Guest Post by Oxford Analytica
During the past decade, blogging has simplified the process of publishing and distributing words, enabling anyone with an internet connection to share thoughts with the world at virtually zero cost. However, with the development of broadband internet, it has evolved into a richer, more immersive platform that draws on a wider range of media — spanning text, images, audio, video and software applications.
The net result is a very different kind of media system. With millions of blogs engaged in production of news, comment and analysis around every conceivable topic, the media is becoming more open, collaborative and participatory in content and operation. The blogosphere’s impact can be seen most vividly in the speed of information distribution. It is a crucial link in a wider chain of technologies (such as camera phones, wireless connectivity and cheap computing), which is reducing lag time between incidence and reporting of news to minutes, even seconds. Recognising the shift from static to ‘realtime web’, Google recently updated its search algorithm to include latest results from the blogosphere.
Traditional media implications. The development of the blogosphere into an extensive and rapidly updated information repository poses a challenge to established parts of the media, such as newspapers, television and radio, which have traditionally functioned as gatekeepers between large audiences and global news. Under financial pressure, traditional newsrooms are cutting investment in original journalism, notably in specialist areas. This is due to the cyclical shock of recession and longer-term structural changes brought about by the web (and associated migration away from traditional formats of audiences, with advertisers).
Individually, bloggers can devote more time and energy to topics the traditional news media otherwise would struggle to cover. Reflecting this shift, many newsrooms license digital media monitoring services to trawl the blogosphere for stories and leads.
Transparency concerns. The growing influence of the blogosphere has led regulators to impose new forms of accountability on bloggers. For example, in the United States, the Federal Trade Commission in October 2009 issued new guidelines that require bloggers to disclose vested interests — such as free merchandise or payment from companies they write about.
Reputation management. The blogosphere also challenges the public profile of individuals and organisations. For example, the web makes every employee a potential point of contact with the media — or a leak. Information is harder to contain, whatever the topic or source:
- Local problems and secrets quickly can be transformed into digital liabilities that can affect an individual or organisation on a global scale.
- Conventional protections, such as libel or defamation law, struggle to have leverage due to distributed server location and the frequently anonymous attribution of blogs.
A growing number of companies are being hurried into unscheduled announcements or regulatory disclosures due to the blogosphere. There is growing realisation that digital news flow cannot be controlled, and the best course of action is to engage with the blogosphere as quickly and fully as possible. The best way to achieve this is by monitoring, in real time, what people are saying on the web.
For many, this points towards a new politics of communication that will force industries and governments to accept a higher degree of accountability.
Outlook. The dual shock of the recession and digital revolution is sparking a process of retrenchment and consolidation, but over the longer term traditional media will probably find themselves at the heart of a more diverse media landscape, in which blogs play an important, but not dominant, role. Traditional media still function as the main anchor of the news — their brands serve as trusted filters, flashpoints for debate, and incubators for media talent. The blogosphere will supplement these, notably filling gaps and extending coverage.
Technorati Tags: accountability, blogs, corporate-governance, government-affairs, Media, newspapers, online-media, traditional media
It’s not all gloom and doom for the media industry, according to L.E.K. Consulting. In a white paper, L.E.K. identifies five new media opportunities:
- Online video content can be lucrative, but the optimal delivery is through the cable bill
- E-readers are driving readership and becoming a growth driver for the book and magazine market — the “iPod Nation” consumer segment is good, but the “e-reader Republic” offers even more opportunities for new media services
36% percent of the books read by people with e-readers represent incremental consumption— meaning more than one-third of the books read on e-readers would not have been read in print
- Consumers are multi-tasking while online, specifically watching TV and/or listening to music – advertisers should note and take advantage
- Internet radio is finally becoming relevant
- Don’t forget about new media for people over age 50, a potential new growth area
Free paper available here.
Technorati Tags: cable, content, e-books, Media, New-Media, radio, video
S&P’s latest Industry Report Card sees a negative outlook for most sectors, and it could get worse.
