4%

Crime & Investigation 1.3% 1.4% 1.0% 1.2% 1.4%

Discovery Channel 0.9% 0.8% 0.9% 0.7% 1.1%

Discovery Channel+2 0.4% 0.4% 0.3% 0.3% 0.4%

Discovery Home & Health 0.2% 0.1% 0.1% 0.1% 0.2%

Discovery Science 0.3% 0.1% 0.2% 0.1% 0.2%

Discovery Turbo MAX 0.4% 0.3% 0.1% 0.2% 0.2%

Discovery Turbo MAX+2 0.3% 0.2% 0.7% 1.4% 1.9%

Disney Channel 1.2% 1.8% 0.4% 1.1% 1.2%

E! 0.5% 0.5% 0.3% 0.5% 0.4%

ESPN 0.2% 0.3% 0.3% 0.3% 0.3%

ESPN2 NA NA NA NA 0.2%

FMC - Family Movie Channel 0.5% 0.4% 0.4% 0.5% 0.6%

FOX8 2.4% 2.5% 1.7% 2.3% 2.2%

FOX8+2 0.8% 1.0% 0.5% 0.7% 0.8%

FOX Classics 1.1% 1.3% 1.1% 1.3% 1.2%

FOX Classics+2 0.3% 0.3% 0.2% 0.3% 0.4%

FOX SPORTS 1 1.0% 1.4% 1.5% 2.2% 1.4%

FOX SPORTS 2 0.6% 1.9% 2.9% 2.4% 1.0%

FOX SPORTS 3 0.8% 1.9% 1.5% 1.9% 1.1%

FOX SPORTS News 0.5% 0.5% 0.3% 0.5% 0.5%

FUEL TV 0.2% 0.2% 0.3% 0.2% 0.3%

History Channel 0.9% 0.8% 1.0% 0.9% 0.9%

HOW TO Channel 0.3% 0.0% 0.0% 0.0% 0.0%

KidsCo 0.1% 0.1% 0.0% 0.1% 0.1% Source: OzTAM, compiled by Credit Suisse

27 November 2012


Figure 761: Share of prime time viewing in pay TV homes (part 2)

Dec-10 Mar-11 Jun-11 Sep-11 Dec-11

LifeStyle Channel 2.4% 2.0% 1.8% 1.4% 2.1%

LifeStyle Channel+2 0.6% 0.5% 0.5% 0.3% 0.6%

LifeStyle FOOD 1.3% 0.8% 0.7% 0.9% 1.4%

LifeStyle FOOD+2 0.4% 0.3% 0.2% 0.3% 0.3%

LifeStyle HOME NA 0.6% 0.5% 0.6% 0.7%

LifeStyle YOU 1.0% 0.7% 0.5% 0.6% 0.9%

LifeStyle YOU+2 0.4% 0.3% 0.2% 0.2% 0.3%

MAX 0.4% 0.5% 0.4% 0.3% 0.4%

MOVIE EXTRA 0.6% 0.5% 0.5% 0.4% 0.4%

MOVIE GREATS 0.4% 0.2% 0.2% 0.2% 0.3%

MOVIE ONE 0.5% 0.5% 0.5% 0.4% 0.5%

MOVIE TWO 0.3% 0.3% 0.2% 0.2% 0.3%

MTV 0.4% 0.5% 0.3% 0.6% 0.6%

MTV Classic 0.2% 0.1% 0.1% 0.1% 0.2%

MTV Hits NA 0.1% 0.1% 0.2% 0.3%

Nat Geo Adventure 0.1% 0.1% 0.1% 0.1% 0.1%

Nat Geo Adventure+2 NA 0.0% 0.1% 0.1% 0.1%

Nat Geo Wild 0.3% 0.3% 0.2% 0.2% 0.3%

National Geographic 0.8% 0.6% 0.6% 0.7% 0.5%

National Geographic+2 NA 0.2% 0.3% 0.3% 0.3%

Nick Jr. 0.5% 1.2% 0.2% 1.5% 1.3%

Nickelodeon 0.6% 1.1% 0.5% 1.2% 1.4%

Playhouse Disney 0.6% 0.9% NA NA NA

SCI FI 0.8% 0.7% 0.4% 0.4% 0.6%

SCI FI+2 0.3% 0.2% 0.2% 0.2% 0.2%

showcase 0.2% 0.2% 0.4% 0.3% 0.3%

showcase+2 0.1% 0.1% 0.1% 0.1% 0.1%

showtime action 0.7% 0.7% 0.5% 0.5% 0.8%

showtime comedy 0.5% 0.4% 0.2% 0.5% 0.4%

showtime drama 0.3% 0.3% 0.3% 0.2% 0.3%

showtime premiere 1.2% 0.7% 0.7% 0.8% 0.9%

showtime premiere 2 0.5% 0.4% 0.2% 0.3% 0.4%

SKY NEWS 0.9% 2.2% 0.5% 1.4% 1.2%

SKY NEWS BUSINESS 0.0% 0.1% 0.1% 0.1% 0.2%

Sky Racing 0.4% 0.7% 0.2% 0.5% 0.5%

Sky Racing World 0.0% 0.0% 0.0% 0.0% 0.1%

SPEED 0.1% 0.2% 0.2% 0.3% 0.2%

STARPICS 1 0.5% 0.3% 0.3% 0.4% 0.4%

STARPICS 2 0.3% 0.2% 0.2% 0.2% 0.3%

STVDIO 0.1% 0.1% 0.2% 0.1% 0.1%

The Style Network 0.2% 0.3% 0.2% 0.3% 0.2%

The Weather Channel 0.2% 0.1% 0.1% 0.1% 0.2%

TLC 0.2% 0.2% 0.2% 0.2% 0.1%

TLC+2 NA 0.2% 0.1% 0.1% 0.1%

TV1 1.9% 1.7% 1.3% 1.5% 1.9%

TV1+2 0.6% 0.6% 0.4% 0.5% 0.6%

TVN 0.1% 0.2% 0.0% 0.2% 0.2%

UKTV 1.8% 1.3% 1.5% 1.2% 1.4%

UKTV+2 0.3% 0.2% 0.2% 0.2% 0.3%

UNIVERSAL 0.2% 0.3% 0.2% 0.2% 0.2%

W 1.2% 0.8% 0.7% 1.0% 1.2%

W2 0.3% 0.2% 0.2% 0.3% 0.3%

WORLD MOVIES Channel 0.2% 0.1% 0.2% 0.1% 0.2%

OTHER SUBSCRIPTION TV 2.3% 2.1% 1.7% 1.6% 1.7%

Total FTA in Metro Markets 48.2% 44.0% 43.3% 43.0% 43.0%

Total STV in Metro Markets 51.8% 56.0% 56.7% 57.0% 57.0%

Total TV in Metro Markets 100.0% 100.0% 100.0% 100.0% 100.0% Source: OzTAM, compiled by Credit Suisse

27 November 2012


US Pay TV market

Figure 762: US pay TV market summary YE December 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

TV households (M) 102.2 105.5 106.7 108.4 109.6 110.2 111.4 112.8 114.5 114.9 115.9 114.7

Pay-TV households (M)

Cable 66.6 66.9 66.1 66.0 65.4 65.2 65.4 64.9 63.7 62.1 59.8 58.0

Satellite

DirecTV 9.5 10.3 11.2 12.2 13.9 15.1 16.0 16.8 17.6 18.6 19.2 19.9

Echostar 5.3 6.8 8.2 9.4 10.9 12.0 13.1 13.8 13.7 14.1 14.1 14.0

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total satellite 14.8 17.2 19.4 21.6 24.8 27.2 29.1 30.6 31.3 32.7 33.4 33.9

Other (SMATV and MMDS) 3.4 3.0 2.7 1.8 1.6 1.2 1.1 1.0 0.8 0.7 0.6 0.5

Telco 0.2 1.2 3.1 5.1 6.9 8.5

Total pay-tv homes (M) 84.8 87.0 88.1 89.5 91.9 93.6 95.8 97.7 98.9 100.6 100.7 100.9

Pay-TV penetration of TV households (%)

Cable 65.2 63.4 61.9 60.9 59.7 59.2 58.7 57.5 55.6 54.0 51.6 50.6

Satellite

DirecTV 9.3 9.8 10.5 11.3 12.7 13.7 14.3 14.9 15.4 16.2 16.6 17.3

Echostar 5.1 6.5 7.7 8.7 9.9 10.9 11.8 12.2 11.9 12.3 12.2 12.2

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total satellite 14.4 16.3 18.1 20.0 22.7 24.7 26.1 27.1 27.3 28.4 28.8 29.5

Telco 0.0 0.0 0.0 0.0 0.0 0.0 0.2 1.0 2.7 4.5 6.0 7.4

Total pay-tv homes (%) 82.9 82.5 82.6 82.5 83.8 84.9 86.0 86.6 86.3 87.5 86.9 88.0

Penetration of Pay-TV households (%)

Cable 78.6 76.8 75.0 73.8 71.2 69.7 68.3 66.4 64.4 61.7 59.4 57.5

Satellite

DirecTV 11.2 11.9 12.7 13.6 15.2 16.2 16.7 17.2 17.8 18.5 19.1 19.7

Echostar 6.2 7.8 9.3 10.5 11.9 12.9 13.7 14.1 13.8 14.0 14.0 13.8

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total satellite 17.4 19.7 22.0 24.2 27.0 29.0 30.3 31.3 31.7 32.5 33.1 33.6

Telco 0.0 0.0 0.0 0.0 0.0 0.0 0.2 1.2 3.1 5.1 6.9 8.4

Total 96.0 96.6 96.9 98.0 98.3 98.7 98.9 99.0 99.2 99.3 99.4 99.5

TV advertising revenue (US$M)

Cable 12,609 13,082 14,780 15,896 17,689 19,308 20,426 21,506 22,634 21,492 24,591 26,359

Free-to-air 33,582 30,580 33,098 33,190 35,938 35,650 36,700 35,836 34,773 29,870 33,126 32,072

Total 46,192 43,662 47,877 49,086 53,628 54,957 57,126 57,342 57,407 51,362 57,717 58,431

TV advertising revenue (% change)

Cable 26.1 3.8 13.0 7.6 11.3 9.1 5.8 5.3 5.2 -5.0 14.4 7.2

Free-to-air -15.2 -8.9 8.2 0.3 8.3 -0.8 2.9 -2.4 -3.0 -14.1 10.9 -3.2

Total -6.9 -5.5 9.7 2.5 9.3 2.5 3.9 0.4 0.1 -10.5 12.4 1.2

TV advertising market share (%)

Cable 27.3 30.0 30.9 32.4 33.0 35.1 35.8 37.5 39.4 41.8 42.6 45.1

Free-to-air 72.7 70.0 69.1 67.6 67.0 64.9 64.2 62.5 60.6 58.2 57.4 54.9

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Cable share of viewing (%)* 36% 38% 41% 42% 44% 46% 46% 48% 48% 49% 50% NA Source: CAB, Magna Global, Company data, Credit Suisse estimates

27 November 2012


Figure 763: Top US multi-system operators

Owner Basic Cable Broadband

Comcast 22.3 18.1

DirecTV 19.9 0.0

Echostar Communications 14.0 0.0

Time Warner Cable 12.1 10.3

Cox Enterprises 6.0 NA

Charter Communications 4.3 3.7

Verizon FiOS 4.2 8.7

AT&T 3.8 16.4

Cablevision Systems 3.3 3.0

Bright House 2.3 NA

Suddenlink 1.3 1.0

Mediacom 1.1 0.9

Insight Communications 0.7 0.6

Cable One 0.6 NA

Subscribers (millions)


27 November 2012


US cable networks

Figure 764: US cable networks financial summary

Year end 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Revenue (US$M)

Discovery Dec 1,717 1,995 2,365 2,672 3,013 3,127 3,443 3,458 3,773 4,235

Disney Sept 4,675 5,523 6,410 7,399 8,159 9,167 10,041 10,555 11,475 12,877

New s Corp June 1,754 2,145 2,409 2,688 3,358 3,902 4,993 6,132 7,038 8,037

Scripps Dec 415 535 724 903 1,052 1,185 1,551 1,541 2,067 2,072

Time Warner Dec 7,655 8,434 9,054 9,419 10,113 10,270 11,154 11,703 12,480 13,654

Viacom Dec 3,776 4,775 5,746 6,758 7,241 8,101 8,756 8,288 8,457 9,253

Group Total 18,274 21,412 24,342 27,167 29,923 32,625 36,495 38,219 41,517 45,893

Revenue Growth

Discovery NA 16.2% 18.6% 13.0% 12.8% 3.8% 10.1% 0.4% 9.1% 12.2%

Disney 19.2% 18.2% 16.1% 15.4% 10.3% 12.4% 9.5% 5.1% 8.7% 12.2%

New s Corp 28.5% 22.3% 12.3% 11.6% 24.9% 16.2% 28.0% 22.8% 14.8% 14.2%

Scripps NA 28.9% 35.3% 24.7% 16.5% 12.6% 30.9% -0.6% 34.1% 0.2%

Time Warner 8.6% 10.2% 7.4% 4.0% 7.4% 1.6% 8.6% 4.9% 6.6% 9.4%

Viacom NA 26.5% 20.3% 17.6% 7.1% 11.9% 8.1% -5.3% 2.0% 9.4%

Group Total NM 17.2% 13.7% 11.6% 10.1% 9.0% 11.9% 4.7% 8.6% 10.5%

EBITDA (US$M)

Discovery 379 508 663 687 722 644 1,243 1,426 1,490 1,918

Disney 1,104 1,254 1,994 2,365 2,641 3,182 3,596 3,738 3,940 4,023

New s Corp 243 472 658 858 1,018 1,223 1,439 1,879 2,505 3,008

Scripps 118 195 294 403 534 623 645 602 872 977

Time Warner 2,032 2,246 2,701 2,941 3,213 3,407 3,775 4,123 4,601 4,783

Viacom 1,723 2,100 2,488 2,841 3,174 3,302 3,392 3,286 3,646 4,101

Group Total 5,220 6,267 8,135 9,408 10,580 11,737 12,847 13,628 15,564 16,892

EBITDA Growth

Discovery NA 34.3% 30.3% 3.6% 5.2% -10.8% 92.9% 14.7% 4.5% 28.7%

Disney -5.3% 13.6% 59.0% 18.6% 11.7% 20.5% 13.0% 3.9% 5.4% 2.1%

New s Corp 63.1% 94.2% 39.4% 30.4% 18.6% 20.1% 17.7% 30.6% 33.3% 20.1%

Scripps 67.0% 64.6% 50.8% 37.1% 32.5% 16.7% 3.5% -6.8% 44.9% 12.0%

Time Warner 13.1% 10.5% 20.3% 8.9% 9.2% 6.0% 10.8% 9.2% 11.6% 4.0%

Viacom NA 21.9% 18.5% 14.2% 11.7% 4.0% 2.7% -3.1% 11.0% 12.5%

Group Total NM 20.0% 29.8% 15.6% 12.5% 10.9% 9.5% 6.1% 14.2% 8.5%

EBITDA Margins (%)

Discovery 22.1% 25.5% 28.0% 25.7% 24.0% 20.6% 36.1% 41.2% 39.5% 45.3%

Disney 23.6% 22.7% 31.1% 32.0% 32.4% 34.7% 35.8% 35.4% 34.3% 31.2%

New s Corp 13.9% 22.0% 27.3% 31.9% 30.3% 31.3% 28.8% 30.6% 35.6% 37.4%

Scripps 28.5% 36.4% 40.6% 44.6% 50.7% 52.6% 41.6% 39.0% 42.2% 47.1%

Time Warner 26.5% 26.6% 29.8% 31.2% 31.8% 33.2% 33.8% 35.2% 36.9% 35.0%

Viacom 45.6% 44.0% 43.3% 42.0% 43.8% 40.8% 38.7% 39.6% 43.1% 44.3%

Group Total 28.6% 29.3% 33.4% 34.6% 35.4% 36.0% 35.2% 35.7% 37.5% 36.8% Source: Company data, Credit Suisse estimates

27 November 2012


Figure 765: US cable networks domestic versus international business splits

Year end 2004 2005 2006 2007 2008 2009 2010 2011

DOMESTIC

Revenue (US$M)

Discovery Dec 1,605 1,759 1,926 1,879 2,062 2,170 2,363 2,619

New s Corp June 2,268 2,533 3,108 3,462 4,067 4,520 5,151 5,726

Viacom Dec 5,007 5,790 6,183 6,852 7,292 7,011 7,178 7,781

Group Total 8,879 10,081 11,217 12,193 13,421 13,701 14,692 16,126

Revenue Growth

Discovery 18.8% 9.6% 9.5% -2.5% 9.7% 5.2% 8.9% 10.8%

New s Corp 12.5% 11.7% 22.7% 11.4% 17.5% 11.1% 14.0% 11.2%

Viacom 19.1% 15.6% 6.8% 10.8% 6.4% -3.9% 2.4% 8.4%

Group Total 17.3% 13.5% 11.3% 8.7% 10.1% 2.1% 7.2% 9.8%

EBITDA (US$M)

Discovery 600 659 728 810 1,111 1,229 1,365 1,495

New s Corp 668 862 941 1,087 1,205 1,566 1,970 2,302

Viacom NA NA NA NA NA NA NA NA

Group Total (ex Viacom) 1,269 1,521 1,669 1,897 2,316 2,795 3,335 3,797

EBITDA Growth

Discovery 23.3% 9.8% 10.4% 11.3% 37.2% 10.6% 11.1% 9.5%

New s Corp 37.0% 28.9% 9.2% 15.5% 10.9% 30.0% 25.8% 16.9%


Group Total (ex Viacom) 30.1% 19.9% 9.7% 13.7% 22.1% 20.7% 19.3% 13.9%

EBITDA Margins (%)

Discovery 37.4% 37.5% 37.8% 43.1% 53.9% 56.6% 57.8% 57.1%

New s Corp 29.5% 34.0% 30.3% 31.4% 29.6% 34.6% 38.2% 40.2%



INTERNATIONAL

Revenue (US$M)

Discovery Dec 583 731 879 1,030 1,158 1,131 1,251 1,455

New s Corp June 141 155 250 440 926 1,612 1,887 2,311

Viacom Dec 739 968 1,058 1,249 1,464 1,277 1,279 1,472

Group Total 1,463 1,855 2,187 2,719 3,548 4,020 4,417 5,238

Revenue Growth

Discovery 23.0% 25.4% 20.2% 17.2% 12.4% -2.3% 10.6% 16.3%

New s Corp 10.0% 10.0% 60.9% 76.0% 110.5% 74.1% 17.1% 22.5%

Viacom 29.0% 31.0% 9.3% 18.1% 17.2% -12.8% 0.2% 15.1%

Group Total 24.5% 26.7% 17.9% 24.3% 30.5% 13.3% 9.9% 18.6%

EBITDA (US$M)

