Ask Us Anything: The dwindling radio industry + How did the market get GYG so wrong?

0:00I'm Adam Schwab. I'm Adir Shifman. And this is The Contrarians with Adam and Adir.

0:09And we're back. Episode 184, Ask Us. Anything where you've asked us the questions and we do our best to answer them. Over to the chief question asker, Mike. All right. This question comes in from Lauren over on LinkedIn, and it's kind of related to something we spoke about on the most recent main pod. With Nine selling off major radio stations like 3AW and 2GB, and your recent discussion of Kyle and Jackie O's explosive ending, does this signal that traditional radio has no real growth story left? Or is there still a strategic role for radio in a modern media portfolio? What does it mean? Is there a strategic role?

0:49Do they mean, is radio a good investment? Or do they mean, if you're involved in marketing, do you think that radio still has a role as part of your marketing mix? How would you interpret it? I interpret it as the first, but obviously the second input has an influence on the first. I think it's still a good marketing medium if you know precisely the audience you're targeting and where and how you can target that audience and you get a good price. Then radio can be good. It can be good for amplifying awareness, mainly is how I would see it. But you really have to target that audience. In terms of like the first one, the demise of radio has been surprising to me.

1:32Like the demise of free-to-air TV is not surprising to me. Who the hell wants to watch free-to-air TV when you can stream whatever you want, whenever you want, and Netflix is spending a trillion dollars on every show they're making? Like, so I get free to air TVs decline. But the thing about radio is this. In the car when people are driving, lots of people are still listening to radio. And you know that's true because like the ratings for talkback radio are just as high as ever. So I don't really understand how radio has found itself in this terrible situation. Like, what do you think has gone on there?

2:10Like, what has caused this? I think there's two pretty obvious things. One is, also whatever he's listening to right now, podcasts, which are obviously impacting talk radio. Because essentially, podcasts are talk radio on demand. And better than talk radio, there's ads, but you can manipulate the ads differently. And also, the ads are probably better ads. So I think it's just a better experience. And you can also micro-target. So if you like true crime, if you like business, if you like sport, there's podcasts that really are sort of targeted at every type of demo. So I guess on the flip side, most of the big radio stations or radio networks have a big interest in podcasts as well.

2:48So be it Nine, obviously with Nine Podcasts who we work with. ARN's got a podcast stable who obviously Cole and Jackie have been with. Listeners part of the Southern Cross Osterio Channel 7 network. Listeners are really big. So all the big radio networks have very significant podcast networks. The thing is podcasting is currently generally less profitable than radio unless you're in a quiet or a really specific niche. So that's kind of what's going on is that if you ask a radio station, what does your reach look like today versus 10 years ago, a radio network? They'll all say our reach is the same or expanded versus 10 years ago.

3:27But what they mean is the broadcast reach has declined significantly and we've made it up on streaming reach, but we can't monetize the streaming reach like the good old days of broadcast reach, I guess. There's definitely that element. And I think the second element is Spotify slash Apple Music. So I think that's eaten right into the music state. So when I'm in the car, we, and with the kids, we're almost always listening to Apple Music, which happens to be what we use or would be Spotify. And much more, I used to always be listening to Kiss FM or Fox FM or whatever it is. Not that I never do, but I listen less.

4:00I think niche stations have held up pretty well. I think it's clearly the talk stations have got this great brand and that's, and we talk about brand as a moat. And I think that the loyalty of 3AW and 2GB especially remains really strong. SEN as well for its sports niche remains really strong. I just think that the radio has been chipped away significantly by podcasts and streaming, which are generally, not always, but generally better mediums. And even if they're not better, they've taken a big audience share away. So yeah, we could see maybe 3AW is still rating 18%, but 18 % of a smaller pie.

4:32So I think if you look at the massive drop off in revenues for radio stations, it's really because of that. And it's hard to blame the execs of radio stations. What can you do? This is just a sort of horse and cart moment for radio stations, really. That's a good point. So I just had a quick look because I felt like it would be good with a small amount of data in answering this question. And so it turns out there's a couple of interesting things. One is that I'm going to call it free to air. I really mean broadcast radio, but like all this broadcast stuff, the listenership has plummeted in the last 10 years.