Selected excerpts:
Standard & Poor’s Ratings Services expects that 2009 fourth-quarter data will bring easier year-over-year financial comparisons for U.S. media and entertainment companies due to a generally dismal fourth quarter of 2008. However, the credit outlook is still grim for these issuers, and we think that even the first quarter of 2010 could still see lower revenues and earnings.
A convincing upturn in the sector may not take hold until a solid U.S. economic recovery registers. Earnings prospects for certain advertising-related subsectors are declining somewhat less quickly, but they haven’t begun an upswing. For some subsectors under siege by adverse structural shifts (e.g., print-related industries), we don’t expect much of a rebound at all.
Many of the subsectors in the U.S. media and entertainment industry rely heavily on advertising. For these subsectors, our credit outlook incorporates the following trends:
- Online media is absorbing a significant share of total ad spending, as search-related advertising seems likely to keep growing on a full-year basis even though total Internet ad spending will likely be flat to down. We believe that nascent mobile and online video advertising will sprout vigorously.
- Cable networks appear likely to report slightly lower full-year 2009 ad revenue.
- Local TV, radio, newspapers, and national magazines likely will sustain further revenue declines (albeit at decelerating rates), translating into further EBITDA falloffs–especially for broadcasters, because of their high EBITDA margins. This already has created a worst-case scenario for many rated local newspaper, radio, and TV station groups.
- Outdoor advertising has dropped sharply, unable to sustain pricing when alternative local media rates are plummeting.
- Structural factors also could curtail ad spending, such as Congressional proposals to eliminate tax deductibility of certain sectors’ ad spending.
Newspapers May Be Nearing The Bottom, But Will Likely Stay There
For the subsectors that don’t rely on advertising, technology and consumer usage shifts, along with the audience reception of content, have had a greater influence than economic trends. Still, economic stresses on some of these non-ad-reliant subsectors are still apparent:
- The recorded music industry has experienced further rapid CD sales declines.
- Movie producers continue to indicate lower DVD sales–especially for catalog titles.
- Late in the fourth quarter, motion picture exhibitors resumed the vigorous positive growth that they enjoyed in the first half of the year. We view box office revenues as likely to dip into negative territory in 2010 year-over-year comparisons. We ascribe the 2009 pop to consumers seeking relatively low-cost entertainment close to home rather than pursuing family travel.
For details see Industry Report Card: It’s A Long Way To Recovery For U.S. Media&Entertainment (Premium)
Technorati Tags: ad spending, broadcasting, cable, magazines, Media, media and entertainment, mobile advertising, newspapers, online-advertising
The second edition of Fitch Ratings’ annual ‘Credit Encyclo-Media‘ report makes for some grim reading.
As was the case last year, The Interpublic Group is only rated issuer with a “Positive” outlook . All other companies are either Stable or Negative:
Diversified Media –CBS Corporation (’BBB’; Outlook Stable) –Cox Enterprises (’BBB’; Outlook Stable) –Discovery Communications LLC (’BBB’; Outlook Stable) –Liberty Media LLC (’BB-’; Outlook Negative) –The McGraw-Hill Companies (’A+’; Outlook Stable) –News Corporation (’BBB’; Outlook Stable) –Thomson Reuters Corporation (’A-’; Outlook Stable) –Time Warner Inc.(’BBB’; Outlook Stable) –Viacom, Inc. (’BBB’; Outlook Stable) –The Walt Disney Company (’A'; Outlook Stable)
Publishing, Printing, TV and Radio Broadcasting –Belo (’BB-’; Outlook Negative) –The McClatchy Company (’C'; No Outlook) –R.R. Donnelley & Sons Co. (’BBB’; Outlook Stable) –Univision Communications (’B'; Outlook Stable)
Entertainment – Movie Exhibitors, Music –AMC Entertainment (’B'; Outlook Stable) –Regal Entertainment (’B+’; Outlook Stable) –Warner Music Group (’BB-’; Outlook Stable)
Business Products/Services, Ad Agencies –The Dun and Bradstreet Corporation (’A-’; Outlook Stable) –The Interpublic Group of Companies (’BB+’; Outlook Positive) –The Nielsen Company (’B'; Outlook Stable) –Omnicom (’A-’; Outlook Stable)
The 200-page report outlines the key market, operating and credit trends in the Media and Entertainment sector. It addresses issues related to automotive advertising, cable network saturation, DVD market maturation, digital cinema transition, and e-Book adoption, in addition to upfront, political, ad measurement and ad pricing trends. It also provides an overview, outlook and volatility analysis for 22 different sub-sectors; ranking them by economic sensitivity, hit-driven variability and secular issues.