Discovery 94 109 116 254 387 445 545 645

New s Corp -10 -4 77 136 234 313 535 706


Group Total 83 105 193 390 621 758 1,080 1,351

EBITDA Growth

Discovery 41.9% 15.8% 7.3% 118.0% 52.4% 15.0% 22.5% 18.3%

New s Corp NA NA -2025.0% 76.6% 72.1% 33.8% 70.9% 32.0%



EBITDA Margins (%)

Discovery 16.1% 14.8% 13.3% 24.7% 33.4% 39.3% 43.6% 44.3%

New s Corp -7.4% -2.6% 30.8% 30.9% 25.3% 19.4% 28.4% 30.5%



% of revenue from international

Discovery 26.6% 29.4% 31.3% 35.4% 36.0% 34.3% 34.6% 35.7%

New s Corp 5.9% 5.8% 7.4% 11.3% 18.5% 26.3% 26.8% 28.8%

Viacom 12.9% 14.3% 14.6% 15.4% 16.7% 15.4% 15.1% 15.9%

Group Total 14.1% 15.5% 16.3% 18.2% 20.9% 22.7% 23.1% 24.5% Source: Company data, Credit Suisse estimates

27 November 2012


Figure 766: US major cable network subscribers (millions)

Cable Channel Provider 1999 2002 2005 2009 2011A&E Disney/NBC/Hearst 76 86 89 98 99

ABC Family Disney 76 85 89 97 98

Adult Sw im Time Warner 60 82 89 97 98

American Movie Classics Cablevision/NBC 72 84 87 94 95

Animal Planet Discovery 54 81 88 96 97

BET Viacom 58 74 81 89 90

Bravo NBC 41 69 80 90 92

Cartoon Netw ork Time Warner 60 82 89 97 98

CNBC NBC 71 84 88 97 97

CNN Time Warner 77 87 90 98 99

Comedy Central Viacom 62 81 88 97 98

Country Music Television Viacom 38 65 79 89 90

Discovery Channel Discovery 78 87 90 100 100

Disney Channel Disney 50 80 87 97 98

Disney XD Disney n/a 34 50 57 74

E! Entertainment Comcast 59 80 87 95 97

ESPN Disney/Hearst 77 87 90 98 99

ESPN2 Disney/Hearst 67 85 89 98 99

ESPN Classic Disney/Hearst n/a 47 58 63 41

ESPNEWS Disney/Hearst n/a 34 46 68 71

Fit TV Discovery 14 29 36 50 49

Food Netw ork Scripps 43 77 88 97 97

Fox Business New s Fox n/a n/a n/a 45 51

Fox New s Channel Fox 43 81 88 97 96

Fox Soccer Channel Fox n/a n/a n/a 34 34

FX Fox 44 79 87 95 95

GSN Sony 20 49 58 70 73

The Golf Channel Comcast 27 51 68 82 81

Great American Country Scripps n/a 23 39 55 58

Hallmark Liberty/Hallmark/Heuson 27 48 70 86 88

HBO Time Warner 31 35 30 40 39

History Channel Disney/NBC/Hearst 61 82 89 97 98

HGTV Scripps 58 80 89 97 99

Lifetime Disney/Hearst 75 86 90 98 99

MSNBC NBC 52 78 85 93 93

MTV Viacom 73 85 89 96 99

National Geographic Fox/National Geographic Society n/a 36 56 69 69

Nickelodeon Viacom 76 86 90 98 100

Sci-Fi NBC 59 79 85 95 96

Show time CBS 18 21 18 19 n/a

SoapNet Disney n/a 27 47 70 73

Speed Channel Fox n/a 54 64 78 78

TBS Time Warner 79 88 90 99 100

TLC Discovery 72 85 89 99 99

TNT Time Warner 77 87 90 98 99

The Travel Channel Scripps 42 68 82 85 95

truTV (prev Court TV) Time Warner 37 74 85 91 92

TV Guide Channel Lionsgate 55 58 78 83 81

TV Land Viacom 42 77 86 96 97

USA Netw ork NBC 77 87 90 98 99

VH1 Viacom 69 84 89 96 97

The Weather Channel Landmark Communications 74 85 90 98 100

WGN Tribune 48 57 67 71 75 Source: Nielsen, Company data, Credit Suisse estimates

27 November 2012


US Pay TV viewing trends

Figure 767: US Cable Network Ratings (ratings points)

YE December 2004 2005 2006 2007 2008 2009 2010 2011

Premium Pay

Encore 0.6 0.7 0.7 0.6 0.7 0.7 0.7 0.7

Home Box Office 1.4 1.1 1.1 1.0 0.8 0.9 0.8 0.8

Home Box Office Prime 0.7 0.6 0.6 0.4 0.3 0.4 0.3 0.4

Multimax 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3

Max Prime 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1

Show time 0.3 0.3 0.2 0.2 0.2 0.3 0.3 0.3

Show time Prime 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Starz 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.6

Starz Prime 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.2

Ad-Supported

A&E Netw ork 0.8 0.7 0.8 0.9 0.9 0.9 0.9 1.0

ABC Family 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.8

Adult Sw im NA 1.4 1.3 1.3 1.3 0.8 0.8 0.8

American Movie Classics 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7

Animal Planet 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4

BBC America 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1

Biography Channel 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Black Entertainment TV 0.4 0.5 0.5 0.5 0.4 0.5 0.5 0.5

Bravo 0.3 0.3 0.4 0.4 0.5 0.5 0.5 0.6

Chiller 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

CNBC 0.1 0.1 0.1 0.2 0.2 0.1 0.2 0.2

CNN 0.7 0.6 0.6 0.6 0.9 0.6 0.4 0.5

Comedy Central 0.6 0.7 0.7 0.7 0.7 0.6 0.6 0.6

Country Music TV 0.2 0.2 0.3 0.2 0.2 0.3 0.2 0.2

Discovery 0.8 0.7 0.7 0.8 0.7 0.7 0.7 0.8

Discovery Health 0.1 0.2 0.2 0.2 0.2 0.2 0.0 0.1

Disney XD 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2

DIY Netw ork 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

E! Entertainment TV 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4

ENCY 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

ESPN 1.3 1.3 1.5 1.3 1.4 1.5 1.5 1.5

ESPN2 0.4 0.5 0.5 0.4 0.4 0.5 0.4 0.4

ESPNEWS 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1

Food Netw ork 0.5 0.5 0.5 0.5 0.6 0.7 0.7 0.7

Fox New s Channel 1.2 1.2 1.0 1.0 1.4 1.4 1.3 1.3

FX 0.7 0.8 0.8 0.8 0.8 0.8 0.8 0.9

G4 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1

Gala 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1

Game Show Netw ork 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Golf Channel 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Great American Country 0.0 0.1 0.1 0.1 0.1 0.1 0.0 0.0

Hallmark 0.5 0.6 0.8 0.8 0.9 0.7 0.6 0.6

Hallmark Movie Channel 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 Source: Nielsen

27 November 2012


Figure 768: US Cable Network Ratings (ratings points) continued

YE December 2004 2005 2006 2007 2008 2009 2010 2011

Headline New s 0.2 0.3 0.3 0.3 0.4 0.4 0.3 0.4

History Channel 0.7 0.8 0.8 0.7 0.8 0.8 1.0 1.2

Home and Garden TV 0.7 0.7 0.8 0.8 0.8 0.8 0.8 0.8

Independent Film Channel 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

Investigation Discovery 0.0 0.1 0.1 0.1 0.1 0.1 0.0 0.4

Lifetime Movie Netw ork 0.3 0.3 0.3 0.3 0.4 0.4 0.5 0.4

Lifetime TV 1.3 1.3 1.1 1.1 1.0 0.8 0.7 0.7

MLB Netw ork 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

MSNBC 0.3 0.3 0.3 0.4 0.6 0.5 0.5 0.6

MTV 0.8 0.8 0.7 0.7 0.6 0.5 0.6 0.7

MTV2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Nat Geo Wild 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

National Geographic 0.1 0.2 0.2 0.3 0.3 0.3 0.3 0.3

NBA TV 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

NFL Netw ork 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2

Nick at Night 1.3 1.4 1.1 0.9 1.2 1.2 1.1 0.9

Nick Jr (prev Noggin) 0.0 0.0 0.0 0.0 0.3 0.4 0.5 0.5

Nickleodeon 1.7 1.7 1.6 1.6 1.6 1.6 1.6 1.6

Oprah Winfrey Netw ork 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2

Oxygen Media 0.1 0.2 0.2 0.2 0.3 0.3 0.3 0.3

Sci-Fi Channel 0.8 0.8 0.7 0.7 0.8 0.7 0.7 0.8

Soapnet 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.2

Speed Channel 0.1 0.2 0.2 0.2 0.2 0.2 0.1 0.1

Spike (ex TNN) 0.8 1.0 0.8 0.8 0.8 0.7 0.6 0.6

Sprout 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

Style 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1

TBS-Superstation 1.2 1.2 1.1 1.2 1.3 1.1 1.1 1.0

The Cartoon Netw ork 1.2 1.2 1.1 0.9 0.9 0.8 0.8 0.9

The HUB 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

The Learning Channel 0.7 0.5 0.6 0.6 0.6 0.7 0.7 0.7

The Weather Channel 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2

TNT 1.7 1.8 1.6 1.5 1.4 1.4 1.4 1.4

Travel Channel 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

TruTV (prev Court TV) 0.6 0.6 0.7 0.8 0.7 0.7 0.7 0.7

TV Guide Channel 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1

TV Land 0.5 0.7 0.7 0.6 0.5 0.5 0.6 0.6

TV One NA 0.1 0.1 0.1 0.1 0.1 0.1 0.1

USA Netw ork 1.6 1.6 1.8 1.7 1.8 2.0 1.9 1.9

VH1 0.4 0.4 0.5 0.6 0.5 0.5 0.3 0.4

WGN Cable 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Womens Entertainment 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2

All Other Cable

Disney Channel 1.3 1.5 1.7 1.8 1.5 1.6 1.6 1.6 Source: Nielsen

27 November 2012


UK Pay TV market

Figure 769: UK pay TV market summary YE June 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

TV households (M) 24.2 24.4 24.6 24.8 25.0 25.2 25.4 25.8 25.8 26.0 26.1 26.3

Multichannel households (M)

BSkyB

DTH - Analog 0.9 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

DTH - Digital 3.6 5.3 6.1 6.8 7.4 7.8 8.4 8.8 9.2 9.4 9.9 10.2

Total BSkyB 4.5 5.5 6.1 6.8 7.4 7.8 8.4 8.8 9.2 9.4 9.9 10.2

Total cable 3.1 2.9 3.5 3.3 3.3 3.3 3.4 3.5 3.6 3.6 3.8 3.8

DTT 0.3 0.5 0.8 0.9 2.1 4.2 6.4 8.8 12.0 14.0 17.6 19.2

Total Multichannel 7.9 8.8 10.4 11.0 12.8 15.3 18.2 21.1 24.9 27.1 31.2 33.2

Multichannel penetration of TV households (%)

BSkyB

DTH - Analog 3.8 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

DTH - Digital 14.8 21.8 24.8 27.6 29.4 30.9 33.2 34.2 35.8 36.3 37.8 38.7

Total BSkyB 18.6 22.3 24.8 27.6 29.4 30.9 33.2 34.2 35.8 36.3 37.8 38.7

Total cable 12.9 11.7 14.2 13.2 13.3 13.0 13.4 13.5 14.0 13.9 14.4 14.3

Total cable and satellite 31.5 34.1 39.0 40.8 42.7 43.9 46.6 47.7 49.8 50.3 52.2 53.1

DTT 1.3 2.2 3.2 3.5 8.3 16.7 25.1 34.2 46.6 53.9 67.5 73.1

Total 32.8 36.3 42.2 44.3 51.0 60.7 71.7 81.9 96.4 104.1 119.7 126.2

Penetration of Pay-TV households (%)

BSkyB

DTH - Analog 12.2 1.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

DTH - Digital 46.9 63.8 63.6 67.7 68.9 70.3 71.3 71.7 71.8 72.3 72.4 73.0

Total BSkyB 59.1 65.6 63.6 67.7 68.9 70.3 71.3 71.7 71.8 72.3 72.4 73.0

Total cable 40.9 34.4 36.4 32.3 31.1 29.7 28.7 28.3 28.2 27.7 27.6 27.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Pay-TV advertising revenue (£M)

BSkyB 242 271 251 284 312 329 342 352 328 308 319 437

Other 198 194 351 343 340 380 368 372 419 408 499 409

Total pay-TV 440 465 602 627 652 709 710 724 747 716 818 846

Free-to-air 2,887 2,545 2,542 2,546 2,740 2,746 2,572 2,656 2,464 2,142 2,440 2,412

Total 3,327 3,010 3,144 3,173 3,392 3,455 3,282 3,380 3,211 2,858 3,258 3,258

Pay-TV advertising revenue (% change)

BSkyB 11.7 11.6 -7.3 13.3 9.9 5.4 4.0 2.9 -6.8 -6.1 3.6 37.0

Other 10.4 -1.6 80.6 -2.3 -0.8 11.7 -3.2 1.1 12.6 -2.5 22.1 -17.9

Total pay-TV 11.1 5.7 29.4 4.2 4.0 8.7 0.1 2.0 3.2 -4.1 14.2 3.5

Free-to-air 5.9 -11.8 -0.1 0.2 7.6 0.2 -6.3 3.3 -7.2 -13.1 13.9 -1.2

Total 6.6 -9.5 4.5 0.9 6.9 1.9 -5.0 3.0 -5.0 -11.0 14.0 0.0

Pay-TV advertising market share (%)

BSkyB 7.3 9.0 8.0 9.0 9.2 9.5 10.4 10.4 10.2 10.8 9.8 13.4

Other 5.9 6.5 11.2 10.8 10.0 11.0 11.2 11.0 13.0 14.3 15.3 12.6

Total pay-TV 13.2 15.4 19.1 19.8 19.2 20.5 21.6 21.4 23.3 25.1 25.1 26.0

Free-to-air 86.8 84.6 80.9 80.2 80.8 79.5 78.4 78.6 76.7 74.9 74.9 74.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company data, BARB, Magna Global, Credit Suisse estimates

27 November 2012


FTA TV

Figure 770: Australian FTA TV Advertising Revenue Figure 771: New Zealand FTA TV Advertising Revenue

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Source: OzTam compiled by Credit Suisse Source: OzTam compiled by Credit Suisse


audience share


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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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Seven Nine Ten


27 November 2012



share


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Figure 778: Australian FTA TV Advertising Category Mix Figure 779: Metro Network Agency Advertising % Change

YoY

Auto12%

Finance12%

Leisure6%

FMCG13%Retail

22%

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Seven Nine Ten Total

FY11 FY12


Figure 780: Global TV EBITDA margins

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27 November 2012


Australian TV market revenues

Figure 781: Australian TV advertising market $M YE June FY00A FY01A FY02A FY03A FY04A FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12A

Metropolitan

Sydney 791 841 784 820 926 1016 1023 1063 1102 993 1040 1149 1090

Melbourne 665 677 642 669 744 798 772 777 805 740 787 849 806

Brisbane 346 354 340 364 414 458 453 474 502 465 482 526 499

Adelaide 173 175 166 180 205 226 222 218 221 206 222 229 218

Perth 231 225 217 235 261 282 276 284 303 275 294 329 312

Total Metropolitan 2207 2273 2150 2268 2550 2780 2747 2817 2934 2679 2825 3082 2925

Regional

NSW 261 263 265 281 313 335 340 348 377 356 381 405 400

Victoria 98 97 92 125 138 146 149 123 128 121 128 135 134

Queensland 140 141 135 144 163 175 183 197 214 206 211 217 215

South Australia 18 18 17 19 21 21 21 22 31 29 30 32 31

Western Australia 35 36 31 33 37 33 41 43 46 43 44 47 46

Tasmania / NT 63 61 60 63 68 73 73 76 73 71 74 75 74

Total regional 614 615 600 666 739 782 807 809 868 825 868 912 900

Total Australian TV Advertising Market2821 2888 2750 2934 3289 3562 3553 3625 3801 3504 3693 3994 3825

% change

Metropolitan

Sydney 9.6% 6.3% -6.8% 4.6% 12.9% 9.8% 0.7% 3.9% 3.7% -9.9% 4.7% 10.5% -5.1%

Melbourne 8.8% 1.8% -5.2% 4.2% 11.2% 7.3% -3.2% 0.6% 3.6% -8.1% 6.4% 7.9% -5.1%

Brisbane 6.9% 2.3% -4.0% 7.0% 13.8% 10.5% -1.0% 4.7% 5.8% -7.3% 3.6% 9.2% -5.1%

Adelaide 8.1% 1.3% -5.0% 8.5% 13.8% 10.2% -1.9% -1.9% 1.7% -7.1% 7.9% 3.4% -5.1%

Perth 7.4% -2.5% -3.6% 8.2% 11.1% 7.8% -1.9% 2.9% 6.5% -9.1% 7.0% 11.8% -5.1%

Total Metropolitan 8.6% 3.0% -5.4% 5.5% 12.4% 9.0% -1.2% 2.6% 4.2% -8.7% 5.4% 9.1% -5.1%

Regional

NSW 6.5% 0.8% 0.7% 6.4% 11.1% 7.1% 1.4% 2.6% 8.1% -5.6% 7.1% 6.4% -1.2%

Victoria 6.4% -0.9% -4.6% 35.9% 10.1% 5.9% 1.9% -17.3% 4.3% -5.9% 6.2% 5.5% -1.2%

Queensland 6.2% 0.7% -4.0% 6.9% 13.1% 7.2% 4.8% 7.6% 8.3% -3.5% 2.3% 3.1% -1.2%

South Australia 1.7% -0.5% -6.0% 8.8% 11.3% 0.0% 2.4% 2.4% 40.9% -6.7% 5.7% 5.1% -1.2%

Western Australia 10.6% 1.1% -12.6% 6.7% 9.9% -10.1% 22.7% 5.2% 6.9% -5.1% 1.4% 6.7% -1.2%

Tasmania / NT 2.8% -2.9% -2.1% 4.8% 8.3% 7.2% 0.7% 3.4% -3.7% -3.1% 4.6% 1.3% -1.2%

Total regional 6.1% 0.1% -2.5% 11.0% 11.0% 5.8% 3.1% 0.3% 7.3% -4.9% 5.2% 5.0% -1.2%

Total Australian TV Advertising Market8.0% 2.4% -4.8% 6.7% 12.1% 8.3% -0.2% 2.0% 4.9% -7.8% 5.4% 8.1% -4.2%

