PART of the decline of Malay daily Utusan Malaysia and sister publication Kosmo is due to subdued earnings caused by weak advertising expenditure (adex), a situation faced by traditional media segments, an analyst said.

Listed media companies, as Utusan Melayu had been until it was delisted from Bursa Malaysia last Friday, can also expect to be dogged by lower earnings in the near future as advertisers gravitate to online platforms, said MIDF Research analyst Khoo Zhen Ye.

“The traditional media segments i.e. TV, radio, and publishing, which still constitute a large portion to the revenue of media companies (e.g. Star Media Group and Media Prima), continue to face significant headwinds of structural changes in the media sector,” he told The Malaysian Insight. 

The signs had already been there, when digital apex achieved 28% last year, surpassing adex for TV for the first time.

Even though traditional media companies are attempting to transform themselves into “digital-first entities”, Khoo said this transformation has proven to be challenging.

Media companies drew in lower revenue from digital adex in the first quarter financial year of 2019 and Khoo predicted that they will continue to find it difficult to capture more value from the growing digital pie.

“The venture into non-adex based revenue also has yet to contribute positively to the bottom line. 

“Meanwhile, cost-cutting measures seem to be hitting a plateau and coupled with decreasing revenue, have put pressure on the companies’ cash reserve.” 

On that note, Khoo said no improvement can be expected in the financial performance of media companies listed on Bursa Malaysia in the near term.

In Utusan’s case, however, Khoo said the group’s net cash position had been in negative territory for an extended period of time, compared with stronger net cash positions of other media companies that MIDF Research tracked.

He did not expect other listed media groups to embark on any potential delisting in the near-to-medium term.

As at June 30, Utusan’s total debts stood at RM139.19 million. Its securities were delisted on August 30, about a year after the publisher of Malay newspapers was admitted into the practice-note 17(PN17) category on August 20, 2018.

Trading of its shares were suspended after it failed to submit a regularisation plan to the stock exchange regulator by the August 19 deadline. 

Its board of directors has also decided not to appeal against the delisting.

Meanwhile, Hong Leong Investment Bank (HLIB) in a research note dated July 8, rated the media sector as “underweight” due to prolonged adex slump, which growth in the digital segment had not been able to offset. 

“As the shift from traditional media to online media remains a hurdle, digital contribution has yet to offset the falling traditional revenue, we prefer to remain cautious. Due to the lack of near-term catalyst, coupled with rising competition, we maintain our underweight stance on the sector,” it said.

The research house said adex revenue is expected to remain muted in the second half of the year, in the absence of events that could boost advertisements.

Growth in video, mobile ads

However, digital adex from video and mobile advertising are expected to see a healthy growth.

“High internet and smartphone penetration rates of 86% and 82% will continue to drive digital adex, which in turn will be a bane for traditional adex due to cannibalisation as the former commands better flexibility and offer targeted advertising capability,” it said. 

The report said media houses have acknowledged the sectoral headwinds and have been embarking on cost-cutting drives, such as cost optimisation and voluntary separation schemes.

“Astro’s bottom line grew 0.5% year-on-year on the back of lower broadband costs and marketing costs, The Star also saw savings on direct cost by 14.8% YoY, and Media Prima’s direct cost was lower by 4% YoY thanks to lower content and marketing costs. These cost-cutting strategies are crucial for media companies given their flattish/declining top line,” it said. 

HLIB said it expected media companies to embark on more content partnership, especially in the vernacular sector, as the segment is seen as a proven strategy with the ability to attract more viewership and subscribers.

Analogue TV, which will come to an end in September 2019, will also pave way for digital TV, which will allow consumers to enjoy better audio and picture qualities.

Currently, there are 15 TV channels and six radio channels available on the myFreeview platform, and more new broadcasters are expected to come on board in the near future.

“We believe myFreeview would provide competition to Astro’s NJOI, and we view this positively to Media Prima, fuelled by optimism on lower transmission fee and improved viewership,” it said. 

How other groups fare

Media Prima Bhd recorded a net loss of RM8.83 million in the second quarter as at June 30, compared with a net profit of RM31.95 million in the same quarter last year.

Revenue for the same quarter fell 13.3% to RM296.77 million from RM342.37 million a year ago.

For the cumulative period of six months, Media Prima recorded a net loss of RM49.23 million compared to a net profit of RM10.13million in the first half of 2018. The net profit recorded in the first half of 2018 was due to the one-off gain on sale of shares in an associate amounting to RM45.3 million.

Revenue for the first half of 2019 declined by 14% against the corresponding financial period to RM535.87 million from RM623.04 million as a result of lower revenue, especially from the traditional revenue segment.

Nevertheless, the home shopping business continued its growth, partially mitigating the decline in the traditional revenue segment.

Star Media Group was in a better position due to higher profits in the print and digital segment and better cost-management controls. This drove net profits up by 17.2% to RM1.66 million in the second quarter ending June 30 from RM1.41 million in the same quarter a year ago. 

However, revenue for the same period fell 21.9% to RM77.73 million from RM99.49 million in the second quarter of 2018.

For the first half of 2019, Star Media’s net profit slumped 59.2% to RM 5.20 million from RM12.73 million in the same period last year on lower contributions from all its operating segments.

Revenue for the period declined 23.12% to RM160.30 million from RM208.52 million. 

Berjaya Media Bhd narrowed its net losses in the fourth quarter ending April 30 with RM3.71 million from RM6.02million. 

Revenue was down by 25.93% to RM4.81 million from RM6.50 million due to lower advertising income reported by its principal operating subsidiary, SunMedia, as advertisers have shifted their advertising preference to the digital platform.

For the full financial year, net losses for theSun newspaper’s publisher widened to RM16.99million from RM12.50million, due to compensation for two legal suits.

Revenue fell to RM25.65 million from RM33.26 million.

Berjaya Media, which is also in the PN-17 category, told the stock exchange on August 1 that it has been granted an extension until December 20 to submit its regularisation plan, subject to it entering into a proposed definitive agreement with a white knight by October 20.

Meanwhile, Astro Malaysia Holdings Bhd’s profit saw a marginal increase of 0.84% to RM176.20 million in the first-quarter ended April 30, 2019 from RM174.73 million a year ago on the back of cost discipline measures.

Revenue for the period fell 6.12% to RM1.23 billion from RM1.31 billion in the preceding year’s corresponding quarter due to lower in subscription revenue. – September 3, 2019.