Fitch said it is monitoring a number of topics that could drive incremental risk for bondholders in the current environment, including:
- Changes in acquisition appetite given depressed multiples, improving access to capital,and growing cash hoards.
- Long-term threats to the DVD business model.
- Potential longer-term risks to cable networks.
- Weakness in the automotive sector.
- Access to capital and refinancing risk.
With valuation multiples still low and access to capital improving, Fitch expects acquisition activity could accelerate.
Fitch says “a certain level of activity can be accommodated as some acquisition risk is factored into the investment-grade ratings that many media companies carry.”
Advertising: “In general, Fitch believes that premium-priced outlets like broadcast TV and newspapers are most likely to face pricing pressure while other mediums like outdoor, online and cable networks will likely face less pricing headwinds. Cable networks that can offer synthetic purchases by aggregating the audiences of all of their cable networks might be better able to close the CPM gap. Not all cable networks will have that ability, as part of their appeal is the specific niche demographic they offer; however, general interest channels such as those offered by Time Warner Inc. and Discovery Communications, Inc. may be better positioned to offer cross-network purchases. Magazines and radio, which are somewhere in the middle ground on ad pricing, are less likely to cede share purely due to price, but could still face pressure due to deterioration in core operating fundamentals (circulation or listenership) and advertiser perception related to effectiveness.”
Technorati Tags: (NWS), (TWX), (VIA), advertisers, advertising, AMC Entertainment Inc., Belo Corporation, BLC, CBS, CBS Corporation, Cox Enterprises, credit-outlook, DIS, DNB, entertainment, Hearst-Argyle Television, HTV, Inc., internet-advertising, IPG, Liberty Media LLC, McClatchy Company, Media, media and entertainment, media companies, MHP, MNI, News Corporation, newspapers, OMC, Omnicom Group Inc., R. H. Donnelley Corporation, R. R. Donnelley & Sons Company, R.H. Donnelley, radio, Regal Entertainment Group, RGC, RHD, RRD, SIX, Six Flags, The Dun & Bradstreet Corporation, The Interpublic Group of Cos., The McGraw-Hill Companies, The Walt Disney Company, Thomson Reuters Corp., Time-Warner, TRI, tribune-company, TV, Univision Communications, Viacom, Warner Music Group Corp, WMG
Streaming media may be the wave of the future, but media and entertainment companies will need to weather a profit squeeze before the market really takes off, according to Oxford Analytica.
“The next-generation of internet connections and data centres will help to realise the potential of streaming media on the web. As users grow accustomed to abundant but cheap access to content, the terms of media ownership will steadily change beyond recognition: free advertising-supported services will proliferate. However, the media and entertainment sector faces a profits squeeze because digital advertising is unlikely to compensate for loss of traditional revenues.”
“To date, the media and entertainment industries have struggled to make substantial money from the web. Despite the success of pay-per-use services such as iTunes, the underground economy of file sharing continues to eclipse the legitimate economy of paid downloads. That has forced content owners to experiment with alternative distribution models, such as streaming services that generate revenue from advertising rather than sales. The goal is to attract enough use of legitimate content to sustain advertiser interest.”