Market Share %

Metropolitan

Sydney 35.9% 37.0% 36.5% 36.2% 36.3% 36.6% 37.3% 37.7% 37.6% 37.1% 36.8% 37.3% 37.3%

Melbourne 30.1% 29.8% 29.9% 29.5% 29.2% 28.7% 28.1% 27.6% 27.4% 27.6% 27.9% 27.5% 27.5%

Brisbane 15.7% 15.6% 15.8% 16.0% 16.2% 16.5% 16.5% 16.8% 17.1% 17.4% 17.1% 17.1% 17.1%

Adelaide 7.8% 7.7% 7.7% 7.9% 8.0% 8.1% 8.1% 7.7% 7.5% 7.7% 7.8% 7.4% 7.4%

Perth 10.5% 9.9% 10.1% 10.4% 10.2% 10.1% 10.1% 10.1% 10.3% 10.3% 10.4% 10.7% 10.7%

Total Metro 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Regional

NSW 42.4% 42.7% 44.1% 42.3% 42.3% 42.8% 42.1% 43.1% 43.4% 43.1% 43.9% 44.5% 44.5%

Victoria 15.9% 15.7% 15.4% 18.8% 18.7% 18.7% 18.5% 15.2% 14.8% 14.7% 14.8% 14.9% 14.9%

Queensland 22.7% 22.8% 22.5% 21.7% 22.1% 22.3% 22.7% 24.4% 24.6% 25.0% 24.3% 23.8% 23.8%

South Australia 3.0% 3.0% 2.9% 2.8% 2.8% 2.6% 2.6% 2.7% 3.5% 3.5% 3.5% 3.5% 3.5%

Western Australia 5.8% 5.8% 5.2% 5.0% 5.0% 4.2% 5.0% 5.3% 5.2% 5.2% 5.0% 5.1% 5.1%

Tasmania / NT 10.2% 9.9% 10.0% 9.4% 9.2% 9.3% 9.1% 9.4% 8.4% 8.6% 8.5% 8.2% 8.2%

Total regional 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Metro % TV Market 78.2% 78.7% 78.2% 77.3% 77.5% 78.0% 77.3% 77.7% 77.2% 76.5% 76.5% 77.2% 76.5%

Regional % TV Market 21.8% 21.3% 21.8% 22.7% 22.5% 22.0% 22.7% 22.3% 22.8% 23.5% 23.5% 22.8% 23.5% Source: ABA, KPMG,Credit Suisse estimates

27 November 2012


Figure 782: Australian TV Network Revenue Shares YE June FY00A FY01A FY02A FY03A FY04A FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12A

REVENUE (A$M)

Sydney

7 267 319 259 256 284 324 356 415 430 402 395 431 439

9 332 332 310 321 366 387 376 367 342 313 338 395 376

10 192 190 216 244 276 305 291 282 331 278 307 323 275

Total 791 841 784 820 926 1,016 1,023 1,063 1,102 993 1,040 1,149 1,090

Melbourne

7 227 261 223 210 211 236 257 303 311 292 299 318 325

9 280 261 243 256 305 313 288 253 258 240 256 292 278

10 158 156 176 203 228 249 224 221 237 207 232 239 203

Total 665 677 642 669 744 798 768 777 805 740 787 849 806

Brisbane

7 117 136 114 115 127 137 162 184 188 186 183 197 201

9 143 136 137 146 169 181 166 154 166 149 157 181 172

10 86 82 89 102 118 139 125 136 148 130 142 148 126

Total 346 354 340 364 414 458 453 474 502 465 482 526 499

Adelaide

7 64 72 65 66 67 71 73 84 81 81 84 86 88

9 66 63 55 62 74 80 77 69 68 67 72 79 75

10 43 40 46 52 64 75 72 65 71 58 65 64 55

Total 173 175 166 180 205 226 222 218 221 206 222 229 218

Perth

7 94 95 80 86 90 97 97 110 125 113 112 123 126

9 77 81 78 84 94 97 93 82 83 85 96 113 108

10 65 54 54 63 88 90 86 92 94 77 87 93 79

Total 236 230 212 233 273 284 276 284 303 275 294 329 312

Five city total

7 770 883 740 734 780 865 945 1,097 1,135 1,075 1,073 1,156 1,178

9 897 873 823 869 1,007 1,059 999 925 917 854 918 1,059 1,010

10 544 521 581 664 774 858 797 796 881 750 833 867 737

Total 2,211 2,277 2,144 2,266 2,562 2,782 2,742 2,817 2,934 2,679 2,825 3,082 2,925

YE June FY00A FY01A FY02A FY03A FY04A FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12A

REVENUE MARKET SHARES

Sydney

7 33.8% 38.0% 33.0% 31.2% 30.7% 31.9% 34.8% 39.0% 39.0% 40.5% 38.0% 37.5% 40.3%

9 41.9% 39.5% 39.5% 39.1% 39.5% 38.1% 36.8% 34.5% 31.0% 31.5% 32.5% 34.4% 34.5%

10 24.3% 22.6% 27.5% 29.7% 29.8% 30.1% 28.4% 26.5% 30.0% 28.0% 29.5% 28.1% 25.2%

Melbourne

7 34.1% 38.5% 34.7% 31.4% 28.4% 29.6% 33.4% 39.0% 38.6% 39.5% 38.0% 37.5% 40.3%

9 42.1% 38.5% 37.9% 38.3% 41.0% 39.3% 37.4% 32.5% 32.0% 32.5% 32.5% 34.4% 34.5%

10 23.8% 23.0% 27.4% 30.3% 30.6% 31.2% 29.1% 28.5% 29.4% 28.0% 29.5% 28.1% 25.2%

Brisbane

7 33.8% 38.5% 33.5% 31.7% 30.7% 30.0% 35.9% 38.8% 37.4% 40.0% 38.0% 37.5% 40.3%

9 41.2% 38.4% 40.2% 40.2% 40.7% 39.7% 36.6% 32.5% 33.1% 32.0% 32.5% 34.4% 34.5%

10 24.9% 23.1% 26.3% 28.1% 28.6% 30.4% 27.6% 28.7% 29.6% 28.0% 29.5% 28.1% 25.2%

Adelaide

7 37.3% 41.2% 39.0% 36.6% 32.8% 31.5% 32.7% 38.8% 36.8% 39.5% 38.0% 37.5% 40.3%

9 38.1% 36.1% 33.1% 34.3% 36.0% 35.5% 34.9% 31.5% 31.0% 32.5% 32.5% 34.4% 34.5%

10 24.6% 22.8% 28.0% 29.1% 31.2% 33.0% 32.4% 29.7% 32.3% 28.0% 29.5% 28.1% 25.2%

Perth

7 39.8% 41.3% 37.8% 37.0% 33.1% 34.0% 35.2% 38.8% 41.4% 41.0% 38.0% 37.5% 40.3%

9 32.7% 35.2% 36.9% 35.9% 34.6% 34.3% 33.6% 29.0% 27.5% 31.0% 32.5% 34.4% 34.5%

10 27.5% 23.5% 25.3% 27.1% 32.4% 31.8% 31.2% 32.2% 31.1% 28.0% 29.5% 28.1% 25.2%

Five city total

7 34.8% 38.8% 34.5% 32.4% 30.5% 31.1% 34.5% 38.9% 38.7% 40.1% 38.0% 37.5% 40.3%

9 40.6% 38.3% 38.4% 38.3% 39.3% 38.1% 36.4% 32.8% 31.3% 31.9% 32.5% 34.4% 34.5%

10 24.6% 22.9% 27.1% 29.3% 30.2% 30.8% 29.1% 28.2% 30.0% 28.0% 29.5% 28.1% 25.2% Source: Company data, ABA, KPMG, Credit Suisse estimates

27 November 2012


Australian TV ratings

Figure 783: Metropolitan TV ratings – All People and 16-54 demo (000s) All People 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD

SEVEN 1,269 1,139 1,111 1,068 1,160 1,168 1,168 1,176 1,127 1,043 999 1038

7TWO 0 0 0 0 0 0 0 0 79 141 192 180

7mate 0 0 0 0 0 0 0 0 0 113 138 132

NINE 1,307 1,309 1,315 1,268 1,206 1,204 1,082 1,067 1,025 975 862 966

GO! 0 0 0 0 0 0 0 0 92 150 160 152

Gem 0 0 0 0 0 0 0 0 0 79 118 109

TEN 914 987 991 994 907 910 873 830 850 818 683 593

ONE 0 0 0 0 0 0 0 0 39 48 82 108

ELEVEN 160 141

STV 395 446 477 465 569 656 759 760 772 793 833 900

Total Commercial Networks

7 1,269 1,139 1,111 1,068 1,160 1,168 1,168 1,176 1,206 1,297 1,328 1,350

9 1,307 1,309 1,315 1,268 1,206 1,204 1,082 1,067 1,117 1,203 1,140 1,226

10 914 987 991 994 907 910 873 830 889 866 924 842

Total commercial 3,490 3,436 3,417 3,330 3,274 3,282 3,123 3,073 3,212 3,367 3,392 3,418

% change (total)

7 -10.2% -2.5% -3.8% 8.6% 0.6% 0.1% 0.7% 2.5% 7.5% 2.5% -1.8%

9 0.2% 0.5% -3.6% -4.9% -0.2% -10.2% -1.3% 4.7% 7.7% -5.3% 5.5%

10 8.1% 0.3% 0.3% -8.7% 0.3% -4.0% -5.0% 7.1% -2.6% 6.6% -12.3%

Total commercial -1.5% -0.6% -2.5% -1.7% 0.2% -4.8% -1.6% 4.5% 4.8% 0.8% -2.3%

% change (main channel only)

7 -10.2% -2.5% -3.8% 8.6% 0.6% 0.1% 0.7% -4.2% -7.5% -4.2% -0.2%

9 0.2% 0.5% -3.6% -4.9% -0.2% -10.2% -1.3% -3.9% -4.9% -11.6% 9.2%

10 8.1% 0.3% 0.3% -8.7% 0.3% -4.0% -5.0% 2.4% -3.7% -16.5% -17.6%

Total commercial -1.5% -0.6% -2.5% -1.7% 0.2% -4.8% -1.6% -2.3% -5.5% -10.3% -1.8%

Shares

7 36.4% 33.2% 32.5% 32.1% 35.4% 35.6% 37.4% 38.3% 37.5% 38.5% 39.2% 39.5%

9 37.5% 38.1% 38.5% 38.1% 36.9% 36.7% 34.6% 34.7% 34.8% 35.7% 33.6% 35.9%

10 26.2% 28.7% 29.0% 29.8% 27.7% 27.7% 28.0% 27.0% 27.7% 25.7% 27.2% 24.6%

Total commercial 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

16 - 54 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD

SEVEN 710 624 602 580 606 621 618 591 573 517 506 528

7TWO 0 0 0 0 0 0 0 0 50 63 56 45

7mate 0 0 0 0 0 0 0 0 0 86 100 90

NINE 737 752 744 713 649 633 545 567 544 518 459 539

GO! 0 0 0 0 0 0 0 0 64 103 108 98

Gem 0 0 0 0 0 0 0 0 0 48 62 57

TEN 602 638 623 626 578 595 569 529 532 503 406 370

ONE 0 0 0 0 0 0 0 0 26 30 52 66

ELEVEN 110 94

STV 248 269 282 266 326 386 424 412 413 444 468 509

Total Commercial Networks

7 710 624 602 580 606 621 618 591 623 666 661 663

9 737 752 744 713 649 633 545 567 608 669 630 694

10 602 638 623 626 578 595 569 529 557 533 569 530

Total commercial 2,050 2,015 1,970 1,920 1,834 1,849 1,731 1,687 1,788 1,867 1,860 1,887

% change

7 -12.2% -3.4% -3.7% 4.4% 2.6% -0.6% -4.3% 5.4% 6.9% -0.6% -3.9%

9 2.1% -1.1% -4.2% -8.9% -2.5% -14.0% 4.1% 7.2% 10.0% -5.8% 7.9%

10 6.0% -2.3% 0.5% -7.6% 2.8% -4.3% -7.0% 5.3% -4.3% 6.7% -10.6%

Total commercial -1.7% -2.2% -2.6% -4.5% 0.9% -6.4% -2.5% 6.0% 4.5% -0.4% -2.0%

% change (main channel only)

7 -12.2% -3.4% -3.7% 4.4% 2.6% -0.6% -4.3% -3.1% -9.7% -2.2% -0.6%

9 2.1% -1.1% -4.2% -8.9% -2.5% -14.0% 4.1% -4.1% -4.8% -11.3% 14.2%

10 6.0% -2.3% 0.5% -7.6% 2.8% -4.3% -7.0% 0.4% -5.4% -19.2% -13.8%

Total commercial -1.7% -2.2% -2.6% -4.5% 0.9% -6.4% -2.5% -2.3% -6.7% -10.8% 0.3%

Shares

7 34.7% 31.0% 30.6% 30.2% 33.0% 33.6% 35.7% 35.0% 34.8% 35.6% 35.6% 35.2%

9 36.0% 37.3% 37.8% 37.1% 35.4% 34.2% 31.5% 33.6% 34.0% 35.8% 33.9% 36.8%

10 29.4% 31.7% 31.6% 32.6% 31.6% 32.2% 32.9% 31.4% 31.2% 28.5% 30.6% 28.1%

Total commercial 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: OzTAM, compiled by Credit Suisse. N.B. 2004 & 2008 data includes Olympics

27 November 2012


Australian regional TV ratings

Figure 784: Regional TV ratings – % Share 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

QLD - AMASEV (7) 31.9% 31.8% 31.8% 30.7% 32.3% 30.5% 28.5% 28.9% 29.0% 30.1% 30.9% 31.6% 32.0% 32.0% 33.4% 38.4% 37.6%WIN (9) 32.7% 32.3% 32.0% 33.7% 32.6% 31.8% 31.5% 32.8% 30.7% 30.5% 29.1% 26.8% 25.7% 24.7% 27.8% 27.0% 28.6%SBC (10) 20.6% 21.9% 19.7% 19.0% 18.2% 19.9% 20.9% 21.5% 22.3% 20.8% 21.5% 20.7% 19.2% 20.3% 19.4% 18.3% 17.1%Total 85.3% 86.0% 83.5% 83.4% 83.1% 82.2% 80.8% 83.2% 82.1% 81.5% 81.5% 79.1% 76.9% 76.9% 80.6% 83.7% 83.3%

NNSW - AMBPRT (7) 25.3% 25.0% 25.6% 24.9% 27.1% 23.0% 23.4% 23.3% 22.7% 24.2% 24.4% 26.3% 25.4% 24.1% 24.7% 27.9% 28.3%NBN (9) 36.4% 35.3% 36.6% 38.9% 36.4% 34.9% 33.2% 33.1% 31.5% 32.0% 34.1% 31.5% 31.4% 29.6% 31.7% 32.0% 31.7%SBC (10) 20.0% 20.5% 17.5% 16.2% 15.2% 19.7% 20.8% 22.1% 22.6% 20.9% 21.8% 21.0% 21.0% 21.2% 20.2% 18.7% 17.6%Total 81.7% 80.7% 79.7% 80.1% 78.8% 77.6% 77.4% 78.4% 76.8% 77.1% 80.3% 78.8% 77.8% 74.9% 76.5% 78.6% 77.6%

SNSW - AMCPRT (7) 27.6% 27.6% 28.3% 28.1% 31.4% 26.9% 26.5% 25.0% 24.3% 26.6% 26.8% 26.7% 27.6% 25.2% 26.2% 29.2% 29.1%WIN (9) 33.4% 33.3% 34.1% 35.8% 32.3% 34.1% 34.1% 32.4% 31.2% 31.3% 32.3% 28.9% 28.8% 27.7% 30.1% 28.9% 30.3%SBC (10) 20.7% 21.2% 20.3% 19.4% 18.7% 20.4% 20.5% 20.6% 20.6% 18.8% 18.8% 19.4% 17.7% 18.2% 17.8% 18.0% 17.0%Total 81.7% 82.2% 82.7% 83.3% 82.5% 81.3% 81.0% 77.9% 76.1% 76.7% 77.9% 75.0% 74.1% 71.1% 74.1% 76.1% 76.4%

Vic - AMDPRT (7) 32.6% 32.0% 32.2% 31.5% 33.8% 31.7% 26.8% 26.2% 25.0% 25.9% 26.2% 28.7% 30.2% 27.6% 26.7% 31.5% 33.3%WIN (9) 35.7% 36.0% 36.1% 37.0% 36.3% 34.7% 34.5% 32.9% 31.6% 30.9% 29.5% 28.4% 26.8% 27.4% 29.6% 28.3% 28.9%SBC (10) 17.6% 17.9% 17.6% 17.0% 15.5% 17.3% 20.6% 21.4% 22.0% 20.1% 21.7% 21.5% 20.5% 22.1% 21.8% 18.9% 15.5%Total 86.0% 86.0% 85.9% 85.5% 85.6% 83.7% 81.9% 80.5% 78.6% 77.0% 77.4% 78.6% 77.5% 77.1% 78.1% 78.8% 77.7%

Tas - AMESBC (7 & 10) na na na na 46.5% 44.3% 42.4% 40.5% 39.3% 35.0% 42.9% 42.0% 38.2% na na na naWIN (9) na na na na 33.5% 33.5% 34.9% 34.8% 33.8% 36.8% 29.1% 27.2% 25.4% na na na naTotal na na na na 80.0% 77.7% 77.2% 75.3% 73.1% 71.8% 72.0% 69.2% 63.5% na na na na

4 market averagePRT / Seven 29.4% 29.1% 29.5% 28.8% 31.2% 28.0% 26.3% 25.8% 25.3% 26.7% 27.1% 28.3% 28.8% 27.2% 27.7% 31.8% 32.1%WIN / Nine 34.6% 34.2% 34.7% 36.3% 34.4% 33.9% 33.3% 32.8% 31.2% 31.2% 31.2% 28.9% 28.2% 27.3% 29.8% 29.0% 29.9%SXL 19.7% 20.4% 18.8% 17.9% 16.9% 19.3% 20.7% 21.4% 21.9% 20.2% 20.9% 20.7% 19.6% 20.4% 19.8% 18.5% 16.8%Total 83.6% 83.7% 82.9% 83.1% 82.5% 81.2% 80.3% 80.0% 78.4% 78.1% 79.3% 77.9% 76.6% 75.0% 77.3% 79.3% 78.7% Source: Nielsen, compiled by Credit Suisse

Figure 785: Queensland regional TV ratings Figure 786: Northern NSW regional TV ratings

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Source: Nielsen, compiled by Credit Suisse Source: Nielsen, compiled by Credit Suisse

Figure 787: Southern NSW TV ratings Figure 788: VIC Regional TV ratings

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27 November 2012


Australian FTA TV vs. Pay TV

Figure 789: Australian FTA versus Pay TV market $M YE June FY01A FY02A FY03A FY04A FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12A

