Media sector faces tough environment in 2018

KUALA LUMPUR: AmInvestment Research said it is Neutral on the media sector for the coming year as it forecasts a tough environment given ineffectual digitalisation initiatives undertaken by the companies in cushioning the decline in adex rates.

"The rising penetration of high-speed internet and falling cost of data are aggravating the
already gloomy state of affairs, hastening the switch from traditional media towards digital mediums, in which entry barriers are low and monetisation is challenging. 

"In addition, the imminent analogue-switch-off (ASO) in June 2018 creates uncertainty for TV players, especially in the free-to-air (FTA) segment."

The research house said it expects consumer sentiment to remain weak in 2018 agains tthe backdrop of Malaysia's high household debt-to-income ration. 

However, the Winter Olympics and FIFA World Cup in 2018 will be a catalyst for advertising volume to help sustain adex rates. 

The print segment however will continue to register declines in circulation revenue, which have been falling at an average rate of 6% every half year for the last three years, said AmInvestment Research.

In the Pay TV segment, operator Astro has a window for business transformation despite the rapid move towards digitalisation, as high-speed Internet remains underpenetrated in rural areas.

"For this reason, we believe Astro's earnings will be among the most resilient in 2018, given subscription revenue still constitutes bulk of its revenue (>80%). 

"However, over the longer term, competition is bound to intensify as smooth content streaming becomes possible with cheaper alternatives, such as over-the-top (OTT) media and IPTV."

However, FTA players such as Media Prima will face untertainly upon the digital switchover  in June 2018. Following the switchover, video content will be broadcast through digital transmission, which requires either a set-top box (STB) or an integrated digitial television (iDTV) for content reception.

"However, the need to purchase an STB or iDTV could result in reduced household penetration
in the local FTA TV industry, as consumers get wider (if not better) options such as Mi Box and Amazon Fire TV Stick. The risk is mitigated by the local companies' strength in vernacular contents."

The radio and out-of-home segments remain more resilient, said AmInvestment Research  with readio listership relatively unchanged in 2017 from 2016. 

"In the out-of-home segment, earnings are underpinned by migration from traditional
billboards to digital panels, which command better margins. In addition, there were new rollouts of advertising panels after the completion of the MRT." 

AmInvestment Research said it could upgrade the sector to Overweight should the consumer sentiment index reach the 100 mark, from 77 in 3QCY17, which would confirm the restoration of consumer confidence. 

AmInvestment Research said it it concerned with the low entry barrier in the online media industry, which could escalate competition. 

"Therefore, in the event that our local media companies fail to grow digital reach for a sustained period, we may downgrade the sector from Neutral to Underweight. In addition, if consumer sentiment deteriorates significantly from this point, we would also turn negative on the sector."