Economic Recession Effect On Pan Arab Media


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An overview of the Arab World’s Media industry in the current Economic downturn

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  • © 2004 Capgemini - All rights reserved
  • Media are essentially technologically converged in digitalisation of production the most convergence is occurring in media with similar functions, with similarities in production and distribution systems, and in those where there transferable content Less successful where business models are unclear or damage to existing structures might ensure
  • © 2004 Capgemini - All rights reserved
  • © 2004 Capgemini - All rights reserved
  • © 2004 Capgemini - All rights reserved
  • © 2004 Capgemini - All rights reserved
  • © 2004 Capgemini - All rights reserved
  • Economic Recession Effect On Pan Arab Media

    1. 1. Sources: Industry Reports Pan Arab Media Landscape ( Recession Effect) Shariq Faraz [email_address] An overview of the Arab World’s Media industry in the current Economic downturn August 2009
    2. 2. Contents Media Industry Context Economic Recession Effect References
    3. 3. Current Global Media Context Global Media & Entertainment Industry Value Total $ 1.3 Trillion ($1.3 Thousand billion; $ 13 Thousand Million Split of Total Global Value created by Various Media Percentage Split of Total Global Value Created by Various Media Source: Picard 02 Europe, Middle East & Africa 35% US & Canada 45% Asia pacific 20% Latin America 0% Traditional Media 64% Sports & Amusement Parks 15% New Media 21%
    4. 4. Cut-throat Pan Arab FTA market faces declining Ad-spend in current scenario MENA TV market increased by 1400% over what analogue framework accommodated a decade ago. High number of Free To Air channels Selected countries – 2009 Sources: Picard 2002 <ul><li>The increasing number of channels is resulting in audience fragmentation. Increase in multi-channel penetration and the lower CPMs on thematic channels accelerate this deflationary pressure on TV advertising prices </li></ul>Effect of Increasing Channels On Average Share Of Television Audience Pan Arab illustration Worsened further because of economic crisis No. Of Channels Average Share Of Television Audience US MENA UK Asia Pacific France Canada 385 428 >200 38 18 17 Increased Number of Channels Reduced Average Audience per Program Reduced Advertising Revenue/Channel/ Hour Increased Program Cost per Audience Member Reduced Profit per Channel
    5. 5. Satellite Broadcast in the Pan Arab World Free to Air Satellite Channels by Languages Free to Air Satellite Channels by Regions Free to Air Satellite Channels by Ownership FTA Satellite Channels riding Multiple Satellite to amplify reach Nilesat Arabsat Noorsat
    6. 6. Clearing the haze by categorizing 428 FTA channels on Reach & Profitability SWF under the patronage of Royals Public Broadcasters funded by Government 2% (10 channels)- The Profitable Sovereign Wealth Fund Channels getting 80% of ad-revenue <ul><li>27% (114 channels) Public broadcasters under Government patronage ,not dependent but seek for remaining 20% ad-spend </li></ul>Struggle for leftover 20% ad-revenue & viewership Enjoy approx 80% of the ad-revenue & viewership! Loss making entities to a large extent <ul><li>71% (304 channels) The No Profit Channels -loss making strive for pie of 20% ad-spend plus SMS business model </li></ul>Regional illustration Source: Arab Advisors Group Viewership & Revenue Number of FTA Channels Pan Arab FTA Market the Long Tail Phenomenon Source: Chris Anderson, 2008 Top 2% Remaining Channels- Long Tail ( but demand cycle is not repetitive in broadcasting)
    7. 7. Pan Arab TV Industry 2009 Exit list <ul><li>In the past 4 years 81 FTA have shutdown, of which : </li></ul><ul><li>24 General Entertainment </li></ul><ul><li>17 Variety </li></ul><ul><li>10 Music </li></ul><ul><li>7 News </li></ul><ul><li>4 Sports </li></ul><ul><li>3 Movie Channels </li></ul>Source: Booz Allen Hamilton Regional TV Industry is Churning Jordan Maktoob TV 8 UAE Al Shashah 9 Kuwait Kulloun Al Kuwait TV 10   Music Egypt Venus TV 11 UAE Kunouz 15 UAE M Live 14 Lebanon Shaharzad TV 13 Jordan Escape TV 12 Egypt Fun Satellite 7 KSA Al Ganadria TV 6 Variety Entertainment Iraq Al Mirbad TV 5 UAE Al Hekayat TV 4 Egypt Al Hadaf TV 3 Egypt Al Madina TV 2 KSA AEN 1 Country General Sr. No.