The success of free music services such as Spotify has led some experts to predict that the web will dramatically redefine the terms of media ownership; in particular, by inculcating a view among users that content is something to be experienced on demand, rather than owned.”
Indeed, research suggests that there is a generational shift underway in social attitudes: younger users increasingly prefer to sample rather than own media. This long-term shift poses significant challenges for industries that have traditionally relied upon the sale of physical products.
“As audience attention shifts from old media to new media, there will be a profits squeeze around creative sectors such as music, film and publishing: Audiences increasingly are less willing to pay for content, while advertisers expect to pay much lower rates around content because of the transient, fleeting and disengaged character of web consumption.”
“New technologies such as behavioural advertising and neuro-marketing to some degree may help increase digital revenues by targetting advetisements better; but the overall outlook suggests that there will be less money to support content on the web”
The complexity of intellectual property rights also casts doubt on the economics of streaming services, such as Spotify:
- Licensing restrictions may prevent the free distribution of content alongside advertising — for example, during theatrical or video rental release. Restrictions also vary by company and territory, making the task of rights clearance especially time-consuming and expensive for web start-ups.
- These services require a broad base of content to succeed, but artists and creators in many cases are unwilling to license their work for use in this fashion. In addition to this there remains the problem of digital ‘orphans’ — pieces of work, numbering in the millions, without an identifiable owner through which licensing can be secured.
- The cost of streaming royalties also is a significant hurdle. Spotify typically pays more per individual stream than it receives in advertising revenue. For example, in the United Kingdom, the Performing Rights Society recently cut per-stream royalties from 0.22 pence (0.36 US cents) to 0.085 pence to assist the nascent digital market.
“For the time being, streaming media is still at a relatively early point in its commercial evolution. Even with billions of clicks, sites such as YouTube struggle to make money from the web. There is still a wide gulf between social norms and legal business models: piracy of content continues to thrive, further stifling the development of a legitimate marketplace for media and entertainment content.”
Technorati Tags: Media, Music-and-Entertainment, streaming media
As competition forces changes in newspapers’ revenue model, the industry will need to transform its cost structure to reduce the fixed costs associated with print-centered distribution, or default risk will grow, according to Moody’s.
“Currently, a structural disconnect exists in the newspaper industry’s cost structure,” Moody’s says. “Just 14% of cash operating costs, on average, are devoted to content creation — the primary value creation activity — while about 70% of costs support the print distribution model and corporate functions. The remaining 16% of cash operating costs relate to advertising sales — another critical task that drives the majority of newspapers’ revenue. The overall imbalance limits the industry’s flexibility to overcome competitive threats.”
Most newspaper companies have moved only slowly away from in-house print production and distribution, said Moody’s. Thus, high operating leverage for the industry remains, and is creating intense pressure on cash flow as revenue declines.
Our outlook on the newspaper industry’s credit fundamentals remains negative, based on our expectation that advertising revenue will drop upwards of 25% in 2009, before a slow economic recovery sets in next year.
“Even so, we expect ad-revenue will decline about 10% in 2010, and that the major ad categories—such as classified and retail ads—won’t fully recover to pre-recession levels, dealing a blow to the industry’s long-term profitability.”
“Ultimately, we expect the industry will need to reverse the vertical integration strategy through cross-industry collaboration and outsourcing print production and distribution processes … Although newspapers may lose some of their in-house control over press time, they would also release resources to beef up investment in content and technology.”
While Moody’s does not anticipate a widespread shift by issuers to an online-only business model as the revenue loss is too significant at this point, such a change would meaningfully lower operating costs. Reducing the frequency of print editions is a hybrid approach that may result in cost savings while preserving newspapers’ value-added service for advertisers.
“Newspaper companies’ credit ratings have moved considerably lower over the last few years, but additional downward pressure remains … If newspapers can’t monetize the content in new digital channels at the same level as with print, or cut structural costs enough to keep up with the changing competitive environment, the prospect of additional recapitalizations or shutdowns will grow, adding further pressure to ratings.”
