RAM Ratings sees traditonal media to benefit from major sporting events in the second half of the year, such as UEFA Euro 2016 and the Rio 2016 Olympics
KUALA LUMPUR: RAM Rating Services Bhd expects real advertising expenditure (adex) for television and newspaper to remain pressured with a 3% to 5% decline while Internet adex continues to expand as advertisers gravitate away from traditional adex platforms.
RAM’s head of consumer and industrial ratings Kevin Lim said on Thursday that this was despite factoring in some recovery from major sporting events in the second half of 2016 such as UEFA Euro 2016 and the Rio 2016 Olympics.
The ratings agency said the credit profiles of RAM-rated media players remain supported by their strong balance sheets and solid cashflow-generation, despite the restraint in adex amid the slowing economy and the structural shift away from the traditional media segment.
RAM maintained a stable outlook on the Malaysian media sector this year, underscored by its sustained importance to advertisers.
This was buoyed by the growth of Internet adex as well as the widening array of online advertising platforms, albeit with a marginal drop in expected adex.
RAM estimates overall real adex contracted 7% on-year in 2015, due to advertisers holding back on adex amid muted consumer sentiment after the implementation of the GST and weaker earnings against the decelerating economy.
The contraction in adex was largely driven by a decline in the newspaper and free-to-air TV segments.
Lim said moving forward, adex was expected to continue facing challenges this year given the persistent weakness in consumer sentiment.
He added some upside may stem from major sporting events in the second half of the year, such as UEFA Euro 2016 and the Rio 2016 Olympics.
“Despite factoring in some recovery, we expect real adex to remain pressured, with a 3%-5% decline,” he said.
Lim said due to the shift in consumer preferences in favour of cyberspace, he envisaged Internet adex to continue expanding as advertisers gravitate away from traditional adex platforms.
“This will be supported by the increasing domestic internet penetration rate, which shows a CAGR of 5.4% for the last 5 years, reaching 72.2% as at end-June 2015.
“Additionally, the broadening range of popular on-demand entertainment platforms such as iflix, Netflix and Spotify together with the growing popularity of social media platforms (Facebook, Instagram, Twitter) may further dilute the viewership, readership and listenership of the traditional media platforms,” Lim said.
That said, traditional media platforms still dominate mass-audience-focused advertisements given their entrenched positions as the most viewed, read and accessible content medium.
Traditional media platforms also command about 90% of overall adex; this translates into healthy earnings for the big media players in Malaysia.
The three media companies in RAM’s rated universe (that is Star Media Group Berhad
, Media Prima Bhd and Media Chinese International Ltd) carry AA1/stable long-term ratings.
Given their respective cost-cutting strategies, these media players even managed to improve their earnings despite softer adex in fiscal 2015.
Their ratings remain supported by their sturdy balance sheets and still-robust cashflow-protection metrics.
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