    8. 8. Convergence in Regional Media Digital Convergence
    9. 9. Convergence Situations Involving Media Platforms and Producers Print Audio recordings Broadcast Convergence is being actively resisted Motion pictures Some convergence is spurred by common interests in soundtracks and distribution systems Strong linkages have been formed in visual entertainment sectors Online Convergence producing limited benefits Convergence producing limited benefits Global illustration Source: Picard 05
    10. 10. 2009 witnesses Convergence & Consolidation strategies in Pan Arab market Strategies illustrations Launch new services / investigate new business models Consolidation & Vertical Integration Partnership with new players (Horizontal –Integration) <ul><li>Leverage content on new distribution channels (New media, mobile, …) </li></ul><ul><li>Monetization of non linear content (VoD, DVR) </li></ul><ul><li>Merger of similar businesses to realize economies of scales </li></ul><ul><li>Acquisition of players having complementary services </li></ul><ul><li>Convergence partnerships with Telcos </li></ul><ul><ul><li>Partner with MNOs in order to provide content and share the distribution revenues with the operator </li></ul></ul><ul><ul><li>Partner with an infrastructure wholesaler in order to launch a MVNO by leveraging on the Brand and the content </li></ul></ul><ul><li>Having succeeded in building a true Pan Arab audience on TV, Arabic media majors are leveraging their content on the internet </li></ul><ul><li>MBC Group and Etisalat announced over 8 million videos being viewed by over 3 million visitors 65% from Middle East alone through internet TV” platform since its launch in 2008 </li></ul><ul><li>Ten Sports has signed an agreement with UAE-based du to launch its international beam to mobile TV subscribers in the Middle East </li></ul>In highly competitive pay TV markets, as a result of FTV players are consolidating their presence through M&A activity Showtime & Orbit In highly competitive pay TV markets, as a result of FTV players, Pay TV operators are consolidating their presence through M&A activity Showtime & Orbit announced merger in July Zee TV is considering taking control of Taj TV, which owns Ten Sports. Zee had acquired 50% stake in the Taj TV-owned Dubai-based Spacetoon in cooperation with Zain telecom is to initiate project of mobile SIM cards for kids And also in mobile contents production AMG) has selected's Interactivity Suite to support a participation-TV venture by AMG's Arab Television Network (ATN) to encourage audience interactivity Source : Trade Reports 09
    11. 11. Driving Force behind Coverging trend in the regional Industry Sources: Arab Advisor Group & PWC Arab Media Outlook 2008-2012 <ul><li>The PWC Arab Media Outlook: 2008-2012 predicts that digital platforms in the Arab world could account for 80% of Advertising market in the coming years. </li></ul>With various dynamics, Internet penetration is developing fast in MENA Arab countries by GDP/capita; Mobile & Broadband penetration <ul><li>Broadband penetration of pop (%) </li></ul><ul><li>With a population of 300mn and 2/3 of them under 30 ME is key growth area for New media. The region’s major media groups are targeting lucrative Arab youth market with user generated content, social network sites and multiplatform content on demand </li></ul>Mobile penetration of pop (%)
    12. 12. NMC (Regulatory Body) Viewers Syndicators Advertisers Channels Program Producers Money Money Audiences Programs Time Political Process Licenses Compliance with guidance Programs Money Money Programs Money Programs Inter dynamics within the contemporary Pan Arabian TV industry Weak Strong Sources: Harold L. Vogel; 2007
    13. 13. PESTEL Developments for Regional Media Industry <ul><li>Advertising spend in the Middle East and African (MEA) region is projected to increase 25 percent from 2008 to 2013 as per trade reports. </li></ul><ul><li>MBC moves into film finance with its first venture a short film The Circle, which was shown at the Gulf Film Festival. </li></ul>1 st Quarter 2009 <ul><li>Abu Dhabi Government launched a £1bn film fund.Under its patronage Imagenation Abu Dhabi, the film division of the ADMC, announced financing two new films through its five-year partnership with Participant Media: a family comedy titled &quot;Furry Vengeance&quot; and a remake of George A. Romero's 1974 cult classic, &quot;The Crazies.