REVENUES

Free TV revenues

7 883 740 734 780 865 945 1,097 1,135 1,075 1,073 1,156 1,178

9 873 823 869 1,007 1,059 999 925 917 854 918 1,059 1,010

10 521 581 664 774 858 797 796 881 750 833 867 737

Regionals 615 600 666 739 782 807 809 868 825 868 912 900

Total 2,892 2,744 2,932 3,301 3,564 3,548 3,625 3,801 3,504 3,693 3,994 3,825

% change 2.4% -5.1% 6.8% 12.6% 8.0% -0.5% 2.2% 4.9% -7.8% 5.4% 8.1% -4.2%

Pay TV revenues

Austar (Dec YE) 294 291 324 388 454 503 568 632 675 711 713 726

Foxtel 456 527 649 767 1,064 1,245 1,420 1,665 1,840 2,016 2,142 2,220

Total 750 818 973 1,155 1,518 1,748 1,988 2,297 2,515 2,727 2,855 2,946

% change 92.8% 9.1% 18.9% 18.8% 31.4% 15.1% 13.8% 15.5% 9.5% 8.5% 4.7% 3.2%

Pay-TV penetration 19.6% 19.9% 19.7% 20.8% 21.8% 23.4% 26.1% 27.4% 28.6% 28.6% 28.7% 27.4%

Total TV ad revenues

FTA 2,892 2,744 2,932 3,301 3,564 3,548 3,625 3,801 3,504 3,693 3,994 3,825

Pay-TV 60 67 93 123 160 212 276 317 333 380 394 415

Total 2,952 2,811 3,025 3,424 3,724 3,761 3,901 4,118 3,837 4,073 4,387 4,241

Pay-TV as % total TV Advertising 2.0% 2.4% 3.1% 3.6% 4.3% 5.6% 7.1% 7.7% 8.7% 9.3% 9.0% 9.8%

PROGRAMMING SPEND

FTA TV 975 996 1,050 998 1,277 1,222 1,204 1,245 1,365 1,328 1,441 1,510

% change 12.9% 2.1% 5.4% -5.0% 27.9% -4.3% -1.5% 3.4% 9.6% -2.7% 8.5% 4.9%

Pay TV

Austar 163 148 131 148 174 190 225 247 263 276 268 280

Foxtel 285 361 378 614 722 666 716 757 837 938 988 1,006

Total Pay TV 448 508 509 762 896 856 941 1,004 1,100 1,214 1,256 1,285

Total TV programming expense

FTA TV 975 996 1,050 998 1,277 1,222 1,204 1,245 1,365 1,328 1,441 1,510

Pay TV 448 508 509 762 896 856 941 1,004 1,100 1,214 1,256 1,285

Total 1,423 1,504 1,559 1,760 2,173 2,078 2,145 2,249 2,464 2,542 2,696 2,796

FTA as % total programming expense 68.5% 66.2% 67.4% 56.7% 58.8% 58.8% 56.1% 55.3% 55.4% 52.2% 53.4% 54.0% Source: Company data, ABA, KPMG, Credit Suisse estimates

Figure 790: FTA vs. Pay TV Revenues ($m) Figure 791: FTA vs. Pay TV Programming Expenses ($m)

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27 November 2012


US TV market

Figure 792: US TV industry summary YE December 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US TV households (M) 102.2 105.5 106.7 108.4 109.6 110.2 111.4 112.8 114.5 114.9 115.9

Multichannel subscribers (M) 87.0 88.1 89.5 91.9 93.6 95.8 97.7 98.9 100.6 100.7 100.9

% TV households 85.1% 83.5% 83.8% 84.8% 85.4% 86.9% 87.7% 87.7% 87.8% 87.6% 87.0%

VOD Enabled Households (M) 3.2 7.7 12.9 19.3 24.2 29.9 36.0 41.7 47.4 52.4 56.2

% TV households 3.2% 7.3% 12.1% 17.8% 22.0% 27.1% 32.3% 37.0% 41.4% 45.6% 48.5%

DVR Households (M) 0.9 1.5 2.9 6.8 12.2 18.6 24.6 29.8 34.5 39.3 43.2

% TV households 0.9% 1.4% 2.7% 6.2% 11.2% 16.9% 22.1% 26.5% 30.1% 34.2% 37.3%

HD Receivable households (M) 11.3 20.7 38.3 55.9 66.7

% TV households 13.6% 24.5% 33.4% 48.7% 57.5%

TV Advertising revenues ($M)

Network 13,345 14,719 14,405 15,843 15,524 16,146 15,508 15,261 13,899 14,570 14,529

Local 15,164 16,735 16,833 17,862 17,974 18,585 18,353 17,577 14,197 16,689 15,596

National Syndication 2,071 1,644 1,952 2,234 2,152 1,969 1,974 1,935 1,774 1,868 1,947

Total FTA Advertising revenue 30,580 33,098 33,190 35,938 35,650 36,700 35,836 34,773 29,870 33,126 32,072

National Cable 10,043 11,386 12,692 14,080 15,555 16,247 17,337 18,536 18,093 20,369 22,221

Local Cable 3,039 3,393 3,204 3,609 3,753 4,179 4,169 4,098 3,399 4,222 4,138

Total Cable Advertising 13,082 14,780 15,896 17,689 19,308 20,426 21,506 22,634 21,492 24,591 26,359

Total TV advertising revenues 43,662 47,877 49,086 53,628 54,957 57,126 57,342 57,407 51,362 57,717 58,431

Cable TV ad revenues (% total) 30.0% 30.9% 32.4% 33.0% 35.1% 35.8% 37.5% 39.4% 41.8% 42.6% 45.1%

Network cost per 1000 (night-time) ($) 15.07 16.79 15.31 19.85 21.45 22.6 22.9 26.2 22.72 19.74 22.61

Spot TV cost per 1000 (night-time) ($) 26.79 26.79 24.62 27.74 25.97 28.1 34.5 27.7 30.33 26.76 28.00

Time watching TV (per day per h'hold) 7hr40min 7hr44min 7hr58min 8hr01min 8hr11min 8hr14min 8hr14min 8hr21min 8hr21min 8hr24min 8hr27min

% change

% change YoY 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US TV Households 1.4% 3.2% 1.1% 1.6% 1.1% 0.5% 1.1% 1.3% 1.5% 0.3% 0.9%

Multichannel Households 2.7% 1.3% 1.5% 2.7% 1.9% 2.3% 2.0% 1.2% 1.7% 0.1% 0.2%

VOD Enabled Households 136.2% 68.5% 49.3% 25.3% 23.8% 20.5% 15.9% 13.5% 10.5% 7.2%

DVR Households 56.3% 99.6% 132.0% 80.8% 51.8% 32.6% 21.3% 15.4% 13.9% 10.0%

HD Receivable Households 83.2% 85.0% 46.0% 19.3%

TV Advertising revenues

Network -7.1% 10.3% -2.1% 10.0% -2.0% 4.0% -3.9% -1.6% -8.9% 4.8% -0.3%

Local -11.1% 10.4% 0.6% 6.1% 0.6% 3.4% -1.2% -4.2% -19.2% 17.6% -6.5%

National Syndication -4.2% -20.6% 18.8% 14.4% -3.6% -8.5% 0.2% -2.0% -8.3% 5.2% 4.2%

Total TV advertising revenues 8.2% 0.3% 8.3% -0.8% 2.9% -2.4% -3.0% -14.1% 10.9% -3.2%

National Cable 2.2% 13.4% 11.5% 10.9% 10.5% 4.5% 6.7% 6.9% -2.4% 12.6% 9.1%

Local Cable 9.3% 11.6% -5.6% 12.7% 4.0% 11.4% -0.2% -1.7% -17.1% 24.2% -2.0%

Total TV advertising revenues -5.5% 9.7% 2.5% 9.3% 2.5% 3.9% 0.4% 0.1% -10.5% 12.4% 1.2%

Network cost per 1000 12.3% 11.4% -8.8% 29.7% 8.1% 5.1% 1.4% 14.6% -13.3% -13.1% 14.5%

Spot TV cost per 1000 9.1% 0.0% -8.1% 12.7% -6.4% 8.1% 22.8% -19.8% 9.6% -11.8% 4.6%

Time spend watching TV 1.1% 0.9% 3.0% 0.6% 2.1% 0.6% 0.0% 1.4% 0.0% 0.6% 0.6% Source: TVB, Magna Global, Company data, Credit Suisse estimates

27 November 2012


US TV US TV ratings

Figure 793: Top rating US shows 2010/11 US broadcast season

Rank Program Network

1 FOX Super Bowl XLV FOX 46.0

2 FOX Super Bowl Post Game FOX 28.4

3 AFC Championship on CBS CBS 28.3

4 Academy Awards ABC 21.2

5 NBC NFL Playoff Game 2 NBC 18.7

6 FOX NFC Playoff-Sat FOX 17.0

7 Oscar's Red Carpet Live-3 ABC 15.5

8 BCS Championship ESPN 15.3

9 Grammy Awards CBS 14.8

10 NBC NFL Tuesday Special NBC 13.8

11 Glee Sp-2/6 FOX 13.6

12 American Idol-Wednesday FOX 13.3

13 Dancing With The Stars ABC 13.2

14 NBC Sunday Night Football NBC 12.6

15 American Idol-Thursday FOX 12.3

16 American Idol Tue Sp-3/1 FOX 11.8

17 CBS NCAA Bskbl Champships CBS 11.7

18 Dancing W/Stars Results ABC 11.4

19 American Idol Tue Sp-5/24 FOX 11.4

20 Hawaii Five-0 Sp 1/23 CBS 11.3

21 NCIS CBS 10.7

22 Golden Globe Awards NBC 10.0


24 CMA Awards ABC 9.8

25 CBS NCAA Bskbl Champ Sa-2 CBS 9.5

26 Hallmark Hall Of Fame CBS 9.3

27 NCIS: Los Angeles CBS 9.1

28 NFL Regular Season ESPN 9.1

29 NCIS 9p-Special CBS 9.1

30 FOX World Series Game 4 FOX 9.0


32 Barbara Walters Sp-12/9 ABC 8.8

33 Bachelor: After Final Rose ABC 8.8


35 CBS Sunday Movie-Special CBS 8.7

36 NCIS: Los Angeles 10p Sp CBS 8.5


38 Barbara Walters Presents ABC 8.3

39 The Mentalist CBS 8.3

40 Hallmark Hall Of Fame CBS 8.3

41 60 Minutes CBS 8.2

42 Sugar Bowl ESPN 8.2

43 Dancing W/Stars Sp-4/26 ABC 8.2

44 Dancing W/Stars: Story ABC 8.1

45 Dancing W/Stars Result Sp ABC 7.9

46 FOX AFC-NFC Pro Bowl FOX 7.7

47 CBS NCAA Bskbl-Bridge CBS 7.6

48 ACM Awards CBS 7.6


50 Criminal Minds CBS 7.5

HH Rating (% TV HH)

Source: Nielsen

27 November 2012


Figure 794: US broadcast TV ratings (18-49 demo)

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US TV station ownership

Figure 795: Top 25 US TV station groups

No.

No. Owner % of US stations

1 Ion Media Netw orks 65% 60

2 Univision Television Group 45% 62

3 Trinity Boadcasting 45% 35

4 CBS Corp. 38% 28

5 Fox Television Stations 37% 27

6 Comcast/NBC Universal 36% 25

7 Tribune Co. 35% 23

8 Liberman Broadcasting 23% 9

9 ABC TV Stations Group 22% 8

10 Sinclair Broadcast Group 21% 57

11 Hearst Corp 18% 29

12 Gannett Broadcasting 18% 23

13 Belo Corp. 15% 20

14 Entravision (EVC) 14% 53

15 Raycom Media 13% 42

16 Nexstar Broadcasting 12% 62

17 Local TV LLC 11% 19

18 Cox Media Group 10% 15

19 E.W. Scripps Co. 10% 10

20 Meredith Cop. 9% 12

21 WRNN License Co. 9% 2

22 New port Television 9% 50

23 LIN Television Corp. 9% 32

24 Media General 8% 18

25 Post-New sw eek 7% 6

HH coverage

Source: Broadcasting & Cable

27 November 2012


Figure 796: News Corp US TV station ownership

Market Market Station Affiliation Digital No of TV % of US TV

rank Channel Households (M) Households

New York 1 WNYW Fox 44 7.494 6.5%

New York 1 WWOR MNTV 38

Los Angeles 2 KTTV Fox 11 5.659 4.9%

Los Angeles 2 KCOP MNTV 13

Chicago 3 WFLD Fox 31 3.501 3.0%

Chicago 3 WPWR MNTV 51

Philadelphia 4 WTXF Fox 42 2.955 2.6%

Dallas-Fort Worth 5 KDFW Fox 35 2.544 2.2%

Dallas-Fort Worth 5 KDFI MNTV 36

Boston 7 WFXT Fox 31 2.410 2.1%

Atlanta 8 WAGA Fox 27 2.388 2.1%

Washington DC 9 WTTG Fox 36 2.335 2.1%

Washington DC 9 WDCA MNTV 35

Houston 10 KRIV Fox 26 2.123 1.9%

Houston 10 KTXH MNTV 19

Detroit 11 WJBK Fox 7 1.890 1.6%

Phoenix 12 KSAZ Fox 10 1.874 1.6%

Phoenix 12 KUTP MNTV 26

Tampa-St Petersburg-Sarasota 14 WTVT Fox 12 1.806 1.5%

Minneapolis 15 KMSP MNTV 9 1.732 1.5%

Minneapolis 15 WFTC Fox 29

Orlando 19 WOFL Fox 22 1.456 1.3%

Orlando 19 WRBW MNTV 41

Baltimore 27 WUTB MNTV 41 1.093 1.0%

Austin 48 KTBC Fox 7 0.679 0.6%

Memphis 50 WHBQ Fox 13 0.668 0.6%

Gainesville, FL 160 WOGX Fox 31 0.128 0.1%

Total 42.735 37.2% Source: Company data, TVB, Credit Suisse estimates

27 November 2012


Film

Figure 797: Australian Cinema Advertising Revenue Figure 798: Australian Cinema Advertising Category Mix

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Figure 799: Australian Box Office Revenues and

Admissions

Figure 800: Film metrics indexed to 100 in 1987

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Source: MPDAA, Screen Australia, compiled by Credit Suisse Source: MPDAA, Screen Australia, compiled by Credit Suisse

Figure 801: Admissions per capita Figure 802: Proportion of total films which are Australian

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27 November 2012


Figure 803: US box office US$M Figure 804: US admissions (millions)

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Figure 805: International revenues as % total Figure 806: Geographic split of theatrical revenues

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US/Canada31%

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Source: MPAA Source: MPAA

Figure 807: Number of film releases Figure 808: Number of 3D releases

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27 November 2012


Figure 809: US home entertainment revenues (% change) Figure 810: US home entertainment sales by source (% total)

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DVD66%

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Digital/VOD19%

Source: DEG, PriceWaterhouseCoopers Source: DEG, PriceWaterhouseCoopers

Figure 811: Filmed entertainment company EBIT margins

– 2011 vs. 2010

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Source: Company data (Filmed entertainment divisions only)

27 November 2012


Australian cinema industry trends

Figure 812: Australian cinema industry trends YE December 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Revenue

Box office revenue ($M) 704.1 689.5 812.4 844.8 865.8 907.2 817.5 866.6 895.4 945.4 1,087.5 1,128.0 1,093.7

% change 11.9% -2.1% 17.8% 4.0% 2.5% 4.8% -9.9% 6.0% 3.3% 5.6% 15.0% 3.7% -3.0%

Admissions

Admissions (M) 88.8 82.0 92.5 92.5 90.0 91.5 82.2 83.6 84.7 84.6 90.7 92.4 85.0

% change 11.0% -7.7% 12.8% 0.0% -2.7% 1.7% -10.2% 1.7% 1.3% -0.1% 7.2% 1.9% -8.0%

Ticket prices

Average price ($) 7.9 8.4 8.8 9.1 9.6 9.9 9.9 10.4 10.6 11.2 12.0 12.3 12.9

% change 0.8% 5.8% 4.6% 4.0% 5.6% 2.9% 0.2% 4.3% 1.9% 5.7% 7.3% 2.3% 5.0%

Australian Films Share

Box Office $mn 21.2 54.2 63.4 41.8 30.3 11.9 23.1 40.0 36.0 35.5 54.8 50.6 42.9

% change -17.2% 155.7% 17.0% -34.1% -27.5% -60.7% 94.1% 73.2% -10.0% -1.4% 54.4% -7.7% -15.2%

% Share 3.0% 7.9% 7.8% 4.9% 3.5% 1.3% 2.8% 4.6% 4.0% 3.8% 5.0% 4.5% 3.9%

Admissions per capita

Admissions 88.8 82.0 92.5 92.5 90.0 91.5 82.2 83.6 84.7 84.6 90.7 92.4 85.0

Population 18.9 19.2 19.5 19.8 20.1 20.2 20.5 20.8 21.2 21.4 21.9 22.30 22.86

Admissions per capita 4.7 4.3 4.7 4.7 4.5 4.5 4.0 4.0 4.0 4.0 4.1 4.1 3.7

% Change 9.8% -9.1% 11.1% -1.5% -4.2% 1.2% -11.5% 0.2% -0.6% -1.1% 4.8% 0.0% -10.3%

Films released

Total number 255 250 245 258 268 318 329 333 317 301 347 403 437

Australian Films 24 22 27 22 23 16 27 29 26 33 44 41 44

US Films 174 167 163 170 178 200 175 184 172 158 173 177 192

Other 57 61 55 66 67 102 127 120 119 110 130 185 201

% Change in total films released -6.6% -2.0% -2.0% 5.3% 3.9% 18.7% 3.5% 1.2% -4.8% -5.0% 15.3% 16.1% 8.4%

Screens & Seats

Screens 1,748 1,817 1,855 1,872 1,907 1,909 1,943 1,964 1,941 1,980 1,984 1,994 1,991

% change 10.9% 3.9% 2.1% 0.9% 1.9% 0.1% 1.8% 1.1% -1.2% 2.0% 0.2% 0.5% -0.2%

Capacity 446 453 463 464 471 460 466 467 457 456 463 459 457

% change 8.0% 1.6% 2.2% 0.2% 1.5% -2.3% 1.3% 0.2% -2.1% -0.2% 1.5% -0.9% -0.4%

Ratios

Seats / screen 255 249 250 248 247 241 240 238 235 230 233 230 230

Population / screen (000s) 11 11 11 11 11 11 11 11 11 11 11 11 11

Box office revenue / screen ($000) 403 379 438 451 454 475 421 441 461 477 548 566 549

