Is it a do-or-die battle for media and telecom companies?

Historically, the advances in technology have affected all business sectors. The Industrial Revolution disrupted manufacturing sector in the 20th century and, currently, digital technologies are affecting all facets of business and economy.

Companies in the telecommunications and media sectors are facing a dire need to innovate their products and services, and to revisit their business models. It’s a battle for survival.

On one hand, sluggish economies in the Gulf region thanks to low prices have increased troubles for the telecom and media sectors. On the other, the digital disruption is begging for a complete overhaul of the processes and systems followed by the two sectors. An analysis of the quarterly financial results of the media and telecom companies in Saudi Arabia, the UAE and Kuwait reveal dwindling profits. Saudi Research and Marketing Group, listed on the Saudi stock market, Tadawul, reported $14.1 million net income for the quarter ended December 31, 2016. The net income of the company, which publishes Arab News among other media activities, further shrank in Q1 2017 to $4.81 million and in Q2 2017 to 1.79 million – an 87 percent drop in income from Q4 2016.

Another Saudi-listed media firm Tihama Advertising and Public Relations Co reported a loss of $2.02 million in Q4 2016 and a loss of $1.86 million in Q1 2017. The company marginally recovered in Q2 2017 and reported a net income of $421,000.

Kuwait-listed Kuwait Cable Vision Company reported that the Group incurred a net loss of approximately $400,000 during the period ended June 30, 2017, and, as of that date, accumulated losses amounting to $7.93 million, adding that the Group had most of its liabilities, $1.68 million, maturing by end of 2017.

The digital disruption is posing new challenges to news media, entertainment media and paid media. Like elsewhere, regional players were quick to react to this digital transformation, but the overall response from the media industry was a bit disjointed.

When media houses turned to digital platforms to offer their products and services, the advertising industry was not convinced on return-on-spending. By the time advertisers warmed up to digital media, most of the media companies’ budgets marked for digital platforms have been exhausted. Experts views this as ‘death by short-termism’.

Putting users first

Just like what is happening with many other sectors, media is fast becoming an industry where users come first. Strategy&, formerly Booz & Co and now a subsidiary of PwC, says an entertainment and media (E&M) offering today simply cannot thrive without the economic, social and emotional power of fans.

“Premium content is expensive and getting more so. Distribution is a brutal battle for shelf space where only brands that are ‘most wanted’ can hope to win. The steady march of digital
technology has ushered in a direct-to-consumer environment, characterized by greater choice and user control. There is simply too much competition for users to allow E&M businesses to survive on experiences that cater to casual ‘eyeballs’ or infrequent users.”

“The formula for success is shifting radically,” noted the 2016 Strategy& Industry Trends report on entertainment and media. “No longer is it enough to develop content for eyeballs. Now, you must create a fan-centric business.”

US-based Christopher Vollmer, a Partner at Strategy& and PwC’s Global Advisory Leader for Entertainment and Media, says: “In today’s hyper-competitive landscape, entertainment and media businesses designed around and for fans command multiple strategic advantages.”

“They know more about who their users are, what they want, and how and where to deliver it. Fans spend more per capita and are less likely to churn. -Today’s fans also recruit tomorrow’s,” he adds.

“Fans are by definition fanatics — people whose enthusiasm or zeal is beyond normal levels of behavior. Avid fans cannot get enough of the content they love. They binge on it. They share it. They talk and post about it. They create more of it,” he continues.

“Avid fans will seek out content-fueled interactions across a diversity of experiences, provided those interactions ignite and power their emotional connection with, say, a sports team, a film, or a video game. For many fans, the quality of these experiences is further amplified when it translates into social connections; fan-to-fan relationships; and active communities united by shared passions, values and interests,” writes Vollmer in a report.

On wholesome user experiences, he says: “Companies that create content and experiences tailored to avid fan bases can unlock significant business value.

In recent years, the National Football League has placed growing strategic emphasis on its own media assets, including the NFL Network, a 24/7 pay-TV network that has become a $1 billion business.