&quot; </li></ul>Political 2 nd Quarter 2009 <ul><li>His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, inaugurated the eighth edition of the Arab Media Forum </li></ul><ul><li>Fallout in KSA royal circle with regards to media expansion of the Kingdom Holding Group </li></ul>Technological Social Economical <ul><li>4th Jeddah Film Festival cancelled in KSA after public protests. </li></ul><ul><li>Funding, from the US$ 50mn Intel Capital Middle East and Turkey Fund, owned by Intel Capital, Intel Corporation </li></ul><ul><li>Nielsen to launch People metering service in Dubai </li></ul><ul><li>Dubai refused permission to film sequel of TV series “Sex and the City ” in the Emirate due to cultural factors. </li></ul><ul><li>LBC Office in KSA shut down over airing of content deemed culturally inappropriate. </li></ul><ul><li>Etisalat & du announced the launch of a (HDTV) service </li></ul><ul><li>MBC Group and Etisalat announced over 8 million videos have been viewed through their internet TV” platform on </li></ul><ul><li>Ten Sports signed an agreement with du to launch its international beam to mobile TV subscribers in the MENA. </li></ul>Legal <ul><li>MBC network has penned a deal with Warner Brothers studios which has granted the broadcaster exclusive rights to content produced by the company until 2011. </li></ul><ul><li>US Lawmakers proposed legislation to label  satellite providers Arabsat & Nilesat as terrorist organizations because of TV stations they carry like al-Aqsa, al-Manar TV and al-Rafidayn TV </li></ul><ul><li>MBC ordered to pay AED 2.5 million in compensation by Dubai Courts to the heirs of late legendary singer Abdul Haleem Hafiz for breach of copyright. </li></ul>Sources: Trade Reports 2009
    14. 14. Contents Media Industry Context Economic Recession Effect Appendix
    15. 15. Spiral of Decline for Media Companies created by Economic Downturn Advertising corresponds to general Economic Conditions Media companies are affected differently Sources: Picard, 05; Doyle, 02 2 Low Retail Sales Low advertising revenue Reduced expenditure on content, personnel, equipment marketing Selling or possible closure Further reductions in financial resources Less desirable audiences less ad-revenues Lack of ad-revenue/ Profitability for broadcasters/publisher Low GDP 1 3 4 5 6 7 8 Advertising Sales Retail Sales GDP <ul><li>With the effects of economic downturn clearly hitting retailers everywhere, they have slashed their advertising budgets (as advertisers set budgets based on the percentage of retail sales) and are advertising as little as possible.. </li></ul><ul><li>Currently there is no means to effectively project how deep the recession will be, but whatever the depth it will be difficult for media. </li></ul><ul><li>Most media can survive the collapse of credit markets because they have high cash flows and typically require less short term credit than manufacturing / retail firms. Because most can acquire their most important resources without accessing credit lines or issuing commercial paper, banks struggling to keep their heads above water are not a major short-term concern. However, those Media firms with large debts due short-term that were hoping to refinance face significant hurdles. Some will be rapidly shedding media properties in order to stay afloat as seen with some Business Partners of DSC </li></ul>
    16. 16. Middle East Television market embraces for a downturn Rule1: A 1 percent decline in GDP produces 3-5 percent decline in advertising expenditure. This is clearly visible in Middle East market projections for 2009-2012 . Revenue Growth rates of Top Media Players Q2 08-Q2 09 <ul><li>Till 07 when GDP was soaring so was Ad-spend </li></ul>The CAGR projections for UAE in 2009 are bleak (a mere 6% growth optimistically) not surprisingly Ad-spend slum is projected for a 60% abatement When US goes down the world follows . For detailed projections see Appendix slides 58-59
    17. 17. Print media are more affected than other media in Economic downturn <ul><li>Newspaper and magazine decline tend to be 3 to 4 times as deep as television </li></ul><ul><li>The phenomenon is clearly visible in Pan Arab Markets </li></ul><ul><li>Spurred by soaring ad-budgets of the region’s property and financial companies, the number of publications in the Middle East almost doubled in the past three years to 1,800 by the end of Y2008 </li></ul><ul><li>Broadsheets given their domestic reach were preferred way above Pan Arab satellite platform with a much larger reach. Emaaar alone spent around AED 55 million on advertising in 2008. </li></ul><ul><li>Cash strapped media organizations owe half a billion AED as unpaid advertising fee </li></ul><ul><li>As of today More than 100 Middle East based Magazines have shutdown since the start of recession. </li></ul><ul><li>Gulf news which weighed more than a kilo in Nov 2008 weighs 650 grams today! </li></ul>Total advertising revenues and growth MENA region, $Millions and %, 2007 – e2009 as estimated on third quarter of 08 Advertising market growth is to slow down in MENA For detailed projections see Appendix slides 60-61