5:03AM, FM, it's all, I don't want to say it's halved. It hasn't halved. AM's almost halved, but it has dramatically reduced. And the key reason seems to be, from what I gather, like no one listens to radio at home anymore. Like no one's putting the radio on while they're like cooking. They're putting streaming music on while they're cooking or whatever, or a podcast. the other amazing thing is this like the little bits of data that i just grabbed now it seems like 50 of australians listen to a podcast every week at least one point that is a shocking number as in i am shocked at how high that number is i didn't i'm shocked it's not higher it's such a great experience why wouldn't you listen to this podcast if you why i'm 25 million australians listening to victorians every week is the bigger question well i don't know i think that maybe i'm bringing down the average listenership if I'm fair about it.

5:53But so I am surprised one in two people is listening. One in two listeners is listening to a podcast every week. And so when I think about this, like this mismatch in dollars, there's no reason for the auditory medium to have dropped total advertising dollars. Like unless fewer people are listening to stuff like that can run ads, I don't see any reason why the total dollar value shouldn't be rising. Because actually, as you get more fragmented in some ways, like you can get more precise in the audience you're targeting. And so I think this reminds me a bit of the lag that I remember seeing in digital media.

6:37So there was this time where you looked at a graph of media mix, And what you would see is you could graph the number of eyeballs, let's call it, versus the dollars going to that medium. And what you saw is that print newspapers were falling dramatically, but they were still having all this money. And Free to Air was falling dramatically, but they still had all of this advertising money. And digital websites, this is like 15 years ago, were rocketing, but they had no money attached to them. And I just went and bought Image shares. Remember that company, Image, the online Mitchell's business? I was like, I just buy that because I am sure that the money will follow the eyeballs eventually.

7:16And that's what has happened, right? And so I think in this medium, maybe we can say the money will follow the incus. You know what the incus is? It's like one of the three tiny bones in the middle of your ear. Yeah. So, you know, the three bones, this is like an anatomy lesson, the mellius, incus and stapes. I'll tell you one interesting fact apropos of nothing, just we're talking about it. So the malleus, which sounds like a mallet, that's a hammer. So that hits against, like it's the last bone and that's what percusses to create the nerve impulses that transmit as sound into your brain. And so, you know, like the airwaves come in and they get transferred by these bones and they create nerve impulses by banging against like the inner ear.

7:59And so just this is an interesting fact. Here's a one, this is a first quiz we've ever done. One question on a Q &A session. How many times a second do you think that that meleus can bang against the side to create nerve impulses that transmit sound? How many times a second? A hundred times a second. Right. What do you say? Ten thousand. Well, you're not far off. It's 20 ,000 times a second. Wow. So that's how you can get so much precision in different kinds of sounds that you're hearing in different places. and you know that was someone dropping a brick on the concrete because there's actually a podcast which I don't encourage you to listen to because it takes away time from listening to our podcast that's called 20 ,000 Hertz.

8:42It's all about sound and sound engineering and it references that 20 ,000 Hertz of like the malleus pounding to create nerve impulses. So I think that ultimately like the money will follow what people are listening to and maybe we're in the trough of monetization of listening minutes at the moment. But I'm not sure. I think we might be though. My suspicion of what happens is the money starts moving. We've seen sort of cash flow to podcasts, but it's really been scooped up by a really small number of massive podcasts, the Joe Rogans, the Acquired, the big podcasts are getting aligned, the Scott Galloways.

9:22What we haven't seen is a general rush of cash to podcasts. So, obviously, our podcast has incredibly high CPM because we generally do brand ads. We'll script them and we'll effectively only work with advertisers we know and like and we'll give our brand endorsement to them. So, I think there'll be a lot more money flowing to especially trusted podcasts. I think you're totally right. It very much feels like Google 2006, 7, 8 where millions of people, billions of people were using it but companies hadn't flipped their spend across. They were still using newspapers and TV stations and radio stations.

9:56So we saw that come across to Google over the next really 15 years. Now obviously Google's dominant and we actually saw YouTube now does more revenue than like Paramount, Warner Brothers and Disney combined or something like that, Disney X the Park. So we've seen it come across to digital means really over the last 15 years. And I think in the next 15 years we'll see the same for podcasts. So the biggest question with all of this is, like the question with all media fragmentation in an environment where distribution is no longer the core asset, before the internet, you had to buy spectrum and you could transmit radio waves, which are actually a kind of light wave.

