Media on the trajectory towards earnings recovery
KUCHING: As the global pandemic continues to impact economies and consumer behaviour, media companies are looking to build resilience in their product offerings, focusing on customer needs in order to grow.
While some media players are able to pivot their business models towards more sustainable earnings contributors, the team at Hong Leong Investment Bank Bhd (HLIB Research) noted that some are still grappling with never-ending woes.
“Without a doubt, the improving macro conditions in the second half of 2020 (2H20) driven by reopening of the economy and better consumer sentiment, helped boost advertising demand to recover from the trough in April,” it summarised in a sector outlook.
“We take reference in Nielsen’s total national gross advertising expenditure (adex) statistics, in the period of SeptemberNovember 2020, adex recorded a sequential improvement of 22 per cent from June-August 2020 but down by 16 per cent year on year (y-o-y) to RM1.1 billion.
“We reckon the sequential improvement stemmed on the back of advertisers ramping up their marketing engagements hoping to gain back forgone sales. Even with the reintroduction of the second conditional movement control order (CMCO) in November 2020, adex number still continued in an upward trend.
“Despite the sequential improvements recorded after the strict MCO, the decline was still observed on the year-to-date basis by 16 per cent.”
In a separate sector review, Kenanga Investment Bank Bhd’s research team (Kenanga Research) saw that resumption of major sports events scheduled to take place in 2021 that could boost adex.
This came as Covid-19 pushed several major international sporting events – namely the EURO Champions League, 2020 Tokyo Olympics – to take a back seat.
“Barring any further rescheduling if the pandemic worsens, we expect consumers to be glued in to these events by mid-2021,” it opined.
“While this could be deemed as beneficial to television players as these events are known to be crowd-pullers, businesses might still feel the pinch from the socio-economic disruptions dealt by local movement restrictions and could be even more selective on the timing of the advertisements.”
Based on Nielsen’s 9M20 local adex statistics, non-digital media platforms were slapped by a 19 per cent y-o-y decline with cinemas and publications being the hardest hit.
“These segments have been affected by movement control bumpers which we believe will only persist and possibly worsen
the longer controls are dragged on,” Kenanga Research added. “It does not help that consumers have easy access to digital alternatives which aggravates their exposure to competitor content as well.
“With digital media gaining even more importance, media players are incorporating
more strategies to boost their respective presence accordingly. However, competition mostly consists of huge international players and social media platforms.
“To gain leverage, corporates offer integrated advertising solutions and data analytics to produce more effective marketing to advertisers. During this period, various home shopping and e-commerce platforms tied to market leaders have enjoyed some meaningful traction as consumers become more familiar with the brands.
“However, we are wary of their co-dependence on how well the parent brands are able to garner consumer attention. With declining top-lines, continuous cost rationalisations are maintained as more redundancies are exposed with certain segments becoming less relevant.
“The past year has seen multiple instances of manpower rightsizing with some notable closures as operating environments become unsustainable. In line with our above sentiment, we do not anticipate media players to be able to breathe easy just yet.
An interesting trend observed by HLIB Research is the decline of global pay-TV. Based on Digital TV Research, global payTV revenue will fall to US$152 billion in 2025, down from the peak of US$202 billion in 2016. The pay-TV decline is due to the growing adoption of streaming services.
“Additionally, the pandemic has accelerated the cord-cutting momentum as the health crisis contributed to a tail off economy and the absence of live sports.”