Box office revenue / seat ($) 1,579 1,522 1,755 1,821 1,838 1,972 1,754 1,856 1,959 2,073 2,349 2,458 2,393

Admissions / screen (000s) 51 45 50 49 47 48 42 43 44 43 46 46 43

Admissions / seat 199 181 200 199 191 199 176 179 185 186 196 201 186

Admissions per capita 4.7 4.3 4.7 4.7 4.5 4.5 4.0 4.0 4.0 4.0 4.1 4.1 3.7 Source: MPDAA, Screen Australia, compiled by Credit Suisse

27 November 2012


US and worldwide theatrical trends

Figure 813: US and worldwide theatrical trends YE December 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Box Office Revenue $M

US/Canada 9,272 9,165 9,215 8,832 9,138 9,629 9,791 10,595 10,600 10,200

EMEA 5,310 6,040 8,660 7,600 8,600 8,700 9,700 9,900 10,400 10,800

Asia Pac 3,620 4,120 5,900 5,600 6,500 6,500 6,800 7,200 8,500 9,000

Lat Am 710 740 1,090 1,060 1,300 1,400 1,600 1,700 2,100 2,600

Worldwide box office revenue 18,912 20,065 24,865 23,092 25,538 26,229 27,891 29,395 31,600 32,600

Admissions (millions)

US/Canada 1,599 1,521 1,484 1,376 1,395 1,400 1,340 1,420 1,340 1,280

EMEA 1,140 1,110 1,180 1,070 1,120 1,120 1,142 1,165 1,189 NA

Asia Pac 3,920 4,160 4,380 4,570 4,830 4,170 4,157 4,407 4,671 NA

Lat Am 320 320 370 340 340 350 356 377 400 NA

Worldwide admissions 6,979 7,111 7,414 7,356 7,685 7,040 6,995 7,369 7,599 NA

Ticket prices (US$)

US/Canada 5.81 6.03 6.21 6.41 6.55 6.88 7.18 7.50 7.89 7.93

EMEA 4.66 5.44 7.34 7.10 7.68 7.77 8.49 8.50 8.75 NA

Asia Pac 0.92 0.99 1.35 1.23 1.35 1.56 1.64 1.63 1.82 NA

Lat Am 2.22 2.31 2.95 3.12 3.82 4.00 4.50 4.51 5.26 NA

Worldwide average 2.71 2.82 3.35 3.14 3.32 3.73 3.99 3.99 4.16 NA

Total Screens

US 35,836 35,995 36,652 37,740 38,425 38,974 38,834 39,233 39,547 39,641

Digital Screens

US 50 77 85 324 2,003 4,650 5,659 7,736 15,483 27,469

Worldwide 159 190 334 848 2,991 6,454 8,792 16,382 35,062 62,684

3D Screens

US 84 206 994 1,514 3,548 8,459 13,695

Worldwide 84 258 1,299 2,543 8,979 21,936 35,479

Film releases 475 455 489 507 594 611 638 558 569 610

3D releases 2 2 6 8 6 8 20 26 45

Average negative cost ($M) 47.8 66.3 65.7 63.6 65.8 70.8 76.5 82.6 89.2 98.1

Average print cost ($M) 3.3 4.2 3.7 4.0 3.9 3.9 3.8 3.7 3.7 2.5

Average advertising cost ($M) 27.3 34.8 30.6 32.2 30.6 32.0 35.2 38.7 42.6 46.9

Average negative + P&A cost ($M) 78.4 105.4 100.1 99.8 100.3 106.7 115.5 125.0 135.5 147.5

% change

Box Office Revenue

US/Canada 14.1% -1.2% 0.5% -4.2% 3.5% 5.4% 1.7% 8.2% 0.0% -3.8%

EMEA 13.7% 43.4% -12.2% 13.2% 1.2% 11.5% 2.1% 5.1% 3.8%

Asia Pac 13.8% 43.2% -5.1% 16.1% 0.0% 4.6% 5.9% 18.1% 5.9%

Lat Am 4.2% 47.3% -2.8% 22.6% 7.7% 14.3% 6.3% 23.5% 23.8%

Worldwide box office revenue 11.5% 6.1% 23.9% -7.1% 10.6% 2.7% 6.3% 5.4% 7.5% 3.2%

Admissions

US/Canada 11.2% -4.9% -2.4% -7.3% 1.4% 0.4% -4.3% 6.0% -5.6% -4.5%

EMEA -2.6% 6.3% -9.3% 4.7% 0.0% 2.0% 2.0% 2.0% NA

Asia Pac 6.1% 5.3% 4.3% 5.7% -13.7% -0.3% 6.0% 6.0% NA

Lat Am 0.0% 15.6% -8.1% 0.0% 2.9% 1.6% 6.0% 6.0% NA

Worldwide admissions 1.9% 4.3% -0.8% 4.5% -8.4% -0.6% 5.3% 3.1% NA

Ticket prices

US/Canada 2.7% 3.8% 3.0% 3.2% 2.2% 5.0% 4.4% 4.5% 5.2% 0.5%

EMEA 16.8% 34.9% -3.2% 8.1% 1.2% 9.3% 0.1% 3.0% NA

Asia Pac 7.2% 36.0% -9.0% 9.8% 15.8% 4.9% -0.1% 11.4% NA

Lat Am 4.2% 27.4% 5.8% 22.6% 4.6% 12.5% 0.2% 16.5% NA

Worldwide average 4.1% 18.9% -6.4% 5.9% 12.1% 7.0% 0.0% 4.2% NA Source: MPAA, Screen Digest, Credit Suisse estimates

27 November 2012


Major studios US box office revenues and share

Figure 814: Major studios US box office YE December 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US box office revenue (US$M)

Warner Bros 1,073 1,178 1,214 1,377 1,066 1,417 1,767 2,105 1,924 1,826

Paramount 674 654 628 832 947 1,499 1,577 1,476 1,715 1,957

20th Century Fox 925 774 930 1,354 1,398 1,018 1,014 1,395 1,482 978

Buena Vista 1,188 1,524 1,159 922 1,493 1,350 1,012 1,229 1,456 1,241

Sony 1,575 1,197 1,338 918 1,705 1,246 1,267 1,456 1,283 1,274

Universal 874 1,070 893 1,010 815 1,102 1,055 867 882 1,041

Summit 227 483 523 412

Lions Gate 73 54 302 284 331 368 437 406 516 184

Fox Searchlight 133 122 173 102 166 133 215 257 153 152

Overture 103 158 82

Weinstein 102 290 21 185 227 37 205 81 296

Focus Features 39 105 95 105 119 51 139 162 75 127

Dreamworks 479 273 937 502 23

New Line 872 934 430 421 252 488

Miramax 276 407 368 184 46 126

MGM/UA 363 371 199 182 167 366 161

Warner Independent 0 0 12 115 28 16

Sony Classics 20 33 41 64 60 39 90

Others 490 227 640 284 362 403 657 397 396 597

Total 9,154 9,213 9,380 8,838 9,203 9,658 9,630 10,595 10,567 10,174

Market Share (%)

Warner incl. New Line, Warner Indep 21.2% 22.9% 17.7% 21.6% 14.6% 19.9% 18.4% 19.9% 18.2% 17.9%

Paramount 7.4% 7.1% 6.7% 9.4% 10.3% 15.5% 16.4% 13.9% 16.2% 19.2%

20th Century Fox incl Fox Searchlight 11.6% 9.7% 11.8% 16.5% 17.0% 11.9% 12.8% 15.6% 15.5% 11.1%

Buena Vista 13.0% 16.5% 12.4% 10.4% 16.2% 14.0% 10.5% 11.6% 13.8% 12.2%

Sony incl. Sony Classics 17.4% 13.4% 14.7% 11.1% 19.2% 13.3% 13.2% 13.7% 12.1% 13.4%

Universal 9.5% 11.6% 9.5% 11.4% 8.9% 11.4% 11.0% 8.2% 8.3% 10.2%

Summit 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.4% 4.6% 5.0% 4.0%

Lions Gate 0.8% 0.6% 3.2% 3.2% 3.6% 3.8% 4.5% 3.8% 4.9% 1.8%

Overture 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.1% 1.5% 0.8% 0.0%

Weinstein 1.1% 3.1% 0.2% 2.1% 2.5% 0.4% 0.0% 1.9% 0.8% 2.9%

Focus Features 0.4% 1.1% 1.0% 1.2% 1.3% 0.5% 1.4% 1.5% 0.7% 1.2%

Dreamworks 5.2% 3.0% 10.0% 5.7% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%

Miramax 3.0% 4.4% 3.9% 2.1% 0.5% 1.3% 0.0% 0.0% 0.0% 0.0%

MGM/UA 4.0% 4.0% 2.1% 2.1% 1.8% 3.8% 1.7% 0.0% 0.0% 0.0%

Others 5.4% 2.5% 6.8% 3.2% 3.9% 4.2% 6.8% 3.7% 3.7% 5.9%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

No. of releases

Warner Bros 28 20 22 19 21 24 20 28 27 26

Sony 31 24 17 24 27 25 20 21 18 13

20th Century Fox 14 16 14 18 24 16 20 16 17 15

Universal 15 14 14 19 17 18 18 16 15 15

Paramount 19 15 14 12 16 16 14 13 15 12

Buena Vista 22 19 20 17 19 13 13 18 14 14

Lions Gate 18 18 17 17 19 12 14 12

Fox Searchlight 7 10 13 10 6 9 8 11

Summit 5 9 8 8

Weinstein 9 8 7 12

Focus Features 7 5 9 6 8

Overture 8 6 5

Dreamworks 7 7 10 9 3

New Line 10 13 10 10 10 13

Miramax 24 19 13 14 8

MGM/UA 19 15 15 9 16 19 12

Warner Independent

Sony Classics 17

Rogue Pictures 3

Dimension Films 4 6

Newmarket 7

IFC 5 Source: boxofficemojo

27 November 2012


Top releases by studio

Figure 815: Top releases by studio

Domestic Box office

Year Top Fox Release box office $M rank Top 10 Top 50

1997 Titanic 601 1 2 8

1998 Something about Mary 176 3 2 6

1999 Star Wars : Episode 1 431 1 1 3

2000 Cast Away 333 2 2 4

2001 Planet of the Apes 180 10 1 6


2003 X2: X-Men United 215 6 2 5

2004 Day after Tomorrow 187 7 1 7


2006 Night at the Museum 251 2 3 7

2007 Alvin and the Chipmunks 217 12 1 5

2008 Horton Hears a Who 152 10 1 8

2009 Avatar 730 1 2 6

2010 Black Swan 104 26 0 8

2011 Rise of the Planet of the Apes 177 11 0 6

Domestic Box office

Year Top Sony Release box office $M rank Top 10 Top 50

1997 Men in Black 250 2 4 9

1998 Godzilla 136 9 1 3

1999 Big Daddy 163 7 1 3

2000 Charlie's Angels 125 14 0 5

2001 Black Hawk Down 109 18 0 6

2002 Spider-Man 404 1 2 7

2003 Bad Boys II 139 11 0 8

2004 Spider-Man 2 373 2 1 7

2005 Hitch 179 11 0 7

2006 Da Vinci Code 218 5 3 11

2007 Spider-Man 3 336 1 1 5

2008 Hancock 227 4 2 8

2009 2012 164 15 0 10

2010 The Karate Kid 177 11 0 8

2011 The Smurfs 143 19 0 9

Domestic Box office

Year Top Warner Release box office $M rank Top 10 Top 50

1997 Batman and Robin 107 12 0 7

1998 Rush Hour 141 7 1 11

1999 Austin Powers : The Spy Who Shagged Me 206 4 2 12

2000 Perfect Storm 183 6 1 8

2001 Harry Potter and the Sorcerer's Stone 318 1 4 10

2002 Lord of the Rings : Two Towers 340 2 3 10

2003 Lord of the Rings : Return of the King 377 1 5 11

2004 Harry Potter and the Prisoner of Azkaban 250 6 2 8

2005 Harry Potter and the Goblet of Fire 290 3 4 7

2006 Superman Returns 200 6 2 5

2007 Harry Potter and the Order of the Phoenix 290 5 3 11

2008 Dark Knight 533 1 1 9

2009 Harry Potter and the Half Blood Prince 302 3 3 9

2010 Harry Potter and the Deathly Hallows Part 1 294 5 2 9

2011 Harry Potter and the Deathly Hallows Part 2 381 1 3 8

Total releases in

Total releases in

Total releases in

Source: boxofficemojo.com

27 November 2012


Figure 816: Top releases by studio (continued)

Domestic Box office

Year Top Disney Release box office $M rank Top 10 Top 50

1997 Good Will Hunting (Miramax) 138 7 1 9

1998 Armageddon 202 2 3 12

1999 Sixth Sense 294 2 3 8

2000 Scary Movie (Miramax) 157 9 1 14

2001 Monsters Inc 256 4 2 9

2002 Signs 228 6 2 9

2003 Finding Nemo 340 2 2 10

2004 The Incredibles 261 5 2 9

2005 Chronicles of Narnia : Lion Witch Wardrobe 292 2 1 6

2006 Pirates of the Caribbean : Dead Man's Chest 423 1 2 7

2007 Pirates of the Caribbean : At World's End 309 4 2 8

2008 WALL-E 233 5 1 7

2009 Up 293 4 1 7

2010 Toy Story 3 415 1 3 6

2011 Pirates of the Caribbean: Dead Man's Chest 241 5 2 8

Domestic Box office

Year Top Paramount (incl Dreamworks) Release box office $M rank Top 10 Top 50

1997 Titanic 601 1 1 7

1998 Deep Impact 140 8 1 5

1999 Runaway Bride 152 9 1 8

2000 Mission : Impossible II 215 3 2 6

2001 Lara Croft : Tomb Raider 131 15 0 9

2002 Sum of All Fears 119 22 0 4

2003 The Italian Job 106 23 0 4

2004 Lemony Snicket's A Series of Unfortunate Events 119 18 0 5

2005 War of the Worlds 234 4 1 6

2006 Mission : Impossible III 134 14 0 8

2007 Transformers 319 3 1 6

2008 Iron Man 318 2 4 9

2009 Transformers : Revenge of the Fallen 402 2 3 7

2010 Iron Man 2 312 3 3 11

2011 Transformers: Dark of the Moon 352 2 5 11

Domestic Box office

Year Top Universal Release box office $M rank Top 10 Top 50

1997 The Lost World : Jurassic Park 229 3 2 4

1998 Patch Adams 135 10 1 2

1999 The Mummy 155 8 1 8

2000 How the Grinch Stole Christmas 260 1 2 7

2001 Mummy Returns 202 6 2 5

2002 Bourne Identity 122 21 0 4

2003 Bruce Almighty 243 5 1 7

2004 Meet the Fockers 279 4 2 6

2005 King Kong 218 5 1 6

2006 The Break-Up 119 18 0 6

2007 The Bourne Ultimatum 227 7 1 6

2008 Mamma Mia ! 144 13 0 7

2009 Fast and Furious 155 17 0 4

2010 Despicable Me 251 7 1 3

2011 Fast Five 210 6 1 5

Total releases in

Total releases in

Total releases in

Source: boxofficemojo.com

27 November 2012


Figure 817: US domestic vs. international contribution to top worldwide release US$M

Year Top Worldwide Release US Domestic International Worldwide In'tl % total

1989 Indiana Jones and the Last Crusade 197 277 474 58.4%

1990 Ghost 218 288 506 57.0%

1991 Terminator 2: Judgment Day 205 315 520 60.6%

1992 Aladdin 217 287 504 56.9%

1993 Jurassic Park 357 558 915 61.0%

1994 The Lion King 313 455 768 59.3%

1995 Toy Story 192 170 362 47.0%

1996 Independence Day 306 511 817 62.5%

1997 Titanic 601 1,244 1,845 67.4%

1998 Armageddon 202 352 554 63.6%

1999 Star Wars: Episode I - The Phantom Menace 431 493 924 53.4%

2000 Mission: Impossible II 215 331 546 60.5%

2001 Harry Potter and the Sorcerer's Stone 318 659 977 67.5%

2002 The Lord of the Rings: The Two Towers 340 585 924 63.2%

2003 The Lord of the Rings: The Return of the King 377 742 1,119 66.3%

2004 Shrek 2 441 480 921 52.1%

2005 Harry Potter and the Goblet of Fire 287 597 884 67.5%

2006 Pirates of the Caribbean : Dead Man's Chest 423 643 1,066 60.3%

2007 Pirates of the Caribbean : At World's End 309 652 961 67.8%

2008 The Dark Knight 533 469 1,002 46.8%

2009 Avatar 730 1,908 2,638 72.3%

2010 Toy Story 3 415 648 1,063 61.0%

2011 Harry Potter and the Deathly Hallows Part 2 381 947 1,328 71.3% Source: boxofficemojo.com

27 November 2012


US and worldwide home entertainment trends

Figure 818: US and Worldwide Home Entertainment Trends YE December 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

US Sell through and rental US$M

VHS 9,600 6,900 4,400 2,100 400 100 100 0 0 0

DVD 8,600 13,100 16,700 18,900 20,200 19,700 18,400 15,900 14,000 12,248

Blu-ray 0 0 0 0 0 300 900 1,500 2,300 2,760

Digital 700 700 700 800 1,000 1,300 1,600 2,100 2,500 3,416

Total US home entertainment 18,900 20,700 21,800 21,800 21,600 21,400 21,000 19,500 18,800 18,424

EMEA 12,306 13,905 15,315 15,654 15,188 15,125 14,314 14,252 14,413 14,820

Asia Pac 8,724 9,462 10,026 11,624 11,681 12,180 12,424 13,004 13,642 14,494

Lat Am 660 685 716 958 1,085 1,168 1,006 996 1,024 1,065

Worldwide home entertainment 40,590 44,752 47,857 50,036 49,554 49,873 48,744 47,752 47,879 48,803

US Home Entertainment Market

TV Households (M) 106.7 108.4 109.6 110.2 111.4 112.8 114.5 115.8 116.1 116.1

DVD households (M) 38.8 46.7 65.4 84.0 93.3 98.0 100.0 102.0 100.1 100.1

DVD penetration rates 36.4% 43.1% 59.7% 76.2% 83.8% 86.9% 87.3% 88.1% 86.2% 86.2%

Blu-ray households (M) 28.9 40.0

Blu-ray penetration rates 24.9% 34.5%

Blu-ray units shipped (M) 1.3 18.0 63.2 94.8 170.0 204.0

VOD-Enabled Subscribers (M) 7.7 12.9 19.3 24.2 29.9 36.0 41.7 47.1 52.4 56.2

% change

Revenue

VHS -11.9% -28.1% -36.2% -52.3% -81.0% -75.0% 0.0% -100.0% 0.0% 0.0%

DVD 62.3% 52.3% 27.5% 13.2% 6.9% -2.5% -6.6% -13.6% -11.9% -12.5%

Blu-ray 200.0% 66.7% 53.3% 20.0%

Digital 0.0% 0.0% 0.0% 14.3% 25.0% 30.0% 23.1% 31.3% 19.0% 36.6%

Total US home entertainment 11.8% 9.5% 5.3% 0.0% -0.9% -0.9% -1.9% -7.1% -3.6% -2.0%