10:33Do you realize that? So radio waves, you had to buy spectrum to transmit on certain frequencies. It's very long waves, radio waves, long light waves. And now you don't have to buy any spectrum to transmit anything because you send it along internet-wise. Electrons, also light, I should add. And so basically, we're in a situation today where it is unclear that these large networks that have traditionally been strong because they tied up distribution, whether those networks can have a large pool of podcasts that they can monetize and maintain their revenue base, or whether we are just going to see things like Joe Rogan but on much smaller scales, although he is part of a network, just not a traditional radio network.

11:15Like I don't know how it's going to play through, but it's not obvious to me that the traditional radio networks are the natural home of the podcasting world. Can I just correct? I think I might have incorrectly said, I don't know what I said now. I think I said maybe the mellius hits the inner ear, but it's like the stapes is connected to the inner ear. I just don't want doctors ringing and saying, this guy, he remembers nothing. Mark, next question. All right. This question comes in from Dennis Friedman. Thank you, Dennis. He asks, Adir and Adam, we often celebrate the contrarian who is right and makes a fortune.

11:49But in your experience, what is the specific tell that separates a visionary from a person who is simply a stubborn crank? At what point does holding a minority opinion stop being a competitive advantage and start being a personal or professional liability? When you're consistently wrong and you don't adapt. I always say the same thing. There are three things you need to be successful, to be really successful. Hold a view that's different from the view that other people hold, that's being the contrarian. Go like really hard on it, bet on it heavily, go all in on it and then be right. And if you don't have the third bit, then the other two bits just compound your problems.

12:29And so I think like contrarians are often wrong. I would say, Adam, you and I are like often wrong about stuff and we will very openly say, oh yeah, I think, I mean, I'll speak for myself. Like my knee-jerk reaction is if large groups of people believe one thing, I will be inclined to believe the opposite. And so, but sometimes large groups of people believe the right thing, like run away from that lie and would be a good thing to believe, right? And so running towards that line, no matter the fact that it's contrarian, that's not going to deliver you being right as point number three. And so I think eventually, maybe what I'd say is either you have to be right more than you're wrong or probably more likely, you have to make contrarian bets in such a way that the wrong ones don't really damage you too badly and a few of the right ones you get right give you massive upside.

13:16And if you can't do that, then you're just a, I don't know what you'd call a contrarian that just does the opposite to be difficult. I know what it is in Hebrew. I just don't know what I call it in English. Like an obstinate form. Obstinate, exactly. You're just obstinate, right? And you don't have to bet on it with money. Like if you're going to go to someone and make all these predictions, let's say about sport, and they're all contrarian, and you're almost always wrong, and when you're right, it just feels a bit random and the size of being right is the same as the size of being wrong, then I don't think that's very good at all.

13:52So that's what I think the difference is. It's just like outcomes. It's such a fascinating question. Malcolm Gladwell, I think it was in his book, David and Goliath, but correct me if I'm wrong, listeners, but I think that was the book. And he talked about people who have a really high default to truth. And that's essentially people who don't believe stuff. And I think we're probably both in, I know we're both in that category, possibly too much so. And he used a great example. Remember the short seller who called Enron, I think it was Jim Chanos. And there was also the guy who broke the Madoff story.

14:20So these are people who warned about Cassandras in many ways, who warned about the upcoming sort of apocalypse. and to be a Cassandra or to be a contrarian, you've got to go against popular wisdom. So you've got to, 90 % of people have to think you're a fool if you want to be a contrarian. Otherwise, you're just following the masses. So you do generally look stupid almost always at the time of making the prediction. But Gladwell talks about these people who have a high default to truth. And he basically said that these people make sort of great short sellers and great investigators and great certain things.

14:51But if everybody was like this, society would fall apart because they're generally argumentative. that can sometimes be a little bit less likeable because they really take positions that people don't like and not go along with the crowd. So it was super fascinating to Gladwell's take on it and he does this kind of stuff really well. Don't you think that's totally obvious what you just said? I'm not diminishing you or him, but when I look at you, I say it's obvious to me why Adam is such a good contrarian. Number one, you're very smart and analytical. I think that's a good baseline to start with.