    18. 18. Lessons from the past…. Effects of Recession on Consumer Expenditures for Books in the UK 1992-1994 (U.S. $ Millions) Advertising Revenue of the US Newspaper Industry during the 1990-1991 Recession (U.S. $ Millions)
    19. 19. Although Indian film industry released 1000 movies in 2007 compared to 590 for Hollywood, Bollywood is still a smaller market with its domestic box office takings of $1.8bn and $214mn overseas in 2007 and compared to Hollywood’s $9.6bn and $17.1bn Before the Economic crisis Bollywood was witnessing an increase of 15% in its domestic box office earnings to $1.8bn compared with a growth of just 2% in US. The growth was driven by rise in construction of multiplexes; boom in Pay TV Industry with 350 channels on air waves (of which 201 are news and current affairs,180 non-news ,67 private channels uplinked from abroad). International investors such as Viacom, NBC, Disney invested $1.5bn in Pay Tv & Movie ventures. As Economic crisis set in advertising & sponsorship revenue has dried up. Pay TV stations slashed their price by 60% to get film rights. Slowdown has halted big investors like Reliance expansion plans and co funding project with Spielberg worth $500-million. The market trend of internationalization is negative currently. India's entertainment industry, appears to be thriving nonetheless as compared to others given its growth phase in industry life cycle . The slump in consumer spending due to the economic downturn has hit the European media and entertainment industries. PwC estimates that the average net debt to earnings ratio for European media companies has risen from 2.8 times to 3.1 times over the past year. Economic crisis has aggravated the potential financing threat faced by media companies should the macro-economic conditions persist . Hollywood runs on credit. $15 billion was invested into films btw 2005-08 by Wall Street banks and hedge funds . The financial crisis is forcing these investors to pull out of billions of dollars worth of film deals; opening the door for specialty investors to scoop up Hollywood assets at discount prices. Securing financing in the new environment has become much harder shrinking supply chain. Approx 200 films are slated to hit theaters in 2009, down from about 219 major studio releases in 2008 and 236 in 2007. Int’l Media Market Post Recession’ Onset
    20. 20. Contents Media Industry Context Economic Recession Effect References
    21. 21. Methodology -Secondary Research <ul><li>Basic References </li></ul><ul><li>The Economics and financing of Media Companies : Robert G. Picard ;2002 </li></ul><ul><li>Competitive Strategy for Media Firms : Sylvia M. Chan-Olmsted; 2006 </li></ul><ul><li>Entertainment Industry Economics : A Guide for Financial Analysis : Harold L. Vogel; 2007 </li></ul><ul><li>The Long Tail: Why the Future of Business is Selling Less of More by Chris Anderson (Hardcover - Jul 11, 2006) </li></ul><ul><li>Arab Media Outlook: 2008-2012 (2 nd Edition) </li></ul><ul><li>Bad news dominates media business : Financial Times, Feb 2009 </li></ul><ul><li> </li></ul><ul><li>Curtain Falls on Bollywood Boom : Financial Times , May 2009 </li></ul><ul><li> </li></ul><ul><li>Bollywood dreams on : Financial Times , May 2009 </li></ul><ul><li> </li></ul><ul><li>Debt burdens stifle European media activity : Financial Times , Feb 2009 </li></ul><ul><li> </li></ul><ul><li>Over 100 media titles shut down in Mideast , Maktoob, July 2009 </li></ul><ul><li> </li></ul>
    22. 22. Methodology -Secondary Research <ul><li>Basic References (cont’d) </li></ul><ul><li>After Years of Rah-Rah Growth, Media Firms Present a Grim Picture: Wharton, March, 2009 </li></ul><ul><li> </li></ul><ul><li>Subdued Market at Cannes , The Wall street Journal, May 2009 </li></ul><ul><li> </li></ul><ul><li>Kylie does Bollywood: Stars go east to beat the Hollywood crunch , The Guardian, March, 2009 </li></ul><ul><li>Media industry in the region braces for one more sluggish quarter , Zawya, May, 2009 </li></ul><ul><li> </li></ul><ul><li>Research agencies differ on regional ad spend fall, Zawya, July 2009 </li></ul><ul><li>Middle east Merger addressing Fragmentation , Rapid News, July 2009 </li></ul><ul><li> </li></ul>