EMEA 13.0% 10.1% 2.2% -3.0% -0.4% -5.4% -0.4% 1.1% 2.8%

Asia Pac 8.5% 6.0% 15.9% 0.5% 4.3% 2.0% 4.7% 4.9% 6.2%

Lat Am 3.8% 4.5% 33.8% 13.3% 7.6% -13.9% -1.0% 2.8% 4.0%

Worldwide home entertainment 10.3% 6.9% 4.6% -1.0% 0.6% -2.3% -2.0% 0.3% 1.9%

US Home Entertainment Market

TV Households 1.1% 1.6% 1.1% 0.5% 1.1% 1.3% 1.5% 1.1% 0.3% -0.1%

DVD households 56.5% 20.4% 40.0% 28.4% 11.1% 5.0% 2.0% 2.0% -1.9% 0.0%

DVD penetration rates 54.7% 18.5% 38.5% 27.7% 9.9% 3.7% 0.5% 0.9% -2.2% 0.0%

Blu-ray households 38.4%

Blu-ray units shipped 1327.8% 251.1% 50.1% 79.3% 20.0%

VOD-Enabled Subscribers 136.2% 68.5% 49.3% 25.3% 23.8% 20.5% 15.9% 12.8% 11.2% 7.2% Source: Video Business, Adams Media, DEG, Company data, Credit Suisse estimates

27 November 2012


Film industry accounting

Figure 819: Film industry accounting - examples of a hit and a flop US$M

Example of a hit

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Ultimate

Domestic box off ice 100 100

International box off ice 50 100 150

Theatrical rentals 75 50 125 Approx 50% of box off ice

Home Video 150 100 250

Pay-TV 40 20 60

TV 30 30

Total Revenue 75 50 150 100 40 20 0 0 0 30 465

Negative Cost 16 11 32 22 9 4 0 0 0 6 100 Amortized in line w ith revenue

Print & Advertisinsg 75 25 100 Expensed as incurred

Home Video Cost 60 40 100

Total Cost 91 36 92 62 9 4 0 0 0 6 300

Gross Profit/Loss -16 14 58 38 31 16 0 0 0 24 165

Less : Participations -4 -3 -8 -5 -2 -1 0 0 0 -2 -25

Net Profit/Loss -20 12 50 33 29 15 0 0 0 22 140

Example of a flop

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Ultimate

Domestic box off ice 30 30

International box off ice 20 30 50

Theatrical rentals 25 15 40

Home Video 40 30 70

Pay-TV 10 8 18

TV 7 7

Total Revenue 25 15 40 30 10 8 0 0 0 7 135

Negative Cost 19 11 30 22 7 6 0 0 0 5 100

Print & Advertising 75 25 100

Home Video Cost 16 12 28

Total Cost 94 36 46 34 7 6 0 0 0 5 228

Gross Profit/Loss -69 -21 -6 -4 3 2 0 0 0 2 -93

Writedown -93 Ultimate loss is w ritten dow n immediately Source: Credit Suisse estimates

27 November 2012


Outdoor

Figure 820: Australian Outdoor Advertising Revenue

Growth

Figure 821: Hong Kong Outdoor Advertising Revenue

Growth

-15%

-10%

-5%

0%

5%

10%

15%

20%

Outdoor All Media

-20%

-10%

0%

10%

20%

30%

40%

50%

Outdoor All Media

Source: CEASA, Credit Suisse estimates Source: ZenithOptimedia, Credit Suisse estimates

Figure 822: Outdoor share of Adspend in key markets Figure 823: Australian Outdoor Advertising Category mix

0%

3%

6%

9%

12%

15%

18%

Australia Hong Kong NZ

Alcohol5% Auto

7%

Finance12%

Telco10%

Leisure6%FMCG

10%

Retail12%

Travel6%

Other31%

Source: CEASA, ZenithOptimedia, OAAA Source: SMI


APN Outdoor

26%

Adshel19%

JCDecaux9%

oOh! Media16%

eyeCorp15%

Other15%

JCDecaux50%

APN10%

POAD*13%

Other27%



27 November 2012


Radio

Figure 826: Australian Radio Advertising Revenue Figure 827: New Zealand Radio Advertising Revenue

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

9.0%

0

200

400

600

800

1,000

1,200

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Revenue ($m)


8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

0

50

100

150

200

250

300

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

Revenue ($m)


Source: CEASA Source: SMI

Figure 828: Australian Radio Advertising Category mix Figure 829: Australian metropolitan radio market share by

agency revenue 2011

Auto12%

Finance13%

G'ment7%

Media8%

Retail23%

Other37%

SXL45%

DMG22%

APN15%

FXJ10%

MRN5%

Other2%



network (10+)


5%

10%

15%

20%

25%

30%

35%

2010 2011 2012

SXL APN FXJ DMG MRN

0%

10%

20%

30%

40%

50%


SXL DMG APN FXJ


27 November 2012


Figure 832: Sydney - Commercial share by network Figure 833: Melbourne - Commercial share by network

10%

15%

20%

25%

30%

35%

40%

1, 2010 3, 2010 5, 2010 7, 2010 1, 2011 3, 2011 5, 2011 7, 2011 1, 2012

SXL APN FXJ DMG Macquarie

10%

15%

20%

25%

30%

35%

1, 2010 3, 2010 5, 2010 7, 2010 1, 2011 3, 2011 5, 2011 7, 2011 1, 2012

SXL APN FXJ DMG


Figure 834: Brisbane - Commercial share by network Figure 835: Adelaide - Commercial share by network

10%

15%

20%

25%

30%

35%

40%

1, 2010 3, 2010 5, 2010 7, 2010 1, 2011 3, 2011 5, 2011 7, 2011 1, 2012

SXL APN FXJ DMG

22%

26%

30%

34%

38%

42%

1, 2010 3, 2010 5, 2010 7, 2010 1, 2011 3, 2011 5, 2011 7, 2011 1, 2012

SXL APN DMG


Figure 836: Station format Station Owner Format Station Owner Format

Sydney Brisbane

2DAY Austereo Contemporary B105 Austereo Contemporary

MMM Austereo Classic rock MMM Austereo Classic rock

WSFM ARN Classic hits Nova 106.9 DMG Contemporary

MIXFM ARN Contemporary 97.3 ARN/DMG Contemporary

Nova 96.9 DMG Contemporary 4KQ ARN Classic hits

Classic Rock - 95.3 DMG Classic rock 4BH FXJ Easy listening

2CH Macquarie Radio Easy listening 4BC FXJ News/Talk

2GB Macquarie Radio News/Talk Adelaide

2SM Broadcast Operations Group Easy listening SAFM Austereo Contemporary

2UE FXJ News/Talk MMM Austereo Classic rock

2KY TAB - Sky Channel Sport/Talk Mix ARN Contemporary

Melbourne 5DN ARN News/Talk

FOX Austereo Contemporary 5AA DMG News/Talk

MMM Austereo Classic rock Nova 91.9 DMG Contemporary

GOLD 104.3 ARN Classic hits Perth

MIX101.1 ARN Contemporary 94.5FM Austereo Soft rock

Nova 100 DMG Contemporary 92.9 Austereo Contemporary

Classic Rock - 91.5 DMG Classic rock 96FM FXJ Contemporary

3AW FXJ News/Talk 6PR FXJ News talk

Magic 693 FXJ Easy listening Nova 93.7 DMG/ARN Contemporary

3MP Pacific Radio Network Easy listening 61X Capital/Grant Easy listening

3AK Pacific Radio Network Easy listening

Sport 927 3UZ Sport Source: Company data, Credit Suisse estimates

27 November 2012


Figure 837: Metropolitan radio advertising breakdown by city % total

39% 40% 41% 40% 39% 37% 36% 33% 31% 31% 31% 31%

27% 27% 26% 27% 28% 28% 28% 28% 30% 30% 30% 30%

14% 14% 13% 14% 14% 15% 15% 16% 16% 16% 16% 16%

10% 10% 10% 9% 9% 9% 9% 9% 9% 10% 9% 9%

10% 10% 10% 10% 10% 10% 11% 13% 13% 13% 13% 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

1HFY

12

Sydney Melbourne Brisbane Adelaide Perth

Source: ABA, Deloitte, compiled by Credit Suisse


0%

10%

20%

30%

40%

50%

60%

70%

80%

Newcastle Canberra Gold Coast

2010 2011 2012

0%

10%

20%

30%

40%

50%

60%


SXL PRT


Figure 840: Global radio EBITDA margins – 2010 vs. 2011

0%

5%

10%

15%

20%

25%

30%

35%

40%2011 2012

Source: IBES, Credit Suisse estimates

27 November 2012


Figure 841: Radio ratings – station share of total listeners aged 10+ YE Dec (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Sydney Owner

2DAY FM SXL 13.8 13.7 12.0 11.0 8.7 8.9 9.8 9.8 10.3 10.2 10.1 9.8

2MMM SXL 12.1 11.2 8.8 6.9 7.7 8.4 7.7 5.8 5.5 3.7 5.0 4.8

2WS ARN 6.5 8.1 7.5 7.0 7.9 8.3 7.6 7.3 7.3 6.8 6.9 7.0

MIX 106.5 ARN 9.0 7.3 6.9 7.1 8.0 8.5 7.1 6.5 6.4 5.2 4.6 5.4

Nova DMG 0.0 4.5 8.4 9.9 10.6 9.2 7.7 8.1 8.2 7.7 6.8 6.4

Classic Rock DMG 0.0 0.0 0.0 0.0 0.0 0.0 2.1 3.9 4.3 4.0 3.5 3.2

2UE FXJ 13.3 12.8 9.4 8.1 8.1 8.4 8.2 7.5 7.1 7.1 6.1 6.1

2GB Macquarie 4.8 3.7 9.1 10.9 11.5 12.0 12.7 12.7 12.7 14.2 14.7 15.2

2CH Macquarie 6.7 6.3 6.0 6.6 5.6 5.8 5.6 6.5 6.2 5.5 5.8 5.3

Total commercial 66.2 67.4 67.9 67.6 68.1 69.6 68.2 68.1 67.9 64.3 63.4 63.1

Melbourne

FOX FM SXL 14.3 17.0 12.6 11.8 10.7 10.0 11.5 10.9 14.0 13.4 12.7 11.3

3MMM SXL 11.3 11.1 7.9 8.9 10.0 10.7 9.1 7.4 6.1 4.4 5.8 6.1

GOLD FM ARN 6.6 7.6 8.4 9.3 10.3 11.3 9.7 8.8 7.6 6.6 7.6 7.0

Mix 101.1 ARN 10.1 9.2 6.5 6.3 6.2 5.5 5.8 5.8 5.1 4.8 5.2 5.6

Nova DMG 0.0 0.0 10.2 10.0 9.4 9.8 8.9 9.5 8.4 7.7 7.1 6.8

Classic Rock DMG 0.0 0.0 0.0 0.0 0.0 0.0 1.7 3.7 3.5 4.2 3.3 3.5

3AW FXJ 14.5 14.3 12.9 15.1 14.7 14.6 15.4 15.4 15.3 15.3 14.7 15.6

Magic 693 FXJ 7.2 6.3 6.5 6.5 6.0 5.8 5.0 4.7 4.4 4.4 5.9 5.9

MTR Macquarie Radio 3.2 3.5 3.1 2.4 2.9 2.6 2.8 3.0 2.7 2.8 1.7 2.0

Sport 927 3UZ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Brisbane

B105 FM SXL 23.5 24.5 18.8 17.8 17.4 10.7 8.1 9.7 10.9 11.8 12.6 11.9

4MMM SXL 16.4 16.2 13.3 13.2 14.1 15.8 14.2 11.1 11.8 10.2 10.9 10.5

4KQ ARN 11.8 11.6 9.3 10.5 9.4 8.7 8.1 7.5 7.3 7.2 6.9 7.2

97.3 DMG/ARN 0.0 1.1 13.0 13.6 13.4 10.5 10.4 10.5 11.0 10.5 11.3 11.6

Nova DMG 0.0 0.0 0.0 0.0 0.0 12.3 14.8 15.1 14.4 13.1 11.5 11.3

4BH FXJ 8.8 8.0 8.1 6.2 7.6 7.5 7.8 7.8 7.1 7.3 7.0 6.3

4BC FXJ 7.8 7.9 8.2 9.2 8.8 8.0 8.5 9.4 7.9 8.0 7.5 7.5


Adelaide

SAFM SXL 24.9 25.7 25.7 22.2 18.4 13.5 13.9 11.5 12.0 12.9 12.2 11.6

5MMM SXL 10.7 12.6 12.3 14.3 11.4 9.7 8.8 8.5 9.8 10.4 9.6 8.0

MIX102.3 ARN 18.4 13.5 11.3 11.0 16.9 16.8 14.9 16.2 12.3 12.4 12.9 15.2

Cruise1323 ARN 6.3 7.7 6.0 5.7 6.2 2.0 6.2 7.0 7.7 7.4 7.1 7.5

5AA DMG 13.1 12.7 15.8 15.6 15.1 16.4 15.2 16.8 15.8 13.9 14.1 14.0

Nova DMG 0.0 0.0 0.0 0.0 0.0 11.9 12.1 11.5 11.1 9.8 9.1 9.4


Perth

94.5 SXL 18.6 21.1 22.9 22.1 20.2 17.7 17.3 17.8 17.1 15.9 16.2 15.5

92.9 SXL 15.3 15.3 15.9 11.3 11.3 9.1 9.9 11.1 12.7 13.1 12.8 11.6

Nova 93.7 ARN/DMG 0.0 0.0 0.0 9.1 9.7 11.4 11.8 10.7 9.9 9.3 9.6 10.2

96FM FXJ 14.8 16.1 13.6 10.5 11.7 12.1 12.4 11.5 10.5 11.0 9.7 9.2

6PR FXJ 10.2 9.9 9.5 8.7 7.7 9.6 10.4 9.7 10.3 9.3 8.6 9.6

6IX Capital/Grant 7.1 5.7 5.6 6.1 5.5 5.1 5.0 5.6 4.9 5.2 5.8 5.1

Total commercial 66.0 68.0 67.5 67.7 66.1 65.0 66.7 66.4 65.4 63.7 62.7 61.2 Source: Nielsen, compiled by Credit Suisse

27 November 2012


Figure 842: Ratings by demographic

YE December (%) 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011

Sydney

2DAY FM 20.1 22.7 23.0 26.4 20.0 19.7 14.5 15.8 15.6 16.1 17.5 16.6 9.5 9.7 9.9 8.7 8.9 9.3

2MMM 10.1 8.0 8.2 4.8 5.9 6.8 14.4 11.3 9.6 6.8 9.8 9.0 7.5 5.8 5.9 3.6 5.7 4.8

2WS 6.9 5.3 3.7 4.7 3.3 4.3 7.0 6.2 6.8 5.7 5.6 5.8 7.8 7.7 8.5 7.5 7.4 7.1

MIX 106.5 8.1 8.1 7.2 7.3 8.3 8.0 10.7 9.7 9.6 8.4 7.4 8.7 7.4 6.8 6.5 5.0 4.9 5.3

Nova 23.2 23.1 21.7 19.2 18.1 18.1 12.7 13.9 14.9 14.2 12.0 12.0 7.3 8.0 7.6 7.1 6.1 5.6

Classic Rock 1.6 2.5 3.3 3.1 3.1 3.0 2.5 5.2 5.7 5.9 3.6 4.1 2.3 4.4 4.8 4.6 4.0 3.3

2UE 1.2 1.5 1.3 1.0 0.8 1.1 3.4 3.2 2.7 2.4 2.0 1.8 8.1 7.5 6.5 7.1 5.1 5.4

2GB 1.0 1.3 2.8 2.3 3.2 2.5 5.4 4.3 4.8 5.6 6.3 7.3 13.9 14.4 14.3 16.5 17.4 19.0

2CH 0.1 0.6 1.2 0.1 0.5 0.8 0.6 0.6 0.8 0.6 0.6 0.5 6.0 7.3 6.8 6.6 6.9 6.1

2SM na na na na na na na na na na na na na na na na na na

2KY na na na na na na na na na na na na na na na na na na

Total commercial 72.3 73.0 72.4 68.8 63.1 64.2 71.2 70.1 70.4 65.7 64.6 65.8 69.8 71.6 70.7 66.7 66.2 65.7

Melbourne

FOX FM 20.9 22.3 28.3 26.1 30.0 24.7 17.6 15.7 19.0 20.6 17.4 16.6 10.6 8.8 12.5 11.2 9.9 9.3

3MMM 12.9 11.0 7.9 7.2 9.7 8.7 16.3 12.4 10.8 7.6 10.2 11.2 9.4 8.2 6.0 4.4 6.0 6.1

GOLD 104 FM 7.5 6.2 6.2 5.1 5.7 5.9 10.3 8.9 7.6 5.8 7.4 6.5 10.7 10.0 8.1 7.1 8.8 8.1

Mix 101.1 8.5 8.2 6.1 8.0 7.4 8.3 8.2 8.6 7.5 7.4 8.8 7.5 5.6 5.7 4.9 4.5 4.7 5.1

Nova 29.9 29.8 22.6 18.9 21.6 17.4 12.8 14.5 14.7 13.5 12.7 13.7 8.0 9.4 8.5 7.7 6.7 6.1

Classic Rock 1.6 3.7 4.8 4.6 2.9 3.3 2.4 6.2 5.0 5.7 3.7 4.2 1.9 4.4 4.3 5.3 3.6 3.7

3AW 1.6 1.8 1.5 1.7 1.0 1.2 5.7 5.0 5.1 4.7 4.8 4.5 17.2 16.1 16.9 16.2 16.7 17.2

Magic 693 0.3 0.5 0.2 0.8 0.5 0.2 1.0 0.3 0.3 0.4 0.5 0.5 5.1 4.8 4.8 5.2 6.6 6.4