15:21It's hard if you don't have those things. Number two, you believe that everybody basically operates on the same agency cost, which is I'm more concerned about not fitting in than being right. And so I would rather go off the cliff with every other lemming than stay on the cliff if the fun thing that everybody did was went off. And I think that is like the agency cost that you see so crystal clearly. and then you get this incredible enjoyment out of everyone telling you that you are wrong in the most aggressive way possible for an extended period of time. It just cements your view that you're right and it makes you even more confident to stick to it.

16:03And so I think you have all of those characteristics. That is what – you're one of the best contrarians I've ever met. And so I think – but you need those characteristics And I think if you are nervous about – if being right is not more important – I don't want to say being right is more important. Like I don't think you just want to be right. Ha, ha, I'm right. But like truth is a good word. If sticking to the truth is less important to you, to one, than fitting in, you cannot operate as a contrarian. It's impossible. I think Jeff Bezos in his – you know, Jeff Bezos used to have those 20 or 19 or whatever.

16:40Amazon sort of principles. And one of his principles were founders tend to get it right, or like founders are right most of the time. I think both you and I are founders. And I think if you found a somewhat successful business, obviously, you've got to have a lot of luck to be successful. But let's put the luck aside for a second. I think if you found a business, you've got to, almost every founder is contrarian because you've got to be disrupting and incumbent. And you essentially, most people who found a business, people are looking at them and laughing and saying, oh, that guy, this business isn't going to work.

17:08Like whatever business you're in, Catapult's not going to work or whatever business you're in for, Global Review's not going to work. And ultimately they all did work. And ultimately you were contrarian in your views and you were right. And I think most founders, actually all founders, have both those characteristics. I think the other thing though is a good founder or a good CEO also knows when to pull up stumps. So you can flog a horse to the point where the horse is sort of almost there. But eventually you've got to go, oh, actually, I've extracted everything I can from this and it's time to move on and cut the loss and it's a sunk cost or whatever it is so I think you've got to back yourself to a point and that point is way further than anybody else imagines it will be but there does become a point where you've got where I've got to sell brands exclusive in the home to Gabby and Hesse because it's losing too much money where we have to sell our my table business to Gabby and Hesse as well because it was losing too much money so there comes a point where we try the best we can with something and and we realize actually this horse is dead or dying and there's no point continuing to flog it.

18:06But there's also businesses that look dubious that turn out really good and you've got an asymmetric bet. Essentially, founding a business is the ultimate power law. If you get it right, it's a million X. And if you get it wrong, well, you've lost your X. All right. Well, I'll draw one more line between with Contreras. So I think the first-time founder, let's not say first time, The young founder that's relatively new to the world of business, their key advantage is ignorance. Like they don't understand what's impossible and therefore they'll try things that I think experts or gurus or sophisticates will say, well, that can't be done.

18:46I've seen people try that before. That can't be done. So that ignorance is a huge advantage. I think that is the driver of a lot of their contrarianism like it is easy to have a lot of self-belief when you haven't failed badly before or seen a lot of things fail or like life has been hard for you and you've managed to push through it like that's easy to be a contrarian then I think there's this other group of contrarians who are people with a lot more experience that fundamentally understand how the world works in a very clear-eyed way where, again, you might say, so everybody gets caught up in the euphoria of stock market bubbles.

19:25But we've had this bubble in 2000 and we've had this bubble at other times and we've had a financial crisis that was built on property with derivatives on derivatives on derivatives. And then you start seeing these things again. But a whole lot of people are just kind of not thinking about it or forgot it or caught up in it, whereas you would say, well, this is just going to revert to the mean. That's your wisdom, right? And it sounds flippant. Lots of people say it, but not many people really believe it and act on it and say, I'm sure about it. This is going to revert to the mean. And I think that's a different kind of contrarianism.