For details, see Newspaper Industry Costs: Out of Balance.
Technorati Tags: Block Communications, Freedom, Gannett, Gatehouse, McClatchy Company, Media, MediaNews, Morris Publishing, New-York-Times, newspapers, tribune-company, washington_post
Fitch Ratings has issued a bleak prognosis for the recovery of corporate credit conditions. Even with positive economic growth from 2010, due to the time lag in achieving “trend” growth – the point at which recovery begins to manifest itself in corporates – the agency still does not forecast a return to more benign credit conditions for its corporate portfolio until mid-2011.
As a result, the current heavily negative bias to corporate rating actions represents a forward-looking assessment, rather than a reaction to current earnings reports.
From a financial perspective, those issuers most exposed to downgrades will be those where economic conditions both generate a material increase in leverage (through gross debt increases or depletion of operating cash flow), and, also, where a rebound in future profitability will be unlikely to restore the financial profile within the foreseeable future, Fitch says. Also more at risk are sectors or companies where an individual business model or industry position is likely to exit the current recession in a materially impaired condition.
Typically, vulnerable companies are more likely to be in the manufacturing and media sectors.
Issuers where Fitch’s forecasts indicate more financial resilience to the current economic stress include those where either current Fitch forecasts indicate profiles staying broadly within the tolerance bands for the current rating, or where a more material increase in leverage is offset by the potential for strong recovery as and when the economy recovers.
Typically, these companies are more likely to be in the energy, telecom and non-discretionary consumer product sectors, and services such as health care and education.
A final category of vulnerability relates to the most difficult area to forecast – liquidity. Fitch’s report notes that the hurdle for ‘access assumption’ – the assumption that an issuer can generally access funds both on reasonable terms and with no material delay – rises in current conditions from investment grade to mid- to high-investment grade for many industries. Exceptions to this include defensive sectors such as major telecom companies and regulated utilities.
Thus far in 2009, liquidity pressure in western economies from the rationing of bank refinancing has been in part offset by surprisingly robust corporate access to both investment-grade bond and equity markets. Bond market funding has also typically been inexpensive on an all-in basis, with spreads at record highs offset by interest rates at or near record lows. Fitch, however, regards this level of access, notably for ‘BBB’ and lower rated entities, as vulnerable to further deterioration in sentiment.
For details see “Corporate Forecasts: Macro-Level Assumptions: April 2009 Update“, which outlines Fitch’s principal assumptions driving its internal forecasts for corporate performance in the next two years.
Technorati Tags: consumer staples, corporate-debt, credit-ratings, education, energy, health care, manufacturing, Media, telecom, utilities
After growing by 10% last year online advertising in the US is projected to fall 5%, according to media analyst Screen Digest.
“Online display advertising grew by ‘only’ eight percent for the full year, i.e. much lower than its previous growth of 26% in 2006 and 31 per cent in 2007. Screen Digest analysis has highlighted the very shocking four per cent year-on-year decline of Display advertising in the last quarter of 2008. The fall of the Display category would have been deeper had it not been for the growth of the online video format that nearly doubled in 2008. Screen Digest estimates that online video (pre-roll) ad sales reached $1.2m, up 64% over 2007.”
Search has remained much more dynamic than online Display in 2008 and, at least up to the third quarter, it seemed to be recession-proof, Screen Digest says. The format is highly accountable and scalable, while Display internet advertising, now a mature medium, suffers the same cost-per-thousand deflation affecting all other branding media.
“However, following the acceleration of economic recession in the fourth quarter, both formats have suffered: Search has seen growth rate halved whilst Display has experienced negative year-on-year quarterly growth for the first time since the dotcom crash of 2001-2002. Online Display, Search and Classifieds are also suffering from the particularly bad state of three critical client sectors: automotive, real estate and finance.”