3MP 0.7 0.8 0.2 0.2 0.2 0.5 0.7 0.5 0.4 0.5 0.4 1.1 3.0 3.3 3.1 3.4 1.8 2.1

Sport 927 na na na na na na na na na na na na na na na na na na

3AK 1.5 1.9 2.0 2.3 2.0 3.5 2.9 5.0 6.1 5.5 5.4 6.4 2.9 3.4 4.5 3.7 4.4 4.9


Brisbane

B105 FM 14.4 16.8 20.0 21.8 23.0 23.4 9.8 13.0 15.6 15.4 18.1 15.5 7.0 8.4 9.7 9.2 10.7 9.9

4MMM 14.9 14.0 14.6 9.6 12.1 10.7 24.8 17.7 17.8 16.7 17.1 14.1 15.5 12.0 14.2 12.3 13.2 12.4

4KQ 1.5 2.0 2.3 0.9 1.2 1.2 2.2 3.5 3.0 1.9 1.8 1.6 8.4 7.5 7.5 7.6 7.6 7.5

97.3 9.4 10.1 10.1 7.8 8.7 11.6 15.4 14.9 14.8 13.4 14.5 14.9 11.1 11.3 11.7 11.0 12.2 12.0

Nova 106.9 42.0 39.5 34.5 34.8 26.7 25.0 22.1 22.2 22.4 22.2 20.0 20.8 14.7 15.2 15.1 13.6 11.4 10.9

4BC 0.5 0.7 0.8 0.5 0.7 0.9 1.7 1.1 1.0 1.3 0.4 0.8 8.7 8.3 7.1 7.4 7.6 6.6

4BH (New 882) 0.8 0.4 0.7 1.2 0.6 0.4 2.1 1.3 1.5 1.7 1.9 1.9 10.3 12.0 7.9 9.5 8.0 8.9


Adelaide

SAFM 19.3 21.4 25.0 23.2 25.7 23.1 23.5 17.8 16.5 20.3 19.1 16.7 13.0 10.8 10.4 11.5 10.6 10.4

Triple M 10.3 9.4 9.9 8.1 7.8 7.9 13.3 13.0 14.1 13.5 12.1 10.6 9.7 9.2 11.5 11.5 10.9 9.2

Cruise1323 1.4 1.4 1.7 1.8 1.2 0.8 1.1 2.3 1.8 1.6 1.2 2.5 7.3 8.1 9.0 8.4 7.4 7.8

5AA 2.0 2.4 1.5 2.4 1.7 2.4 6.1 5.1 4.8 5.5 4.5 4.7 13.2 14.8 14.2 13.0 13.4 14.9

Mix 102.3 10.8 9.5 8.0 11.3 9.1 12.2 13.1 16.3 10.6 11.6 10.8 15.2 16.1 17.8 13.4 13.5 14.0 16.6

Nova 91.9 36.6 32.5 28.3 25.4 22.2 24.2 19.5 19.9 20.8 17.1 18.6 16.8 13.1 11.6 11.6 9.2 8.6 9.6


Perth

Mix94.5 9.7 11.1 10.9 11.9 10.6 9.6 19.1 17.5 18.1 16.8 16.0 13.9 17.9 18.4 18.0 16.9 17.4 16.5

92.9FM 19.8 23.2 28.4 25.1 27.0 24.4 12.5 14.8 18.2 17.8 16.6 15.6 9.1 9.7 11.0 10.4 10.2 9.5

Nova 93.7 32.3 28.1 25.2 22.0 18.2 22.2 18.8 18.3 15.2 15.8 17.3 17.9 11.2 10.9 10.0 9.0 9.4 9.5

96FM 15.8 15.9 15.1 15.7 14.2 11.1 21.3 19.6 18.9 15.7 12.6 15.5 14.3 13.5 12.5 12.3 11.3 11.2

6PR 0.8 0.8 0.4 0.6 1.0 1.1 3.6 5.0 3.8 4.4 3.9 4.4 11.5 10.3 10.0 10.3 9.3 10.8

6IX 1.9 2.1 1.7 0.8 1.3 0.6 2.1 2.0 1.8 2.2 2.4 1.7 5.2 6.4 5.3 5.4 6.3 5.3


18 to 24 year olds 25 to 39 year olds Morning time slot

Source: Nielsen, compiled by Credit Suisse

Figure 843: Radio revenues $M

27 November 2012


Year Ending June 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A

Metropolitan ($M)FM 323 345 340 350 386 445 452 467 500 484 496 524 524AM 137 132 126 137 154 154 162 170 170 164 167 176 175Total metropolitan 460 477 466 486 540 599 615 637 670 648 663 700 699

Sydney / Canberra 179 185 184 197 213 229 223 225 219 198 203 214 214Melbourne 121 128 122 124 142 161 170 173 186 189 195 204 204Brisbane 61 64 62 62 74 85 90 95 105 102 103 110 110Adelaide 45 46 45 46 49 53 55 59 62 60 62 63 63Perth 46 46 44 46 50 58 62 70 83 84 84 92 91Hobart / Darwin 8 8 9 11 12 14 15 15 16 15 15 16 16Total metropolitan 459 477 466 486 540 599 615 637 670 648 663 700 699

% changeTotal FM 16.6% 6.9% -1.6% 3.0% 10.2% 15.4% 1.7% 3.1% 7.2% -3.1% 2.4% 5.7% -0.2%Total AM 7.7% -3.3% -4.8% 8.6% 13.0% -0.3% 5.6% 4.7% 0.1% -3.7% 1.8% 5.2% -0.2%Sydney/Canberra 14.4% 3.8% -0.5% 6.8% 8.1% 7.5% -2.4% 0.8% -2.8% -9.4% 2.2% 5.9% -0.2%Melbourne 14.9% 5.7% -4.6% 1.9% 14.4% 13.2% 5.6% 1.9% 7.3% 1.7% 3.3% 4.6% -0.2%Brisbane 13.2% 4.4% -2.7% 0.0% 20.0% 14.0% 6.6% 4.7% 10.6% -2.4% 1.3% 6.5% -0.2%Adelaide 15.8% 3.6% -2.8% 2.9% 4.7% 8.4% 4.6% 6.5% 5.8% -3.4% 2.8% 2.8% -0.2%Perth 12.1% -1.1% -5.2% 6.7% 8.4% 14.9% 6.4% 13.7% 18.8% 0.9% 0.7% 8.4% -0.2%Hobart / Darwin -8.3% 6.5% 7.3% 19.3% 9.5% 17.4% 7.4% 4.1% 3.7% -3.3% 2.2% 3.3% -0.2%Total metropolitan 13.8% 3.9% -2.5% 4.5% 11.0% 10.9% 2.7% 3.5% 5.3% -3.3% 2.2% 5.6% -0.2%

Market shares (%)Total FM 70% 72% 73% 72% 71% 74% 74% 75% 75% 75% 75% 75% 75%Total AM 30% 28% 27% 28% 29% 26% 26% 25% 25% 25% 25% 25% 25%Sydney/Canberra 39% 39% 40% 40% 39% 38% 36% 35% 33% 31% 31% 31% 31%Melbourne 26% 27% 26% 26% 26% 27% 28% 27% 28% 29% 29% 29% 29%Brisbane 13% 13% 13% 13% 14% 14% 15% 15% 16% 16% 16% 16% 16%Adelaide 10% 10% 10% 10% 9% 9% 9% 9% 9% 9% 9% 9% 9%Perth 10% 10% 9% 10% 9% 10% 10% 11% 12% 13% 13% 13% 13%Hobart / Darwin 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Total Australia ($M)Metropolitan 460 477 466 486 540 599 615 637 670 648 663 700 699Regional 214 216 213 223 248 280 293 309 334 311 317 330 327Total Australia 674 694 679 710 787 879 908 946 1004 959 980 1030 1026

% changeMetropolitan 13.8% 3.9% -2.5% 4.5% 11.0% 10.9% 2.7% 3.5% 5.3% -3.3% 2.2% 5.6% -0.2%Regional 9.2% 1.0% -1.4% 4.7% 10.8% 13.1% 4.6% 5.6% 8.1% -6.9% 1.9% 5.6% -0.9%Total Australia 12.3% 3.0% -2.1% 4.5% 10.9% 11.6% 3.3% 4.2% 6.2% -4.5% 2.1% 5.1% -0.4%

Market shares (%)Metropolitan 68% 69% 69% 69% 69% 68% 68% 67% 67% 68% 68% 68% 68%Regional 32% 31% 31% 31% 31% 32% 32% 33% 33% 32% 32% 32% 32%Total Australia 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Source: ABA, Deloitte, Credit Suisse estimates

27 November 2012


Digital

Figure 844: Australian Digital Advertising Revenue Figure 845: New Zealand Digital Advertising Revenue

0%

4%

8%

12%

16%

20%

24%

0

500

1,000

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19

97

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Revenue ($m)


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Revenue (NZ$m)


Source: CEASA Source: Advertising Standards Authority, Credit Suisse estimates

Figure 846: Australian Digital Advertising Category Mix Figure 847: Australian print vs. online classifieds $M

Auto15%

Finance22%

Telco8%

FMCG6%

Retail9%

Travel6%

Other34%

0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Online Print

Source: SMI Source: CEASA, Company data, IAB, Credit Suisse estimates

Figure 848: Australian online employment classifieds - %

share of inventory

Figure 849: Australian motor vehicle website – % share of

inventory

Seek55%

MyCareer10%

CareerOne7%

Jobs.com10%

Gumtree18%

Carsales 37%

Drive 24%

Carsguide 26%

Trading Post 10%

eBay 3%


27 November 2012


Figure 850: Global Internet EBITDA Margins

0%

10%

20%

30%

40%

50%

60%

70%

80%2011 2012

Source: IBES

Figure 851: Global comparison of broadband penetration – 2011

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: Gartner, Company data, Credit Suisse estimates

Figure 852: Global comparison of fastest available broadband speeds (MBps)

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15

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25

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Source: Speedtest.net

27 November 2012


Figure 853: Australian broadband access 2004/05 2005/06 2006/07 2007/08 2008/09 2009-10 2010-11

Number of households (000s)

Metropolitan areas 1,008 1,696 2,504 2,975 3,423 3,903 4,383

Ex-Metropolitan areas 271 555 1,002 1,313 1,618 1,980 2,341

Total households with broadband access 1,279 2,251 3,506 4,288 5,041 5,883 6,724

Total households in Australia 7,847 7,945 8,071 8,244 8,189 8,355 8,520

% Penetration

Metropolitan areas 20% 34% 49% 57% 66% 74% 82%

Ex-Metropolitan areas 9% 19% 34% 43% 53% 64% 74%

Total households with broadband access 16% 28% 43% 52% 62% 71% 79%

New South Wales 18% 28% 44% 53% 61% 70% 79%

Victoria 18% 30% 45% 51% 62% 71% 79%

Queensland 16% 30% 44% 54% 64% 72% 79%

South Australia 10% 20% 33% 42% 54% 65% 76%

Western Australia 15% 30% 46% 54% 64% 73% 81%

Tasmania ^8% 17% 32% 39% 49% 60% 70%

Northern Territory ^14% ^25% 44% 55% 64% 72% 79%

Australian Capital Territory 23% 40% 58% 68% 74% 81% 88% Source: ABS ^ estimate has a relative standard error of 10% to less than 25% and should be used with caution

27 November 2012


Figure 854: Australian Internet ad spend by medium

Quarter Display $M % ch YoY Classifieds $M % ch YoY Search $M % ch YoY Total $M % ch YoY

Q1/02 13.5 13.3 6.6 33.5

Q2/02 17.5 14.7 10.8 43.0

Q3/02 15.8 16.4 15.3 47.4

Q4/02 15.2 15.6 12.3 43.1

Q1/03 13.1 -2.8% 18.0 35.3% 13.8 108.9% 45.0 34.5%

Q2/03 17.4 -0.7% 20.6 40.0% 16.1 49.2% 54.0 25.7%

Q3/03 22.7 43.7% 23.0 40.3% 18.3 19.9% 64.0 34.9%

Q4/03 27.5 81.2% 24.7 58.0% 20.8 68.7% 73.0 69.2%

Q1/04 22.5 71.3% 25.0 38.7% 21.5 55.3% 69.0 53.3%

Q2/04 32.0 84.0% 30.0 45.9% 32.0 99.4% 94.0 74.1%

Q3/04 34.0 49.6% 38.0 65.6% 34.0 85.5% 106.0 65.6%

Q4/04 40.0 45.6% 39.0 57.8% 40.0 92.3% 119.0 63.0%

Q1/05 34.0 51.1% 42.0 68.0% 42.0 95.3% 118.0 71.0%

Q2/05 46.0 43.8% 50.0 66.7% 49.0 53.1% 145.0 54.3%

Q3/05 52.0 52.9% 54.0 42.1% 61.0 79.4% 167.0 57.5%

Q4/05 62.0 55.0% 60.0 53.8% 68.0 70.0% 190.0 59.7%

Q1/06 57.5 69.1% 62.0 47.6% 75.5 79.8% 195.0 65.3%

Q2/06 76.0 65.2% 67.0 34.0% 83.0 69.4% 226.0 55.9%

Q3/06 78.0 50.0% 81.0 50.0% 104.0 70.5% 263.0 57.5%

Q4/06 91.5 47.6% 89.0 48.3% 136.5 100.7% 317.0 66.8%

Q1/07 75.0 30.4% 79.5 28.2% 139.5 84.8% 294.0 50.8%

Q2/07 90.5 19.1% 87.8 31.0% 147.3 77.4% 325.5 44.0%

Q3/07 97.0 24.4% 91.3 12.7% 159.5 53.4% 347.8 32.2%

Q4/07 104.5 14.2% 98.3 10.4% 176.0 28.9% 378.8 19.5%

Q1/08 94.5 26.0% 106.5 34.0% 183.5 31.5% 384.5 30.8%

Q2/08 115.0 27.1% 111.0 26.5% 187.0 27.0% 413.0 26.9%

Q3/08 125.0 28.9% 113.0 23.8% 212.0 32.9% 450.0 29.4%

Q4/08 130.0 24.4% 108.0 9.9% 224.0 27.3% 462.0 22.0%

Q1/09 110.0 16.4% 105.0 -1.4% 225.0 22.6% 440.0 14.4%

Q2/09 126.0 9.6% 105.0 -5.4% 223.0 19.3% 454.0 9.9%

Q3/09 121.0 -3.2% 108.0 -4.4% 237.0 11.8% 466.0 3.6%

Q4/09 141.8 9.0% 111.3 3.0% 259.5 15.8% 512.5 10.9%

Q1/10 126.0 14.5% 121.8 16.0% 264.8 17.7% 512.5 16.5%

Q2/10 158.6 25.8% 128.7 22.6% 265.2 18.9% 552.5 21.7%

Q3/10 151.5 25.2% 140.7 30.2% 279.6 18.0% 571.8 22.7%

Q4/10 168.9 19.1% 140.0 25.8% 318.9 22.9% 627.8 22.5%

Q1/11 129.8 3.0% 145.3 19.3% 326.0 23.1% 601.0 17.3%

Q2/11 163.8 3.3% 150.7 17.1% 340.7 28.5% 655.3 18.6%

Q3/11 164.4 8.5% 160.9 14.4% 362.4 29.6% 687.8 20.3%

Q4/11 176.2 4.3% 155.4 11.0% 384.6 20.6% 716.3 14.1%

Calendar

year General $M % ch Classifieds $M % ch

Search and

Directories $M % ch Total $M Total % ch

2002 62.0 60.0 45.0 167.0

2003 80.7 30.2% 86.2 43.7% 69.0 53.4% 236.0 41.3%

2004 128.5 59.2% 132.0 53.1% 127.5 84.7% 388.0 64.4%

2005 194.0 51.0% 206.0 56.1% 220.0 72.5% 620.0 59.8%

2006 303.0 56.2% 299.0 45.1% 399.0 81.4% 1001.0 61.5%

2007 367.0 21.1% 356.8 19.3% 622.3 56.0% 1346.0 34.5%

2008 464.5 26.6% 438.5 22.9% 806.5 29.6% 1709.5 27.0%

2009 498.8 7.4% 429.3 -2.1% 944.5 17.1% 1872.5 9.5%

2010 604.9 21.3% 531.1 23.7% 1128.4 19.5% 2264.5 20.9%

2011 634.1 4.8% 612.3 15.3% 1413.8 25.3% 2660.3 17.5%

Fiscal

Year General $M % ch Classifieds $M % ch

Search and

Directories $M % ch Total $M Total % ch

FY03 61.5 70.6 57.5 189.6

FY04 104.7 70.2% 102.7 45.5% 92.6 61.1% 300.0 58.2%

FY05 154.0 47.1% 169.0 64.6% 165.0 78.1% 488.0 62.7%

FY06 247.5 60.7% 243.0 43.8% 287.5 74.2% 778.0 59.4%

FY07 335.0 35.4% 337.3 38.8% 527.3 83.4% 1199.5 54.2%

FY08 411.0 22.7% 407.0 20.7% 706.0 33.9% 1524.0 27.1%

FY09 491.0 19.5% 431.0 5.9% 884.0 25.2% 1806.0 18.5%

FY10 547.3 11.5% 469.7 9.0% 1026.5 16.1% 2043.5 13.2%

FY11 613.9 12.2% 576.6 22.8% 1265.2 23.3% 2455.8 20.2% Source: IAB, CEASA, Credit Suisse estimates

27 November 2012


Disclosures Companies Mentioned (Price as of 26-Nov-2012)

