PETALING JAYA: The challenging operating environment is expected to dampen prospects for media companies further despite plans for more cost-saving initiatives.
This is due to the worsening performance of traditional media such as print, radio and TV subscriptions amid the structural shift to digital offerings; poor advertising expenditure (adex) outlook worsened by the Covid-19 impact; and the inability of digital revenue growth to offset traditional media declines.
However, according to AmInvestment Bank Research, cheap valuations of the companies make them viable targets for merger and acquisition (M&A) and privatisation activities.
The research house pointed out that circulation, out-of-home (OOH) and traditional radio revenues were not spared the Covid-19 impact, as fewer customers are likely to frequent newsstands and with reduced commute during the movement control order (MCO) due to more people working from home and travel restrictions.
However, two segments that were spared the Covid-19 impact were home shopping and the digital space.
Media Prima’s CJ Wow Shop’s revenue rose 18% year on year, and new registered customers rose 13% while also recording the first ever quarter of breakeven. As for its digital segment, Media Prima also a saw a 4% increase in revenue quarter-on-quarter.
Besides that, media players have shared that engagements rose during the MCO where Star Media reported increased traffic across its digital platforms, while Media Prima also reported higher engagements across its TV segment, digital segment through its news sites and increase in radio digital listeners and commerce segment.
“We believe that Covid-19 has hastened the decline in traditional media revenues as adex suffers while bringing to light the rush to strengthen digital offerings and diversify non-adex revenues,” it said.
It highlighted that with a challenging operating environment ahead, media companies need to improve operational efficiencies with more prudent cost-saving measures put in place to cushion the impact of lower revenues.
“We believe that tougher economic conditions ahead will caution advertisers and cause them to tighten ad spend. Furthermore, major sporting events such as the UEFA Europa League and the Tokyo Olympic Games have been postponed from June–July 2020 to 2021 due to the Covid-19 pandemic,” it said.
According to Nielsen Ad Intel, adex across all media stood at RM1.1 billion in first-quarter 2020.
On a year-on-year basis, traditional media segments faltered by 9% overall mainly due to the decline in newspaper and cinema ad spend.
Newspaper advertising spend, which represented 33% of total adex in first-quarter 2020, shrank 24% year on year by RM111 million, likely worsened by the cessation of operations for Utusan Group’s publications Utusan Malaysia and Kosmo! since fourth-quarter 2019, on top of the continued reduction in circulation.
AmResearch is keeping its neutral call on the sector with no top picks, but said its call could be revised to overweight if growth in digital initiatives can meaningfully offset declines in traditional media; consumer confidence recovers and adex catalysts re-emerge, translating to higher ad-spend across all mediums; and privatisation and M&A opportunities arise.
source https://www.thesundaily.my/business/cheap-valuations-make-media-companies-targets-for-ma-privatisation-HD3115922
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