THE media industry has been going through a rough patch the past few years, no thanks to a challenging operating environment, a weak advertising landscape and rising news consumption in the digital sphere.

Nevertheless, media players and analysts alike are hoping to see a turnaround in 2017, driven by some factors that include the bottoming-out effect, and the impending 14th general election that must be held by mid-2018.

“It will be a tough year, but we must dare to defy the challenges,” says Star Media Group Bhd’s group managing director and CEO Datuk Seri Wong Chun Wai, adding that there are pockets of potential catalysts this year such as the possible general election, the SEA Games and Malaysia’s 60th National Day.

“From a print perspective, readers can now claim tax relief of up to RM2,500. We hope it will help in revenue and circulation,” he says.

Maybank Investment Bank Research sees the media sector recovering this year at a gradual pace after three dismal years.

“We forecast total gross adex [advertising expenditure] to grow 5% year on year in 2017 on 1.1 times real GDP growth, driven by pre-14th general election ad spend,” it says in its Dec 19, 2016 report.

AmResearch anticipates “a challenging, but relatively better year for the media in 2017”.

“The sector’s prospects over the next 12 months are relatively more positive compared to 2016, underpinned by recovery in consumer sentiment and Budget 2017 measures,” it says in a Dec 29 report.

“We may upgrade our call from ‘neutral’ to ‘overweight’ should the MIER Consumer Sentiment Index revisit the 100-point benchmark, confirming a restoration of consumer confidence. This would in turn give companies confidence to spend on advertising,” AmResearch notes.

“However, in the event of a sustained weakness in consumer sentiment, we may downgrade the call from ‘neutral’ to ‘underweight’. We are worried that a muted consumer sentiment would delay adex flowing into the market, which could lead media companies into losses. In addition, if signs point towards the inability to monetise digital mediums, while digitalisation continues faster than expected, we would also downgrade the sector,” it adds.

Kenanga Research expects the country’s gross adex (ex-Pay TV) to be flat (on a y-o-y basis) in CY2017 after the 10% y-o-y dip in CY2016.

It states that Nielsen Media recently reported that the country’s year-to-date November gross adex deteriorated 10% y-o-y to RM6.47 billion (versus YTD-October: -9.6% y-o-y) as the prolonged weak adex sentiment, customer fragmentation, technological advancement,and shift in advertisement to digital media continued to pose great challenges.

Kenanga expects 2017 adex sentiment to be supported by a few factors, including a possible general election, the Asean@50: Golden Celebration campaign, the 29th Sea Games and the Ninth Asean Para Games.

However, the research house adds that the feel-good factors could be offset by the ringgit weakening against the US dollar, rising cost of doing business, and a subdued global economic outlook.

Star Media’s Wong says some factors that could affect the performance of media groups this year include the weaker ringgit, which would impact newsprint cost. Newsprint price, which forms the largest cost component for newspaper companies, has been rising to about RM2,200/MT from RM2,000/MT as a result of the weak ringgit.

A Media Prima Bhd spokesman says the media industry will continue to face challenges such as consumer fragmentation, technological advancements, a structural shift in adex towards the digital platform and increased competition from global media players.

He points out that the challenging operating environment faced by the industry has forced media players to explore opportunities to diversify revenue as they continually review their cost structures and implement cost-rationalisation initiatives as well as look into sustainable solutions.

“Last year saw several media groups, including Media Prima, investing in ventures that are aimed at realising new revenue sources and to be less dependent on adex. Media Prima had in 2016 ventured into new areas, such as home shopping [CJ Wow Shop], subscription-based over-the-top video-streaming service [tonton VIP], subscription-based interactive learning portal [FullAMark] and mobile applications capitalising on the group’s intellectual properties,” he says, adding that the group is encouraged to see its out-of-home (OOH) advertising and radio segments continue to gain good traction amid the weak market environment.

“For example, the profit contribution for Media Prima in 2015 from print is 20% compared with OOH at 26%,” the spokesman says.

Star Media’s Wong acknowledges that media groups have to evolve from the traditional business model.

“We have to sell things differently to clients beyond just advertisements. For Star Media, our strategy includes partnering with clients, where we face headwinds together to create an exciting way to gain audience — a win-win [situation] for everyone,” he says.

“We have also gone into other digital businesses such as the Avengers STATION and the recently launched dimsum.my — a video service provider — to take us beyond traditional media businesses,” he adds.

The Avengers STATION is parked under the exhibitions and intellectual property rights business division, the only segment that saw its earnings improve for the nine months ended Sept 30, 2016. It recorded profit before tax (PBT) of RM16.31 million compared with loss before tax of RM3.62 million in 9M2015. The other segments — print, broadcast, radio and TV — saw lower earnings, with some making losses.

Star Media saw its total 9M2016 revenue drop 9% to RM671.77 million from RM738.25 million a year earlier. In its notes to the financial statements, the media group notes that PBT in 9M2016 fell 10.1% due to lower profit recorded by its print segment.

Media Prima registered a net loss of RM71.6 million for the nine months ended Sept 30, 2016 compared with a net profit of RM106.75 million a year earlier, while revenue fell 9% in the same period. This was due to one-off restructuring expenses of RM104.6 million. Taking out this expense, the media group posted a net profit of RM32.9 million, 69% lower than 9M2015.

Media Chinese International Ltd, which publishes the top four Chinese language newspapers, also saw a weak topline as revenue fell 14.7% y-o-y to US$168.25 million (RM752.68 million) for the six months ended Sept 30, 2016. Its net profit fell 38.3% to US$14.5 million in the same period. The group notes that turnover declined as a result of market weakness, but cost savings had helped its bottom line.

Audit Bureau of Circulation data showed that paid print newspaper saw a decline for the January–June 2016 period. Paid English print newspapers declined 12% y-o-y to 615,701 copies a day, while Bahasa print newspaper sales fell 16% to 1.33 million copies a day and Chinese dailies dropped 9% to 607,801 copies for the same period.

Media Prima says 2016 saw several media groups aggressively venturing into the digital space in line with the changes in consumer preference towards digital content. “This is ­evident from the increased traffic for online news portals, social media sites, digital publications and other internet-based content platforms such as the digital versions of Berita Harian, Harian Metro and New Straits Times,” it adds.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.