APN News & Media (APN.AX, A$0.3, UNDERPERFORM[V], TP A$0.23) carsales.com.au (CRZ.AX, A$7.59, OUTPERFORM, TP A$8.8) Fairfax Media (FXJ.AX, A$0.45, UNDERPERFORM, TP A$0.4) News Corporation (NWS.AX, A$23.7, NEUTRAL, TP A$27.0) Prime Media Group (PRT.AX, A$0.81, NEUTRAL, TP A$0.86) REA Group (REA.AX, A$18.75, NEUTRAL, TP A$19.76) Seek (SEK.AX, A$6.82, UNDERPERFORM, TP A$6.93) Seven West Media Ltd (SWM.AX, A$1.64, OUTPERFORM[V], TP A$1.8) Southern Cross Media Group (SXL.AX, A$1.08, UNDERPERFORM, TP A$1.0) STW Communications Group (SGN.AX, A$1.1, OUTPERFORM, TP A$1.24) Ten Network Holdings (TEN.AX, A$0.3, NEUTRAL, TP A$0.33) Trade Me Group Ltd (TME.AX, A$3.42, NEUTRAL[V], TP A$3.7) 51job (JOBS.OQ, $53.15) Apple Inc (AAPL, US$589.27) ADK (9747.T, ¥1,951) Aegis Group (AEGS.L, 235.2p) Aimia (AIM.TO, C$14.95) Amazon com Inc. (AMZN.OQ, $243.79) ASOS (ASOS.L, 2381.0p) Baidu Inc (BIDU.OQ, $95.45) BEC World (BEC.BK, Bt60.5) Belo (BLC.N, $7.15) British Sky Broadcasting (BSY.L, 777.0p) Cablevision (CVC.N, $14.02) CBS Corp (CBS.N, $35.53) Charter (CHTR.OQ, $70.28) Cheil Worldwide (030000.KS, W22,300) Clear Channel (CCO.N, $6.55) Comcast (CMCSA.OQ, $36.62) comScore (SCOR.OQ, $13.7) Corus Entertainment Inc (NVS) (CJRb.TO, C$23.14) CTC Media (CTCM.OQ, $8.68) Cumulus Media (CMLS.OQ, $2.19) CyberAgent, Inc (4751.T, ¥148,500) Daily Mail & General Trust (DMGOa.L, 527.5p) Daum Communications Corp (035720.KQ, W89,400) Dentsu (4324.T, ¥2,038) Dice Holdings Inc. (DHX.N, $8.58) Discovery Communications, Inc. (DISCA.OQ, $57.87) DISH Network Corp. (DISH.OQ, $35.3) eBay Inc. (EBAY.OQ, $51.4) Entercom (ETM.N, $6.55) Entravision (EVC.N, $1.2) Expedia (EXPE.OQ, $60.94) Focus Media (FMCN.OQ, $23.96) Fuji Media Hldg (4676.T, ¥117,900) Gannett (GCI.N, $17.66) Google, Inc. (GOOG.OQ, $661.15) Groupon Inc. (GRPN.OQ, $3.81) Hakuhodo DY Hldg (2433.T, ¥5,070) Havas (EURC.PA, €4.07) HT Media (HTML.BO, Rs98.05) InterActiveCorp (IACI.OQ, $42.9) Interpublic Group (IPG.N, $10.23) Ipsos (ISOS.PA, €27.0) ITV (ITV.L, 96.8p) Jagran Prakshan (JAGP.BO, Rs102.1) JCDecaux S.A. (JCDX.PA, €17.19) John Wiley (JWa.N, $42.06) Johnston Press (JPR.L, 12.375p) Lagardere (LAGA.PA, €22.285) Lamar Advertising (LAMR.OQ, $39.95) Liberty Global (LBTYA.OQ, $57.29) Lions Gate (LGF.N, $16.39) Macquarie Group (MQG.AX, A$31.15) Macquarie Radio (MRN.AX, A$0.6) McClatchy (MNI.N, $3.25) McGraw-Hill (MHP.N, $51.89) MCOT Public Company Limited (MCOT.BK, Bt34.75) Media General (MEG.N, $4.2) Mediaset (MS.MI, €1.292) Mediaset Espana Comunicacion (TL5.MC, €4.245) Megacable Holdings, S.A.B. De C.V. (MEGACPO.MX, $32.49) Microsoft Corporation (MSFT.OQ, $27.4) Moneysupermarket.com (MONY.L, 154.4p) Monster Worldwide Inc. (MWW.N, $5.6) Morningstar (MORN.OQ, $63.0)

27 November 2012


Naspers (NPNJn.J, R539.99) Netflix, Inc. (NFLX.OQ, $82.13) New York Times (NYT.N, $8.11) News Corporation (NWSA.OQ, $24.12) NHN Corp (035420.KS, W265,000) Nielsen Holdings (NLSN.N, $28.26) Nippon Tv Hldg (9404.T, ¥1,064) Omnicom Group Inc. (OMC.N, $47.49) Pearson (PSON.L, 1184.0p) Priceline.com (PCLN.OQ, $639.99) ProSiebenSat.1 (PSMG_p.DE, €21.64) Publicis (PUBP.PA, €43.26) Quebecor, Inc. (QBRb.TO, C$37.69) Reed Elsevier PLC (REL.L, 624.0p) Rogers Communications (NVS) (RCIb.TO, C$43.25) Saga (SGA.A, $44.07) Scripps Networks (SNI.N, $59.77) Seven Network (SVW.AX, A$7.37) Shaw Communications (NVS) (SJRb.TO, C$21.26) Sina Corporation (SINA.OQ, $47.29) Singapore Press Holdings (SPRM.SI, S$4.1) Sirius XM (SIRI.OQ, $2.765) Sky Deutschland AG (SKYDn.DE, €3.959) SKY Network (SKT.NZ, NZ$5.07) Sohu.com (SOHU.OQ, $38.48) Star Publications (STAR.KL, RM2.99) Sun TV network (SUTV.BO, Rs379.65) Televisa (TV.N, $23.37) Telstra Corporation (TLS.AX, A$4.22) TF1 (TFFP.PA, €7.476) The Directv Group Inc (DTV.OQ, $48.99) The Washington (WPO.N, $344.11) Thomson Reuters Corporation (TRI.N, $27.45) Time Warner, Inc (TWX.N, $46.51) Torstar Corporation (NVS) (TSb.TO, C$7.03) Trinity Mirror (TNI.L, 79.5p) TripAdvisor, Inc (TRIP.OQ, $37.92) TV Asahi (9409.T, ¥1,099) TV Azteca (AZTECACPO.MX, $8.34) TVB (0511.HK, HK$57.3) Viacom (VIAB.OQ, $50.11) Virgin Media (VMED.OQ, $34.24) Walt Disney Company (DIS.N, $49.03) Wesfarmers (WES.AX, A$35.02, UNDERPERFORM, TP A$31.5) Woolworths (WOW.AX, A$28.55, UNDERPERFORM, TP A$25.3) Wolters Kluwer (WLSNc.AS, €14.54) WPP (WPP.L, 846.0p) Yahoo Inc. (YHOO.OQ, $18.78) Yahoo Japan (4689.T, ¥27,140) ZNL (ZEEN.BO, Rs18.07)

Disclosure Appendix

Important Global Disclosures

I, Samantha Carleton, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

27 November 2012


Price and Rating History for APN News & Media (APN.AX)

APN.AX Closing Price Target Price

Date (A$) (A$) Rating

12-Dec-09 2.25 2.46 N

24-Feb-10 2.26 2.71

19-Aug-10 1.93 2.31 O

25-Feb-11 1.76 2.17

21-Mar-11 1.54 1.85

04-May-11 1.47 1.61 N

18-Jul-11 1.22 1.44 O

18-Aug-11 0.78 1.20

02-May-12 0.84 1.10

18-Jul-12 0.60 NR

* Asterisk signifies initiation or assumption of coverage.

N EU T RA L

O U T PERFO RM

N O T RA T ED

Price and Rating History for carsales.com.au (CRZ.AX)

CRZ.AX Closing Price Target Price


28-Jan-10 4.59 5.06 N

25-Feb-10 4.90 5.32

19-Aug-10 5.07 5.71

23-Feb-11 5.05 6.03 O

07-May-12 5.45 6.45

18-Jul-12 6.14 NR


N EU T RA L

O U T PERFO RM

N O T RA T ED

Price and Rating History for Focus Media (FMCN.OQ)

FMCN.OQ Closing Price Target Price

Date (US$) (US$) Rating

31-May-10 15.69 49.00 O

30-Aug-10 18.82 R

31-Aug-10 19.09 24.00 O

12-Nov-10 24.00 29.00

25-Nov-10 24.42 30.10

11-Mar-11 28.80 33.60

15-Mar-12 26.34 34.40

21-Mar-12 28.59 35.30

14-Aug-12 25.25 R


O U T PERFO RM

REST RICT ED

27 November 2012


Price and Rating History for Fairfax Media (FXJ.AX)

FXJ.AX Closing Price Target Price


28-Jan-10 1.75 2.21 O

23-Feb-10 1.77 2.34

24-Feb-11 1.35 1.94

03-May-11 1.21 1.73

18-Jul-11 0.92 1.39

02-May-12 0.70 1.19

18-Jul-12 0.56 NR


O U T PERFO RM

N O T RA T ED

Price and Rating History for News Corporation (NWS.AX)

NWS.AX Closing Price Target Price


12-Jan-10 17.74 14.50 N

03-Feb-10 17.78 15.50

06-May-10 18.69 17.00

17-Sep-10 16.42 16.00

25-Mar-11 17.75 18.00

19-Oct-11 16.80 17.55

03-Nov-11 17.21 17.56

20-Jan-12 19.15 17.29

23-Jan-12 18.85 17.16

09-Feb-12 18.91 18.54

20-Apr-12 18.82 19.35

26-Apr-12 18.90 19.39

10-May-12 20.16 19.78

16-May-12 20.05 20.13

01-Jun-12 19.85 *

18-Jun-12 20.22 19.79 N

03-Jul-12 22.27 19.52

16-Aug-12 22.57 21.93

27-Aug-12 22.75 22.15

08-Oct-12 25.14 23.00


N EU T RA L

Price and Rating History for Prime Media Group (PRT.AX)

PRT.AX Closing Price Target Price


01-Dec-09 0.71 0.70 U

08-Feb-10 0.82 0.77

21-May-10 0.74 0.80 N

18-Jul-11 0.69 0.80 O

18-Jul-12 0.68 NR


U N D ERPERFO RM

N EU T RA L

O U T PERFO RM

N O T RA T ED

27 November 2012


Price and Rating History for REA Group (REA.AX)

REA.AX Closing Price Target Price


28-Jan-10 9.16 10.09 N

26-Feb-10 10.60 11.70

22-Feb-11 12.53 13.34 U

18-Jul-11 11.75 13.34 N

21-Feb-12 13.61 14.45

18-Jul-12 13.97 NR


N EU T RA L

U N D ERPERFO RM

N O T RA T ED

Price and Rating History for Seek (SEK.AX)

SEK.AX Closing Price Target Price


28-Jan-10 6.50 7.93 O

17-Feb-10 7.15 8.86

11-Mar-10 7.41 9.11

21-May-10 7.04 9.76

18-Jul-11 6.44 8.68

18-Jul-12 6.15 NR


O U T PERFO RM

N O T RA T ED

Price and Rating History for STW Communications Group (SGN.AX)

SGN.AX Closing Price Target Price


10-Feb-11 1.20 1.64 O

18-Jul-11 1.02 1.27

18-Jul-12 0.97 NR


O U T PERFO RM

N O T RA T ED

27 November 2012


Price and Rating History for Seven West Media Ltd (SWM.AX)

SWM.AX Closing Price Target Price


28-Apr-10 7.81 8.50 N

05-Aug-10 6.88 7.60

21-Feb-11 6.34 6.27

18-Apr-11 5.10 5.50

16-May-11 4.23 4.40

18-Jul-11 3.82 4.68 O

26-Jul-12 1.52 NR


N EU T RA L

O U T PERFO RM

N O T RA T ED

Price and Rating History for Southern Cross Media Group (SXL.AX)

SXL.AX Closing Price Target Price


26-Oct-11 1.16 1.42 O

18-Jul-12 1.14 NR


O U T PERFO RM

N O T RA T ED

Price and Rating History for Ten Network Holdings (TEN.AX)

TEN.AX Closing Price Target Price


30-Jan-10 1.40 1.58 N

09-Feb-10 1.52 1.68

21-May-10 1.51 1.76

24-Feb-11 1.22 1.33

18-Jul-11 1.00 1.27 O

27-Oct-11 0.87 1.34

08-Feb-12 0.84 1.19

18-Jul-12 0.49 NR

* Asterisk signifies initiation or assumption of coverage. N EU T RA L

O U T PERFO RM

N O T RA T ED

27 November 2012


Price and Rating History for Trade Me Group Ltd (TME.AX)

TME.AX Closing Price Target Price


30-Jan-12 2.23 2.56 O

31-Jan-12 2.18 2.57

20-Feb-12 2.44 2.58

22-Feb-12 2.45 2.60

26-Feb-12 2.45 2.59

26-Apr-12 2.75 3.00 N

16-May-12 3.13 2.95

04-Jun-12 3.06 2.96

18-Jul-12 2.85 NR


O U T PERFO RM

N EU T RA L

N O T RA T ED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of October 2, 2012 Analysts’ stock rating are defined as follows :

Outperform (O) :The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% or more, (depending on perceived risk) over the next 12 months.

Neutral (N) :The stock's total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months.

Underperform (U) :The stock's total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months.

*Relevant benchmark by region: As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms represe nting the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American, Japanese, and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Ze aland are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relat ive attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively.

Restricted (R) :In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V]:A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts' sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight:The analyst's expectation for the sector's fundamentals and/or valuation is favorable over the next 12 months.

Market Weight:The analyst's expectation for the sector's fundamentals and/or valuation is neutral over the next 12 months.

Underweight:The analyst's expectation for the sector's fundamentals and/or valuation is cautious over the next 12 months.

*An analyst's coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe(%) Of which banking clients (%)

Outperform/Buy* 42% (52% banking clients)

Neutral/Hold* 40% (48% banking clients)

Underperform/Sell* 15% (41% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

27 November 2012


Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Fairfax Media (FXJ.AX)

Method: We have a $0.40 per share target price. This is based on our most likely Sum of the Parts valuation of $0.42 per share. We apply a 3% discount to our valuation due to ESG concerns.

Risk: The main risks to our $0.40 per share target price for FXJ are changes to circulation, advertising and digital revenues as well as potential asset sales.

Price Target: (12 months) for STW Communications Group (SGN.AX)

Method: Our target price of $1.24 per share is based on our DCF valuation of $1.27 (WACC 10%, terminal growth 2%). We apply a 2% discount due to governance issues.

Risk: The main risks to our $1.24 per share target price for SGN are changes to advertising spend in Australia and Asia, potential acquisitions and key person risk in each business.

Price Target: (12 months) for APN News & Media (APN.AX)

Method: Our target price of $0.23 per share is based on our Sum of the Parts Valuation. We apply a 3% discount to our valuation due to governance issues.

Risk: The main risks to our $0.23 per share target price for APN are changes to advertising spend, further digital acquisitions or key person risk in the founding entrepreneurs of the digital businesses, potential asset sales or partnerships in the publishing businesses or changes to the ownership structure of outdoor or radio with Clear Channel or Quadrant Private Equity.

Price Target: (12 months) for Seven West Media Ltd (SWM.AX)

Method: Our target price of $1.80 per share is based on our Sum of the Parts valuation of $1.89 per share. We apply a 5% discount due to governance issues.

Risk: The main risks to our $1.80 per share target price for SWM are material changes in advertising, TV ratings, circulation and management.

Price Target: (12 months) for carsales.com.au (CRZ.AX)

Method: Our target price of $8.80 per share is based on our Sum of the Parts valuation of $8.80 per share

Risk: The main risks to our $8.80 per share target price for CRZ are changes to advertising spend, changes to motor vehicle sales and potential acquisitions.

Price Target: (12 months) for Trade Me Group Ltd (TME.AX)

Method: Our target price of A$3.70 per share is based on our Sum of the Parts Valuation of A$3.82 per share. We apply a 3% discount due to governance issues.

Risk: The main risks to our A$3.70 per share target price for TME are changes to advertising spend, changes to New Zealand economic growth, potential acquisitions and the potential sell down of FXJ's remaining stake.

Price Target: (12 months) for News Corporation (NWS.AX)

Method: Our target price of A$27.00 per share is based on the average of our DCF valuation of $32.30 (WACC 11%, terminal growth 3%) and Sum of the Parts valuation of $27.70 per share, adjusted for a 10% ESG discount.

Risk: The main risks to our A$27.00 per share target price for NWS are changes to advertising spend, changes to management and corporate governance..

27 November 2012


Price Target: (12 months) for Seek (SEK.AX)

Method: Our target price of $6.93 per share is based on our Sum of the Parts valuation. We have a $9.00 per share DCF valuation (WACC10%, terminal growth 3%).

Risk: The main risks to our $6.93 per share target price for SEK are changes to unemployment, online job ads, advertising and potential acquisitions or divestments.

Price Target: (12 months) for Prime Media Group (PRT.AX)

Method: Our target price of $0.86 per share is based on the average of our DCF valuation of $1.00 per share (WACC 10%, terminal growth 1.5%) and 9x one year forward earnings of $0.77 per share. We apply a 3% discount to our weighted valuation due to governance issues.

Risk: The main risks to our $0.86 per share target price for PRT are changes to advertising spend, changes to Seven's commercial revenue share and changes to the affiliation agreement with Seven.

Price Target: (12 months) for Southern Cross Media Group (SXL.AX)

Method: Our target price of $1.00 per share is based on our Sum of the Parts Valuation of $1.00 per share.

Risk: The main risks to our $1.00 per share target price for SXL are changes to advertising spend, TEN's commercial revenue share or SXL's radio ratings.

Price Target: (12 months) for REA Group (REA.AX)

Method: Our target price of $19.76 per share is based on our Sum of the Parts valuation of $20.81 per share. We apply a 5% discount to our valuation due to governance issues.

Risk: The main risks to our $19.76 per share target price for REA are changes to advertising spend, changes to property sales, changes to global growth rates and potential acquisitions.

Price Target: (12 months) for Ten Network Holdings (TEN.AX)

Method: Our target price of $0.33 per share is based on our DCF valuation of $0.35 per share (WACC 11%, terminal growth 1.5%). We apply a 5% discount to our valuation due to governance issues.

Risk: The main risks to our $0.33 per share target price for TEN are changes to TV ratings, advertising revenue or management.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (SWM.AX, NWS.AX, SEK.AX, REA.AX, FMCN.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (SWM.AX, NWS.AX, FMCN.OQ) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (FMCN.OQ) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (SWM.AX, NWS.AX) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (SWM.AX, NWS.AX, FMCN.OQ) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (FXJ.AX, APN.AX, SWM.AX, CRZ.AX, NWS.AX, SEK.AX, REA.AX, FMCN.OQ) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (FMCN.OQ) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (FMCN.OQ).

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (FXJ.AX, SXL.AX).

Credit Suisse has a material conflict of interest with the subject company (FMCN.OQ). Credit Suisse is the financial advisor and will provide financing to a consortium of Focus Media's existing shareholders and private equity fund buyers in relation to the 'going private' proposal of Focus Media Holding Limited.

Important Regional Disclosures

Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report.

27 November 2012


The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (FXJ.AX, SGN.AX, APN.AX, SWM.AX, CRZ.AX, TME.AX, NWS.AX, SEK.AX, PRT.AX, SXL.AX, REA.AX, TEN.AX, FMCN.OQ) within the past 12 months

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Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

Credit Suisse has sent extracts of this research report to the subject company (FXJ.AX, SGN.AX, APN.AX, SWM.AX, CRZ.AX, TME.AX, NWS.AX, SEK.AX, PRT.AX, SXL.AX, REA.AX, TEN.AX) prior to publication for the purpose of verifying factual accuracy. Based on information provided by the subject company, factual changes have been made as a result.

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Principal is not guaranteed in the case of equities because equity prices are variable.

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To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Equities (Australia) Limited….Samantha Carleton ; Lucas Goode

Important MSCI Disclosures

The MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create and financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Credit Suisse.

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-part data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.

CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

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For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.

27 November 2012


Equity Research

Australian Media & Internet Sector - Outlook 2013_print.doc

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