Digital advertising trend and revenue decreases, path of recovery for traditional media

On February 2, Facebook's parent company, Meta, announced an unsatisfactory results, causing the stock price to plummet; in fact, this was not an isolated incident, and likely heralded the liberation of the entire media industry from oligopoly.

Just as Meta founder and CEO, Mark Zuckerberg admits the outlook is fraught with challenges, with user behavior shifting and users becoming more concerned about privacy, the online ad bonus is no longer as enticing as it once was. 

Unlike the challenges Meta are facing, Nielsen's research data in Malaysia has given a boost to traditional media, which was originally considered a sunset industry.

In 2021, Malaysia traditional media advertising revenue (ADEX) will increase by 20.3% year-on-year to RM 4.9 billion , which is close to the pre-epidemic level; and free TV advertising revenue will reach a record high of RM 3.5 billion.

Success of Media Prima Berhad

On February 23, Media Prima Berhad (MEDIA, 4502, the main board telecom and media stock) announced its 2021 financial year-end quarterly results, with revenue up 6% year-on-year, and net profit soaring 53.64%, earning RM 28.94 million, a new record high in three years. 

At the same time, the group even announced the distribution of dividends after five years; the bright performance obviously exceeded market expectations, and the stock price also rose sharply, around a 20% increased.

However, it is not accidental that this kind of traditional media "to rise from the dead". The report of Nielsen research has already revealed the clues; in 2021, Malaysia's traditional media advertising revenue had reverse the trend of 6 consecutive years of decline and increase by 20.3%, of which included TV advertising revenue, It also hit an all-time high.

Radio advertising revenue had also turned profitable. Star Media (STAR, 6084) announced a quarterly big loss, mainly due to a one-off asset impairment loss; the group's turnover, as well as radio advertising revenue, rose by a large margin.

The fiscal year of Astro (ASTRO, 6399) ended at the end of January, and the final quarter results have not yet been announced, but many analysts have been looking forward to it; many investment banks have already listed this Chinese company. TV Overlord, as one of the top recommended dividend stocks.

New and traditional media align to create a win-win situation

As early as half a year ago, the explosion of traditional media advertising revenue was already brewing; there are many signs showing with the relaxation of the MCO in Malaysia, merchants have become active in the local advertising market.

The local media is also undergoing transformation; in the past few years, on-demand streaming media (VOD) has aggressively invaded the global market, which has brought a lot of impact on the traditional TV industries in various countries, but the final result proves that the way the US online media giants create a red ocean, will only end up in a double-lose.

Media Partners Asia (MPA), an independent media and telecommunications research, advisory and consulting services company in the Asia-Pacific region, reached a consensus between traditional and emerging media at the APOS Asia-Pacific Media, Telecommunications and Entertainment Industry Summit held in September last year. ; Streaming media such as Netflix and Disney+ will ultimately need to led by local media groups in order to enter markets in very different regions.

Last year's popular drama "Squid Game" was born in this context. Netflix doesn't need to force their Hollywood productions to feed a global audience; instead, streaming giants need to work with local content producers to create great content from around the world.

Online based media also need local media groups to provide them with a wider audience; the likes of Astro are moving towards becoming a "super-aggregator" of subscription-based streaming on demand (SVOD).

In this context, the traditional media that has been transformed has also boarded the train of economic recovery.

Also, the upcoming 15th general election is expected to further boost the local advertising market.

CIMB Investment Bank Research therefore believes that, based on the current growth momentum of advertising revenue, Media Prima's EPS growth in the next two years is expected to reach 18.1 to 43.6% in the next two years; Astro's EPS is compounded annually. Growth, the same can reach 11.5%, and is expected to pay dividends as high as 7.8 to 10.5%.

Facebook & Google ads are no longer popular

Another phenomenon that is leading to a surge in advertising revenue in local traditional media is the shrinking return on advertising on Google or online giants such as Google.

According to a report released by Hong Leong Investment Bank Research, local businesses who have been flocking to online advertising earlier have begun to focus on more channels for advertising, including returning to traditional media.

Nielsen's latest report on Malaysia's media advertising revenue even wrote, "This is an initial signal for businesses to return to traditional media advertising."

One of the major reasons for the losses of advertising by giants such as Facebook and Google is that as netizens pay more attention to personal privacy, the practice of collecting user behavior and placing targeted advertisements is being despised on.

Apple has changed its privacy policy so that apps need to obtain additional permission from users to obtain user behavior information. As a result, 62% of users refuse to allow apps to continue collecting their behavior information.

In its latest earnings report, Meta estimated that the changes to the privacy regulations will cause the group to lose $10 billion in advertising sales this fiscal year; this is equivalent to 8.5% of Meta's revenue last year.

Google-owned YouTube and Google Display Network are also expected to suffer the same losses.

At the same time, Google is also working to strengthen user privacy protections, including developing new technologies to replace third-party cookies that collect information about user behavior.

It is unknown how effective Google's new third-party cookie alternative will be; however, there are indications that a model that relies on collecting user data for advertising will not be able to generate sufficient benefits in the future.

Low-cost advertising intensive diminished 

“It used to be a thing of the past when it cost less than RM10 for advertising to precisely reach out to potential customers on Google and Facebook. Gone are the days.”

On the other hand, Malaysia has implemented a 6% digital tax since 2020, which has also reduced the return on advertising for merchants on digital platforms.

"On Facebook and Google, the return gap between advertising in traditional media and advertising in traditional media is narrowing; this helps local merchants to be more willing to return to traditional media to advertise."

Learn from the new media advertising model

Of course, the advertising strategies of Internet media giants are still outstanding, and local media have also learned from them and made good use of them, narrowing the gap between the two sides.

Now, not only giants such as Facebook and Google provide a full range of advertising packages, but Media Prima has also begun to integrate its different media resources and launched a full range of advertising solutions, allowing customers to advertise across platforms at the same time.

This allows advertisers to reach different target audiences at the same time through lower advertising costs.

Astro, on the other hand, has launched a targeted advertising service similar to that used by online media, with different advertisements for different audience groups.

In December last year, Astro first launched on-demand streaming media for paying users, with designated advertisements based on customer data; in recent years, this delivery model is expected to expand to other TV stations.

Media stocks have emphasize value

In addition to a better prospects, many investment bank studies have also pointed out that in the past few years when local traditional media fell into a cold winter, the stock prices of media stocks fell to the bottom one after another, emphasizing their value further more.

CIMB Investment Bank Research's financial believes that as Media Prima's earnings increase significantly, the expected price-to-earnings ratio in 2023 is expected to be as low as 8.1 times.

As the media group just reported an excellent result, analysts also raised its earnings forecast for this year and next by 15.2% and 4.9%.

Astro is considered a stock with a "valuation lower than 80% of global pay TV peers"; the stock's 2022 forecast enterprise value is only 5.3 times its earnings before interest, taxes, amortization and depreciation (EV/EBITDA), which is significantly lower than Global peers average 22 times.

Hong Leong Investment Bank research analysts pointed out that in an era of rising global inflation, media groups that mainly produce content are less affected by inflation.

On the other hand, the media sector is also rarely exposed to environmental, social and regulatory (ESG) risks, making these stocks a safe haven against inflation and ESG risks.

In fact, Seni Jaya Corp Bhd has also demonstrated its value, the company has turned losses into profits, and the company's expected price-earnings ratio in 2023 is also about 5.3 times , the company has already shown its value at this stage. There is even a discount compared to the price-earnings ratio of its peers.