KUALA LUMPUR: The growth of digital marketing in the past few years has resulted in the traditional media, especially newspapers, suffering a perilous shortage of advertisers. The trend, according to analysts, is set to continue this year notwithstanding that several advertising expenditure (adex)-friendly events will be held.

After seeing a subdued adex in the last two years, media organisations are hoping that these events — including Asean@50: Golden Celebration campaign, 29th Sea Games and 9th Asean Para Games — will help boost advertising spending. They also hope that with the 14th General Election speculated to be held this year, there will be more advertisements.

However, analysts remain sceptical and predict this year to be another muted year for the media industry.

“I think the adex spending is likely to be relatively muted for the Malaysian media industry,” Nomura research regional media analyst Yong Guo Hao told The Edge Financial Daily, adding that this would be the case even if the election is held this year.

He pointed out that businesses are cautious about spending amid continued sluggish consumer spending.

“Most of their advertisers are consumer products-related. As consumer spending remains cautious, this does not bode well for the adex,” he said.

Indeed, latest data from the Malaysian Institute of Economic Research show that the quarterly figures for both the Consumer Sentiment Index and Business Condition Index remain subdued at 73.6 points and 83.9 points, respectively, which are below the threshold of optimism.

Nielsen Media’s latest survey revealed that Malaysia’s gross adex deteriorated by 10% year-on-year (y-o-y) to RM6.47 billion as at November 2016 due to the prolonged weak adex sentiment, customer fragmentation and technological advancement.

The shift in advertisement to digital media continued to pose great challenges to the incumbents, said the Nielsen report.

Meanwhile, Kenanga Research said feel-good factors this year are likely to be offset by the depreciation of the ringgit against the US dollar, rising cost of doing business and subdued global economy outlook as a result of Brexit and the concern over US trade policies following Donald Trump’s presidential victory.

“All in, we are expecting the country’s gross adex (excluding pay TV) to be flat on a y-o-y basis in 2017 after the 10% y-o-y dip in 2016,” said the research outfit.

Falling adex aside, Kenanga said the print players — Media Prima Bhd, Media Chinese International Ltd and Star Media Group Bhd — are unlikely to benefit from the current stable newsprint price, no thanks to the weaker ringgit.

Although the newsprint price, which is the biggest cost component for print media, is expected to remain firm at US$500 (RM2,215) per tonne this year, the print players may not benefit from the current steady cost structure, given that the newsprint price has climbed to RM2,200 per tonne from RM2,000 previously as a result of the weaker ringgit, it said.

“That said, the print players need to reduce newsprint consumption and continue migrating readers to the e-paper segment in order to curb newsprint cost,” said Kenanga in a recent note.

Hong Leong Investment Bank Research said the media industry is facing continued pressure from online streaming as an alternative to paid content and advertising platform, with better flexibility and a more targeted advertising.

In view of the challenging business environment, Hong Leong expects adex to contract 3% this year after falling slightly by 1% to 2% last year.

“We are maintaining our ‘neutral’ view on the sector premised on the dismal adex growth resulting from weak consumer sentiment underpinned by macroeconomic headwinds, shift in media platform and challenging business environment,” it said.

Meanwhile, RHB Research also expects the poor adex sentiment to continue over the next six to 12 months given that there may be underlying concerns still over the state of the economy and job prospects.

“Our channel checks indicate that advertisers in general continue to be sidelined due to the poor consumer sentiment, which has been further exacerbated by the recent slide in the ringgit,” said RHB in an email reply.

The research outfit said an early general election will be an upside risk to the 2017 adex, where ad spending from the government agencies typically rises during election periods.

In terms of stock picks, analysts generally prefer Astro Malaysia Holdings Bhd, given its resilient nature, independence from traditional adex and its relatively steady/sticky subscription-based pay-TV model.

Further, its strong free cash flow generation provides scope for further capital management, they said.