Media and advertisers facing ongoing industry disruption, PwC says

Thursday 8th June 2017

Media businesses and advertisers are struggling to keep up with changing audience behaviour across the globe and New Zealand is no exception, according to PwC's global entertainment and media outlook 2017-2021.

"The trends and consumer behaviour we see unfolding in New Zealand are largely in line with global trends, with a slight lag," said Greg Doone, PwC director, digital strategy.

According to PwC, the major digital tipping points across key segments include internet video, as international players launch and bring premium original content, internet advertising, newspaper circulation and radio revenue.

Of the four, the situation is particularly dire for newspaper circulation as New Zealand's newspaper market will continue to ensure pronounced revenue contraction, it said. Print copies are shedding circulation at a compound annual growth rate of -10.5 percent, meaning circulation numbers will more than halve between 2012 and 2021 to 246,000 daily copies.

PwC expects price rises and the introduction of digital charges to mitigate some of the revenue decline, it noted “advertising is in freefall, as media buyers follow consumers away. However, while publishers have operated popular online services "monetisation is proving elusive.” Digital advertising revenue made up 13.6 percent of total newspaper advertising revenue in 2016 and it is forecast to grow by only 2.8 percent CAGR through 2021, it said.

It noted that publishers say they are challenged by the dominance of Facebook and Google in online ad sales and said the industry’s prospects will depend on publishers’ ability to convert audiences into revenue, as well as on ownership structure.

The situation is at the forefront in New Zealand as NZME and Fairfax New Zealand have opted to appeal the Commerce Commission's rejection of their planned merger on the grounds that the estimated financial benefit creating a larger, merged entity to combat global competitors for advertising revenue, such as Google and Facebook, wasn't enough to outweigh the detriments of reduced media ‘plurality’, meaning the range of voices and views in New Zealand news reporting.

The media companies claim the regulator erred in law by concluding there were separate markets in online domestic news services, Sunday newspapers and community newspapers, and that there would be a substantial lessening of competition in those markets. They also claim the regulator wasn't allowed to take plurality into account in rejecting their application, and that even if it could, it gave the issue too much weight.

Radio revenue, however, is expected to remain fairly stable. According to PwC, total radio revenue reached $290 million in 2016, up 0.9 percent on the previous year. It is forecasting a CAGR of 0.4 percent. “Radio has traditionally proved to be resilient to the disruptive forces in play across the rest of the media landscape. This forecast points to a slight weakening, but ultimately a continuation of this stability,” said Doone.

Regarding internet video, it tips compound annual growth of 15.6 percent, producing revenues of $85 million in 2021. In New Zealand, however, it will remain less than half the size of the physical home market for DVDs and Blu-rays, according to the report.

Globally, internet video revenues will overtake physical home video in 2017. Global internet video revenues are projected to grow at a CAGR of 11.6 percent to reach $52.7 billion in 2021 while the declining market for DVDs and Blu-rays will have fallen to $19.9 billion as demand shifts to the more immediate and convenient video-on-demand market.

New Zealand's internet advertising market reached $891 million in 2016 and PwC expects advertising dollars to continue to shift online. They are tipping a CAGR of 9.0 percent and said the market will reach $1.4 billion in 2021.

It notes that search engine marketing makes up a significant portion of this in New Zealand. More than half of New Zealand's total internet advertising revenue in 2016 was generated by paid search. Doone said that "what is worrying traditional media is that advertiser spending on the digital side flows disproportionately to a few large platforms like Facebook and Google."

Internet advertising now generates more revenue that TV advertising globally. That lead, thanks to the rapid growth of mobile ad revenues, is expected to increase significantly in the next five years. Globally, mobile advertising grew 54 percent in the past year and through 2021, that number will grow at a 17.1 percent CAGR, it said.

(BusinessDesk)

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