Wednesday 12 December 2018

Consolidation needed as media faces bumpy 2018

"Disruption of a different kind — but equally deadly — springs to mind when one pores over the predictions and forecasts for 2018 that are starting to flow from the country’s top media agencies."

John McGee

It was Niels Bohr, the Danish Nobel laureate in physics and occasional philosopher, who is reputed to have said that "prediction is very difficult, especially if it's about the future".

Bohr, who made a considerable contribution to science's understanding of quantum theory and the structure of atoms in the 1920s, is probably right. His theories about atoms, of course, were later developed and enhanced by a lab-full of eminent physicists, some of whom went on to discover the hugely important - but potentially devastating and disruptive - ramifications of splitting the atom.

Disruption of a different kind - but equally deadly - springs to mind when one pores over the predictions and forecasts for 2018 that are starting to flow from the country's top media agencies.

Unfortunately, most of them don't make for comfortable reading.

According to CORE, which will publish its forecasts in the first week of February, the market is expected to grow by 2.8pc in 2018 but nearly all of this growth will be attributable to digital. Without digital the decline could be as steep as 8pc.

Over at media agency Carat, a growth of 2pc is being forecast with digital, again, the main driver. Meanwhile the WPP-owned GroupM, is forecasting a 0.4pc decline in the market.

According to its annual forecast, GroupM Ireland has pencilled in a total advertising spend of around €719m for the year. Of this, €177m will be invested in TV advertising, a modest increase of around 2pc while radio could see a 6pc decline in revenues to €66m.

National and regional newspapers, meanwhile, could be looking at a 10.2pc decline in advertising revenues in 2018 to end the year with around €147m. Elsewhere consumer and business magazines can expect to match the €16m in advertising they brought in in 2017, while outdoor and cinema can expect around €79m and €7m respectively.

Then there's digital.

Representing around 31pc of the entire market with a forecast spend of around €226m, according to GroupM, digital is the only media category that has consistently grown in recent years and usually by double digits. Although most agencies, including Core, Carat and GroupM are forecasting single-digit growth for 2018, it will still outperform all other media categories.

But let us rewind the clock back 10 years to when the Celtic Tiger was roaring loudly, when property supplements the size of doorsteps were the norm and media companies were commanding frothy valuations. In 2007, for example, an estimated €1.2bn was invested in advertising across all media, rounding off nearly six years of unbroken revenue growth for the sector.

Then the world fell off a cliff and by 2010, that €1.2bn became €750m - €450m less than 2007 and if the forecasts for 2018 are anything to go by, the advertising spend is still down by as much as €481m from the heady heights of 2007. In fact, it's still €23m shy of the estimated €742m that was spent in 2012 when the Irish economy was in the throes of recession.

With the economy firing on all cylinders at the moment, these forecasts are deeply disturbing. But these headline figures also mask more fundamental underlying trends, the most significant of which is the emergence of a twin-lane media economy that sees digital powering ahead at breakneck speed in one lane while everyone else struggles to fire up their engines or, at worst, can be found reversing into a dark tunnel.

Even within the digital realm, it's becoming increasingly clear that the main beneficiaries of this rapid growth are two companies - Google and Facebook. The rest are left to fight over the digital crumbs that are thrown their way.

How long this is sustainable is anybody's guess. But there will be casualties along the way if consolidation is not openly embraced by the industry, the Government and the relevant competition czars.

While a degree of consolidation is already taking place, particularly in the newspaper industry, we need to see more. The same is true of the radio and the magazine sectors. Even TV broadcasters like RTE and TV3 are finding the going extremely tough as they soak up the adverse fluctuations in sterling and try to compete with the Sky opt-out channels.

The bottom line is that there are far too many media companies, large and small, for such a tiny market to sustain.

But if media agencies are forecasting a rough ride over the next 12 months, just wait until the 2019 forecasts are published. With Brexit set to kick in during March 2019, they will not be pretty.

Like many other sectors within the Irish economy, however, the Irish media industry needs to take stock of where it's heading and how it's going to get there. And while these forecasts can provide some guidance, to paraphrase Oscar Wilde, the industry should also be "expecting the unexpected".

Sunday Indo Business

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