PROSPECTS for the media sector remain muted with multiple factors dragging the sector down, according to AmInvestment Bank, which has maintained a neutral call on the sector.
Among the factors weighing on the sector are the worsening performance of traditional media amid a structural shift to digital, declining print circulation, and a lacklustre advertising expenditure (adex) environment.
Meanwhile, growth in digital revenues and non-adex segments are still unable to offset the decline in traditional media.
AmInvestment cites Nielsen Media Research that on a year-on-year basis, traditional media segments such as free-to-air (FTA) television, newspaper, radio and magazine adex declined by 13%, 18%, 3% and 19% respectively due to a structural shift towards digital content.
Total newspaper circulation is still declining across the board as of 1HCY19, falling 13% year-on-year, according to the Audit Bureau of Circulations, despite excluding publications from Star Media and Media Chinese International Ltd, which withdrew their membership with the bureau. In addition, Utusan Group ceased its operations in October 2019.
The analogue switch-off for televisions was also completed on Oct 30, making Malaysia a fully-digital TV broadcast nation. AmInvestment remains neutral on this development, but noted that media players with content on FTA channels might see the benefit of MYTV’s MyFreeView initiative as the 15 channels offer better audio and video quality.
The research house remains cautiously optimistic on the Malaysian adex market, with events such as the UEFA Euro 2020 and 2020 Summer Olympics on the horizon, adding that a potential recovery in consumer sentiment for the year could boost adex revenues slightly.
“Traditional adex remains the lion’s share of the adex market when compared to digital adex,” says AmInvestment.
Meanwhile, 3QCY19 also saw muted consumer sentiment as the Malaysian Institute of Economic Research’s (MIER) Consumer Sentiment Index fell to 84.0 during the period, the lowest reading since 4QCY17 as weak job outlook weighs on income expectations with consumers limiting shopping plans due to flagging purchasing power.”
Media players have also reported encouraging growth in their digital revenues, though contributions remain in the single-digit percentages, with Facebook and Google still holding the bulk of the digital adex market.
The implementation of the digital service tax of 6%, effective Jan 1, 2020, may benefit media companies with TV and over-the-top (OTT) segments. AmInvestment sees Media Prima and Star Media as potential beneficiaries.
“However, the extent to which local players might benefit is still unknown as higher prices alone might not deter consumers from consuming the content provided by foreign OTT players such as Netflix.
“This is due to differing preferences for content where consumers might choose a mix of local services for vernacular content and foreign services for Hollywood content,” the research house points out.
The research house also notes that the cheap valuations of traditional media companies following the “collapse in share prices” make them viable targets for privatisation or merger and acquisition (M&A) activities.
AmInvestment says catalysts to upgrade the sector to overweight would come from the restoration of consumer confidence that translates to higher ad-spend across all media, digital initiatives gaining traction and outgrowing the decline in traditional media revenues, and the possibility of privatisation or M&As.
“On the other hand, we may downgrade the sector to underweight if intense competition in the digital space continues to weigh on the monetisation of digital platforms, a longer-than-expected gestation of digital initiatives coupled with a worse-than-expected decline in traditional revenue streams impacting companies’ performance, and a significant deterioration in industry adex,” it says.