“The New York Times Company is pursuing a “subscription-first” growth strategy, which is aimed at expanding its roster of subscribers from the current three million to ten million. In effect, this is a fan-first strategy. It emphasizes super-serving users who are regular readers and most willing to pay for a print or digital subscription,” says Vollmer. “The New York Times has increased its investment
in journalism focused on storytelling through podcasts, visualizations (such as maps and interactive graphics), video and live events. These moves reflect a recognition by the company that it can achieve more, in terms of subscriptions and advertising growth, by creating more premium content targeted to its most valuable readers than by engaging in a less-focused effort to boost page views and the number of less-committed unique visitors,” he adds.

There is a need for the media houses in the GCC, especially in Saudi Arabia, which has a large population, to capitalize on connected users and create a complete experience for users. Even in the post-digital revolution world, content continues to be the king. Creating premium and exclusive content, whether in print or broadcast media, will result in loyal users, who will not only consume the media but also share through platforms such as social media. For the past decade or so, content in GCC news media has been driven by Public Relations (PR) companies.

As a result, content differentiation between competitors is minimal. New relationships and fresh processes should be defined among news producers, advertisers and PR companies to create content with users at the center. This might result in some trade-offs for these three stakeholders in the media industry.

As mentioned earlier, the dwindling balance sheets of media companies in the region could only be salvaged with long-term strategies of innovation. As the author of The World is Flat, Thomas Freidman, rightly said, media creation, which includes journalism, will continue to thrive amid the wave of Artificial Intelligence (AI) and machine learning, the latter two will only enhance the processes of the former.

The telecom question

The story of the telecommunications sector is similar to that of the media sector. The growth and the revenue models that companies have followed for years are turned upside down owing to new  technologies.

Highlighting the role that governments should play, Saudi Telecom Company’s Group CEO Dr Khaled Biyari says: “(As) the whole region is moving towards digital transformation through elements of the Fourth Industrial Revolution, here comes the importance of governments in the region to provide the right environment and stimulate investment in digital infrastructure required.”

“STC embraced the Kingdom Vision 2030 and the national transformation program 2020 through multiple initiatives, which include deployment of broadband throughout the Kingdom. The company recently signed with the Ministry of Communications and Information Technology, represented by the Communications and Information Technology Commission, an agreement to provide high speed broadband with fiber-optic technology, with a projected cost of up to $2 billion, designed to deliver broadband to more than two million homes across government plans, under the supervision of the Ministry of Communications and Information Technology.”

“Also, STC will continue to invest in promising technologies and digital sectors, particularly in areas that enable the company to benefit from their assets and infrastructure and help enable growth and expansion of investments in different areas, and the latest company announcement establishing a $500 million venture capital fund (STV) to strengthen this trend,” explains Dr Biyari.

When it comes to financial performance, the UAE firm etisalat has said its Q2 2017 net profit was $536 million, which stood at $569 million in Q1 2017 and was $630 million in Q2 2016.

Another UAE telecom company du reported that its six-month net income until July 30, 2016 was $243.1 million, while for the same period in 2017 the net income was $221 million – down by nine percent.

Vice chairman at Deloitte and US Telecom leader Craig Wigginton has a few suggestions for the telecom companies to keep their revenue streams flowing smoothly. Wigginton sees the growth in smartphone usage as a continuing opportunity for all telecom sub-sectors, including wireless and wireline/broadband carriers, network equipment/infrastructure companies, and device manufacturers.

He identifies two potential areas of focus – content and the Internet of Things (IoT). “The long-standing promise of delivering content to any screen is finally becoming a reality, enabled by advances in network technology and higher speeds, as well as enhanced content at the carrier level, whether owned or resold,” he says in the Telecom Outlook Report of 2017.

He continues: “Consumer demand for digital technologies that make it easier to control their homes and cars has grown and will help to drive incremental revenue in the ecosystem.”

“Carriers should continue to focus on providing data and voice services that are high-quality, reliable and affordable. [Telecom firms] will be moving away from proprietary, hardware-based network equipment to software-based network functions, with technologies such as software defined networking and network function virtualization,” says Wigginton, adding that this shift should allow them to manage their networks more efficiently and effectively, and be more responsive to changes in consumer preferences.