A difficult road ahead for media sector

There are still no catalysts in sight as adex is expected to remain muted, alongside the absence of adex-friendly events, says analyst


ANALYSTS expect a challenging second half of the year (2H19) for the media sector as the absence of advertisement spending catalysts would weigh on the industry, while digital channels continue to eat into the market share.

Hong Leong Investment Bank Research said in a note that there are still no catalysts in sight for the sector as advertisement expenditure (adex) is expected to remain muted, alongside the absence of adex-friendly events.

The research house also warns of declining consumer sentiment.

“In the absence of significant adex-boosting events in 2H19, we reckon that traditional adex will remain muted. However, we expect to see healthy growth for digital adex, mainly coming from mobile and video advertisements.

“High Internet and smartphone penetration rates of 86% and 82% (respectively) will continue to drive digital adex, which in turn will be a bane for traditional adex due to cannibalisation as the former commands better flexibility and offer targeted advertising capability,” its analyst Khairul Azizi Kairudin said in a research note.

Kenanga Investment Bank Bhd (Kenanga IB) said the sector’s outlook remains lacklustre due to prolonged weak advertising revenue of traditional media companies as a slower economy and policy uncertainties dampen prospects.

The research house maintains its ‘Neutral’ view on the sector as total gross adex reported a decline in the first quarter of 2019 to RM1.16 billion, mainly dragged by the free-to-air TV and newspaper segments which dropped to RM536.9 million and RM457.3 million respectively.

“The decline in traditional adex was driven by the lack of key sporting events in the 2019 financial year, weak ongoing consumer sentiment and continual digital disruption.

With the lack of major events in the near term, we do not expect a lift in traditional adex in 2H19.

“On the flipside, we have reason to believe that digital adex will only expand further, premised by the gro-wing broadband and mobile cellular penetration rate in the country which should boost online content consumption,” Kenanga IB said.

Khairul Azizi, however, noted that media companies are in a cost-cutting mode to help offset flattish and decli- ning revenue.

“Acknowledging the sector headwinds, media companies have embarked on cost-cutting measures which include voluntary separation schemes and cost optimisation.

“For example, Astro Malaysia Hol-dings Bhd’s bottom line grew 0.5% year-on-year (YoY) on the back of lower broadband costs and marketing costs.

“Star Media Group Bhd also saw indirect cost savings by 14.8% YoY, and Media Prima Bhd’s direct cost was lower by 4% YoY thanks to lower content and marketing costs. These cost-cutting strategies are crucial for media companies, given their flattish/declining top line,” he said.

Khairul Azizi added that pay-TV subscription is expected to deteriorate further in view of threats from over-the-top (OTT) players, the rapid sale of Android boxes and smart TVs.

“The rapid sale of illegal Android boxes in the market is partly to blame for the decreasing customer base as it offers free content.

“It is estimated that this will result in RM1 billion in national revenue loss and potentially up to RM150 million in taxes being withheld from the government,” he said.

Khairul Azizi said the domestic OTT space is ready to enter a new phase as both Star Media and Astro have stepped up their game.

“Astro recently announced their tie-up with iQiyi, a leading online video platform based in China with more than 87.4 million active users monthly.

“Meanwhile, Star Media’s management is planning to form a strategic partnership with Dimsum, and this potentially includes telco players to expand its presence beyond the current market,” he said.

Moving forward, Khairul Azizi expects media companies to embark on more content partnerships, especially in the vernacular segment, as vernacular content is a proven strategy to attract more viewership and subscriber base.

Focus on the media sector rose a few notches recently after Umno’s 11.09% stake in Media Prima was purchased by Aurora Mulia Sdn Bhd, which has Syed Danial Syed Mokhtar Shah as one of the directors. Syed Danial is the son of Tan Sri Syed Mokhtar Al-Bukhary.