KUALA LUMPUR: RAM Rating Services Bhd has revised the outlook for Media Prima Bhd’s long-term ratings to negative from stable, while reaffirming its long-term rating of AA1 and short-term rating of P1 for the group’s RM500 million CP/MTN Programme (2012/2019).

In a statement yesterday,RAM said the outlook revision was based on concerns that the group’s circulation over the past two years may continue to deteriorate or not recover, and uncertainty surrounding the roll-out of its digital TV terrestrial broadcasting.

“Additionally, weaker consumer sentiment and challenging advertising expenditure (adex) amid a fundamental shift to new media had led to a 21.8% (RM80 million) drop in Media Prima’s operating profit before depreciation, interest and taxes (OPBDIT) over the past two years.

“In the first half ended June 30, 2016 (1HFY16), adex holdback by advertisers continued, as the group’s revenue and OPBDIT (excluding costs related to home-shopping venture of about RM14 million) contracted by 6.0% and 25.7% respectively,” noted RAM. It said Media Prima’s overall circulation contracted 42.4% in 1HFY16, as circulation of the group’s Malay-language newspapers fell. RAM said its newspapers could lose competitiveness as an attractive advertising avenue if the declining circulation trend persists.

“While we acknowledge Media Prima’s channels are critical to the new digital platform, there are uncertainties with regard to the migration moving forward. If the current hefty broadcasting fee remains, it will impact Media Prima’s cost structure.

“On the other hand, if the fee is negotiated downwards, this may encourage greater competition. Also, the take-up of the set-up boxes remains to be seen. We are of the view that Media Prima’s free-to-air (FTA) TV model may be at risk of being altered fundamentally and negatively impacted,” it said. 

However, RAM said the group’s long-term outlook could revert to stable if the FTA TV model is maintained and margins are not significantly impacted, adding a reversion could happen if the print division could maintain or improve its real advertising revenue and arrest declining circulation numbers. Preservation of Media Prima’s financial profile would further warrant a revision.

RAM said Media Prima’s ratings continue to be supported by its strong position in the media advertising industry, and its strong multiplatform  capability will remain an advantage.

“These strengths are, however, moderated by the rise of digital media, coupled with the fundamental change in consumer trends and preferences. As Media Prima is primarily involved in traditional media platforms, changing consumer preferences may trigger a shift in some of the group’s advertisers moving forward.

“Media Prima’s adex-dependent performance is further susceptible to economic cycles and newsprint-price volatility,” said the ratings agency.