Overall, the total internet advertising market will shrink by five percent (-4.8) in 2009 and only stabilize (+0.4 percent) in 2010.
Screen Digest now predicts that all categories and sub-categories except video will decline in 2009. Banner advertising (-8.8%) will not be fully compensated by the double digit growth of online video, so that the Display category will be down 3.6%. Search will shrink by two per cent and non-Display categories such as Classifieds will experience double digit falls.
Technorati Tags: advertising, Media, online-advertising, online-media, search
Lauren Rich Fine digs into the future of the mobile industry in a new ContentNext report and, by and large, likes what she sees. The report places a particular emphasis on M&A and VC funding activity, and provides “a glimpse into how mobile content (games, music, video, and social networks) will become a thriving business, through either paid or ad-supported models.”
ContentNext’s database of 1,115 transactions shows $343 billion of investment and M&A activity in the mobile sector over the past 38 months. Excluding carrier deals there was still $40 billion of money committed to the sector with the greatest sums directed towards content and software & services. 613 deals, or 55 percent, were done by strategic investors.
Activity has slowed down but deals are still getting done and for good reason: there is no question that mobile is the next disruptive technology.
Other key findings:
- The rapid improvement in user experience (courtesy of, in large part, the iPhone) and acceptance of a phone being more than a phone will likely cause huge dislocation in many areas. Content owners, again, are likely to be on the defensive.
- Increasingly, prognosticators are referring to phones as having the potential to be a mobile PC; while likely directionally correct, we think it is a premature call.
- The economic downturn could hamper the ability of the carriers to grow the average revenue per customer/unit (ARPU) through content and service packages, but it could push more consumers to become wireless-only customers. If consumers face difficult spending choices, it isn’t completely crazy to imagine a pick-up in mobile video services in lieu of home cable, although near term it is more likely to drive increased PC internet access.
- While mobile advertising and marketing has yet to live up to expectations, the medium is increasingly becoming accessible and scalable and the creative is improving such that there are a growing number of campaign success stories. Notwithstanding a weak economy, we think this is a sector that can do well near term as marketers seem to be embracing its lower out-of-pocket cost combined with targeting capabilities.
- Location-based services (i.e. locally targeted) are in early innings and we think they will have dramatic implications prospectively as they will heighten the ability to target marketing messages, could really open up the local ad market, and add a new dimension to social networking.
- Video usage should increase dramatically as the experience is improving daily; however, concern and confusion about cost and hardware could mute near-term growth.
- For the U.S. mobile market to really open up and allow phones to be used both as payment mechanisms and for commerce, a better payment system needs to be in place; near term, at least for micropayments, the carriers could be key.
The full 45-page report, The Changing Mobile Industry and What It Means for Media Executives, is available here.
Technorati Tags: Apple, content, ContentNext, iPhone, M&A, Media, mobile industry, mobile-devices, telecommunications, venture-capital
Illegal downloads could be costing the music industry $10 billion — the very amount by which the global industry has declined since 1999, according to a recent report from ContentNext.
“Playing a New Tune: The Music Industry’s D-I-Y Era” authored by former newspaper analyst Lauren Rich Fine examines the changing value chain in the music industry as it has migrated to the Internet, looks at the state of the most significant online alliances/initiatives, and charts the M&A and venture-fund activity have helped shape the industry over the past few years.
Among the highlights:
- Entrepreneurial artists have more opportunities than ever to make it without the backing of a label;
- Transaction activity in the music industry has been robust from 2006-08, with over 150 deals valued at $11.2 billion;
- The music industry is still searching for a business model as the Internet has cannibalized CD sales, yet the pace of innovation and sense the industry has come close to bottoming makes it seemingly safer for investment;
- MySpace Music has a lot of competition.
The full 34-page report is available here.
Meanwhile, Barry Graubart at ContentMatters has Five Questions for Lauren Rich Fine, on the topic of the outlook for traditional media.
Technorati Tags: M&A, Media, music-industry, MySpace, online-music
