How NZ media is faring in an age of global disruption

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Written for M+AD by Sydney-based Steve Davis, Ooyala vice-president/GM Asia Pacific & Japan:  Forces sweeping across New Zealand’s media landscape are changing the ground rules for all players. The arrival of new competitors and evolving technologies mean existing business models are no longer working. The organisations that survive will be the ones that adapt – and do it quickly.

The numbers tell the story. According to the most recent advertising expenditure forecast from buying group Zenith Media, global internet advertising expenditure will increase this year by 13% and reach US$205 billion.

Zenith forecasts 2017 will be the first year in which more money will be spent on internet advertising than on traditional television advertising (forecast to be worth US$192 billion.

In  2018, Zenith predicts global advertising spending will grow by 12% – however this will come primarily at the expense of traditional media.

The trend is already evident. According to industry monitoring company Digital in Asia, in the first quarter of 2017, 92 cents out of every new dollar spent on online advertising across Asia Pacific (excluding China) went to either Facebook or Google.

Indeed, while digital marketing revenues across this region will be up by US$1.23 billion year-on-year in 2017, virtually all of it – US$1.13 billion in total – will go to Google and Facebook. That leaves just US$100 million to be shared across the remainder of the region’s publishers.

Fundamental industry changes
The impact of these tectonic shifts is already becoming evident. Publisher Fairfax Media recently announced yet another purge of its newsrooms, with a further 25% of journalists being shown the door. This follows a series of redundancies in recent years caused by plummeting print revenues.

Free-to-air television is also feeling the pressure. In Australia, Network Ten recently announced a half-yearly loss of A$232 million and went into voluntary administration.

In New Zealand, Fairfax NZ and NZME are feeling the pressure from Facebook and Google, who takes an estimated 80% of the online advertising revenue. They recently had their merger plans blocked by the Commerce Commission last month.

The key challenge is that New Zealand media companies have difficulty effectively competing with large international rivals. When you have to battle against giants such as Facebook and Google, mergers may be the only realistic approach.

In a recent Ooyala Video Industry Forum in Auckland attended by over 30 media and industry executives, 71% of attendees said that Fairfax NZ and NZME should merge.

“While digital marketing revenues across this region will be up by US$1.23 billion year-on-year in 2017, virtually all of it – US$1.13 billion in total – will go to Google and Facebook.”

A shifting pay-TV market
The changes affecting the media industry also extend to the pay television market. According to PWC’s entertainment and media outlook report for New Zealand, pay-TV rates are at 57%, however internet streaming (OTT) alternatives are growing rapidly. According to a recent report by Roy Morgan Research, two in every five New Zealanders now subscribe to an OTT service.

This trend is going to cause changes for pay-TV operators which will have to ensure they focus on areas that are not served well by OTT players. Sports are the natural place as fans are prepared to subscribe to see games not available on free-to-air or OTT platforms.

When it comes to entertainment, however, pay-TV providers are being crunched because of the need to compete with Netflix and other large OTT players. Younger viewers will consume content wherever they can access it and if that’s not a local service, they will go elsewhere.

To counter this, companies must find ways to invest more in local and compelling content. Viewers will be attracted by well made, compelling local content and this needs to become the focus for indigenous television companies.

The role of technology
As media companies grapple with these changes, the ways in which they make use of technology will be vital. For publishers, the need to succeed across both print and digital platforms means effective use of everything from programmatic advertising systems to distribution platforms.

Artificial intelligence will also play an increasingly important role. Automatic content recommendation engines will become the way in which many people discover new content, and the advertisements that accompany that content.

While early examples of this trend can be seen now, expect the engines to become vastly more sophisticated. Google and Facebook are both investing heavily in their AI technologies and this will have an even larger impact on media companies in the future.

The need for evolved operating models
Clearly, the old advertising-centric approach used by New Zealand publishers and broadcasters is no longer working, and alternatives must be found. Several ideas have been proposed by academics and the industry.

One option is the paywall and subscription systems many organisations have put in place. While these work well for some operators, they struggle in areas such as general news which has become a commodity and readily available online for free. Those that succeed with subscriptions tend to be media companies that carve out a niche and serve that audience well.

Another option is crowd funding, where consumers are encouraged to provide financial support for content creation. This approach is working well in areas such as the technology industry and could become successful for media companies too.

A third option is more funding for public broadcasters. Armed with larger budgets they will be able to create and distribute the kind of content that people want and need, but is unviable for a commercial entity to produce.

Attendees at the recent Ooyala Video Industry Forum in Auckland suggested that a mix of tactics from subscription pay walls and market regulation to a model where public broadcasting is funded by the government and publishers become specialised news outlets, might indeed work.

Industry veteran and former ceo of Spark Media and Lightbox NZ, Kym Niblock, suggested, “History shows that if we don’t allow commercial organisations to do what’s necessary to streamline their operations when disrupted, they might go out of business. Anything that allows media organisations to come together and streamline their operations to deal with overseas influences is going to be a positive thing.

“At the same time, I believe people will become more willing to pay for content in future. Consumers will become more comfortable that content created is actual IP and that they need to pay for it.”

Clearly, the New Zealand media landscape will begin to look very different in coming years. Global forces and technology shifts mean local players are faced with significant disruption and the need for fundamental change. Overcoming these challenges and charting new strategies must be their central focus.

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