20:00It's like this clear-eyed understanding of how the world works. And I'm not going to be swayed by very smart people who are otherwise sophisticated and right a lot of the time, also being caught up in saying crazy things, that's not going to make me believe the craziness. It's just going to remind me that this exact craziness happened last time as well. And it did revert to the mean. And I think, again, that's part of your contrarianism as well, is a clear eyed view of what's really going on in the world. Thank you, Eddie. We'll go to a super quick break back with our last question in a moment.

20:41and we're back my question number three question number three comes in from adrian reamer adrian asks how did the market get the gyg pricing so wrong their food isn't good their international expansion plans are delusional is it just a lack of ipos on the asx $5 by end of year? Oh, God. I think that whole question was just a ruse to say$5 by the end of the year and to get the contrarian bet in so that we'll say, wow, that was a great call. I think, you know. And so what's the current price, Adam? Just out of interest. So current price is$19 a share. It's down 41 % this year. So it was$32 this time.

21:26It's down 41 % this year. It was trading at$32 a year ago. So it was trading at a peak of, it hit$43 back in December 2024. But don't forget, it listed at, I think,$22 and then came on at$29. So it's pretty much at least price. Obviously, it has been 18 months, almost two years. Well, I love this question because this question is like 100 % like nail your colors to the mast, right? So I love that kind of thing. Firstly, I want to refute something. So their food may or may not be terrible. I happen to think it's not terrible. Although I know some Mexicans who are actually offended by the cultural appropriation of GYG, to be honest with you.

22:07But I think the food is fine. And like we can't complain about the food because they sell a ton of it. So that's gone well. They figured something that people want to buy a lot of. They have very big sales. And then the question is, what about their broader strategy? But I don't even think we need to talk about that. I think we can just say, did the market get it wrong? and if so, why did they get it wrong? Because sometimes, I'm not saying that's the case here, I know what your view is going to be of this, but like sometimes it's easier to say how did the market get something wrong when really you're making that judgment based on new information that subsequently emerged or an outcome and you're looking through what we might call the retrospective scope, which is a pretty handy little implement, but it's not a fair way to judge decisions that were made in the moment.

22:53And so number one, you think the market did get it wrong based on the information that was available at the time of the IPO or not? Well, the market price is pretty much back to the IPO price. It's roughly, it was within 10%. So I don't think it's drastically different. Just looking at a couple of, they released their half-year earnings about three weeks ago, four weeks ago. Their revenue was up year on year, 23%. EBITDA, and EBITDA is very sort of dubious in this business because of leases, but EBITDA was up 30%. underlying EBITDA was up 20 % and profit from ordinary activities after tax. So you can pretty much call that bottom line, forget all the leasing stuff.

23:29That was up 45 % to$10 million. So it's not a business that's not growing. It's definitely a business that's growing and it's definitely a business that makes money. What's the valuation? About$2 billion. So they're getting a two-bill valuation on a$10 million pre-tax profit that's growing for the half. Okay. Are their halves even? Yeah, probably pretty even. Yeah. No one's buying burritos as a Christmas present. I guess. No, I wouldn't have thought of it. It'd be pretty rough, to be honest. That's the last Christmas you're going to ever be invited to if you bring a GYG burrito as a gift. So it's getting – it's trading on 100 times pre-tax profit, essentially, on a business growing.

24:04No, sorry, that was pre-tax. You look at pre-tax profit was 19 million for the half. So I call it pre-tax of run rating 40. Okay. So – and it's growing. So it could be more than 40, right? Yeah. And so, okay, so it's like trading on, say, 40 to 50 times pre-takes profit. Yeah, exactly. Which is not cheap for fast food, but it's growing at, what'd you say, the top line's growing at 20 % or something? More than 20%. And so the thing is this, how long ago was the IPO? A year? Two years. Almost two years. So this has gone nowhere in two years. And then you can say, did it deliver what the market thought it would deliver at the time of the IPO?

24:43And the answer is no. The market thought the international expansion would have gone a lot better by now and the market's been disappointed by that. No? I'm not sure the market, like the US business was struggling back then. I don't think the market's ever given them any credit for the US business. So I think this was purely an Australian growth story. But remember the documentation in the IPO or the pitch was great Australian growth story but also we've got this international opportunity and we really know how to do drive-through which I thought was maybe a bit of a stretch at the time, right?