Traditional media companies are facing structural changes in their markets. The advertising market is experiencing significant shifts, media consumption is going digital and the Internet is leading to greater international competition. However, digitisation also offers opportunities for growth in the long term. While traditional print media – newspapers and magazines, for example – have a great deal of catching up to do, television has been quick to embrace the online channel as a new platform for distributing content. At the same time competition is increasingly fierce in this segment, with new operators on the market and the emergence of streaming content. This is the conclusion that ABN AMRO presents in the Media Update that was published on 2 October.
Consolidation of the newspaper market
Between 2008 and 2014 traditional print media were hit by plummeting circulation figures. Newspapers lost around a fifth of their readerships, and magazines more than a third. Despite the efforts of publishing houses to retain the existing gross margins by slashing costs, in euros the gross earnings showed a visible decline. These poorer results have impacted the magazine and newspaper publishers in two different ways, ABN AMRO believes. The trend at newspapers has been to consolidate. De Persgroep’s acquisition of Wegener leaves the market for national and regional dailies with only two major players: De Persgroep and Telegraaf Media Groep. NRC Media was also recently put up for sale. Conversely, the magazine industry is seeking to downscale, with market leader Sanoma spinning of many of its titles to smaller operators.
Digitisation causing lasting drop in publishers’ turnover
The accumulated loss of turnover at publishing houses since 2008 is 31 percent, with advertising income for print media falling by around 12 percent per year. ABN AMRO believes that the significantly lower prices mean that the transition to digital will continue to force turnover down for now. Although costs are now lower (thanks to digital production and distribution), publishing houses are still struggling with the transformation. Despite the universal public acceptance of tablets, media have been slow to adapt their consumer habits: digital represents less than 5 percent of the total market. In ABN AMRO’s view, it is vital for publishing houses to embrace digital as the leading platform: a digital environment will enable them to better tailor products to suit consumer preferences and new forms of marketing. ABN AMRO identifies opportunities for growth in the sale of digital advertisements and subscriptions and the sale of goods. At present these operations make up only a minor part of the total turnover, though ABN AMRO expects them to rapidly become increasingly prominent as a source of income.
Battle for consumers intensifying in television
Television has shown a strong recovery in 2014, and ABN AMRO predicts a 6 percent rise in television advertising, giving television a greater share of the advertising market. However, as the market for television advertising is saturated, this advertising segment is highly sensitive to economic fluctuations. The effectiveness and as such the value of spot advertising are also diminishing, while income from sponsorship, online advertising and video-on-demand is still relatively minor. The digital transformation is not presenting much difficulty for television companies: the introduction of digital television was smooth, and television companies have been quick to embrace the Internet as a new platform for distributing content. Nevertheless, this sector too is experiencing major changes as a result of the Internet: a rapid increase in streaming content, competition from enterprises such as Netflix and Videoland and changing viewing habits of consumers. Approximately half the households in the Netherlands now use streaming content. For television broadcasters this means that spot advertising will find itself under pressure in the medium term. The challenge will be for broadcasters to compensate for this loss from their own online advertising and streaming income. The contest to win consumers’ time is intensifying; according to ABN AMRO’s data this is the case for all media, though.
"It is not all bad news for the media sectors. Most traditional media are still profitable, and television is coming back strongly in 2014. The difficulties that print media are having transitioning to a digital media landscape will not last forever. The hardware infrastructure for a digital revolution is becoming more and more comprehensive: increasing numbers of consumers now own tablets, phablets and smartphones, in addition to their laptops and desktops. This digital environment offers possibilities for achieving growth and cutting costs," explains Steven Peters, Sector Banker, Technology, Media and Telecom at ABN AMRO.