Sources: Industry Reports

Pan Arab Media Landscape ( Recession Effect)

Shariq Farazshariq_z@yahoo.com

An overview of the Arab World’s Media industry in the current Economic downturn

August 2009

2

Contents

Media Industry Context

Economic Recession Effect

References

3

Current Global Media Context

Global Media & Entertainment Industry ValueTotal $ 1.3 Trillion ($1.3 Thousand billion; $ 13 Thousand Million

Split of Total Global Value created by Various Media

Percentage Split of Total Global Value Created by Various Media

Source: Picard 02

Europe, Middle East & Africa 35%

US & Canada 45%

Asia pacific 20%

Latin America 0%

Internet Service20%

Cable Subscription

19%Motion Pictures

15%

Newspapers10%

Books10%

Television7%

Radio2%

Videogames5%Audio

Recordings5%

Magazines7%

Traditional Media 64%

Sports & Amusement Parks 15%

New Media 21%

4

Cut-throat Pan Arab FTA market faces declining Ad-spend in current scenario

MENA TV market increased by 1400% over what analogue framework accommodated a decade ago.

High number of Free To Air channelsSelected countries – 2009

Sources: Picard 2002

US MENA UK Asia Pacific France Canada

385 428 >200 38 18 17

The increasing number of channels is resulting in audience fragmentation. Increase in multi-channel penetration and the lower CPMs on thematic channels accelerate this deflationary pressure on TV advertising prices

Effect of Increasing Channels On Average Share Of Television Audience

Pan Arab illustration

Increased Number of Channels

Reduced Average Audience per Program

Reduced Advertising Revenue/Channel/ Hour

Increased Program Cost per Audience Member

Reduced Profit per Channel

Worsened further because of economic crisis

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

No. Of Channels

Aver

age

Shar

e O

f Tel

evis

ion

Audi

ence

5

Satellite Broadcast in the Pan Arab WorldFree to Air Satellite Channels by Languages Free to Air Satellite Channels by Regions

Free to Air Satellite Channels by Ownership FTA Satellite Channels riding Multiple Satellite to amplify reach

83%7%

7%

3%

ArabicEnglishOtherArabic/English

1%

27%

72%

MixedGovernmentPrivate

20%

23%

46%

6%

5%LevantAfricaGulfUS/EuropeOther

Nilesat Arabsat

Noorsat

6

Clearing the haze by categorizing 428 FTA channels on Reach & Profitability

SWF under the patronage of Royals

Public Broadcasters funded by Government

2% (10 channels)- The Profitable Sovereign Wealth Fund Channels getting 80% of ad-revenue

27% (114 channels) Public broadcasters under Government patronage ,not dependent but seek for remaining 20% ad-spend

2%

27%

71%

Profitable SWFPublic BroadcastersNo Profit Channels

Struggle for leftover 20% ad-revenue & viewership

Enjoy approx 80% of the ad-revenue & viewership!

Loss making entities to a large extent

71% (304 channels) The No Profit Channels -loss making strive for pie of 20% ad-spend plus SMS business model

Regional illustration

Source: Arab Advisors Group

View

ersh

ip &

Rev

enue

Number of FTA Channels

Pan Arab FTA Market the Long Tail Phenomenon

Source: Chris Anderson, 2008

Top 2%

Remaining Channels- Long Tail

( but demand cycle is not repetitive in broadcasting)

7

Pan Arab TV Industry 2009 Exit list

In the past 4 years 81 FTA have shutdown, of which :

24 General Entertainment

17 Variety

10 Music

7 News

4 Sports

3 Movie Channels

Sr. No. General Country

1 AEN KSA

2 Al Madina TV Egypt

3 Al Hadaf TV Egypt

4 Al Hekayat TV UAE

5 Al Mirbad TV Iraq

Variety Entertainment

6 Al Ganadria TV KSA

7 Fun Satellite Egypt

8 Maktoob TV Jordan

9 Al Shashah UAE

10Kulloun Al Kuwait TV

Kuwait

Music

11 Venus TV Egypt

12 Escape TVJordan

13 Shaharzad TV Lebanon

14 M Live UAE

15 Kunouz UAE Source: Booz Allen Hamilton

Regional TV Industry is Churning

Convergence in Regional Media

Digital Convergence

Print

Audiorecordings

Broadcast

Convergence is being actively resisted

Convergence Situations Involving Media Platforms and Producers

Motionpictures

Some convergence is spurred by common interests in

soundtracks and distribution systems

Strong linkages have been formed in visual entertainment

sectors

Online

Convergence producing limited benefits

Convergence producing limited benefits

Global illustration

Source: Picard 05

10

2009 witnesses Convergence & Consolidation strategies in Pan Arab market

Strategiesillustrations

Launch new services / investigate new business models

Consolidation & Vertical Integration

Partnership with new players

(Horizontal –Integration)

Leverage content on new distribution channels (New media, mobile, …)

Monetization of non linear content (VoD, DVR)

Merger of similar businesses to realize economies of scales

Acquisition of players having complementary services

Convergence partnerships with Telcos

Partner with MNOs in order to provide content and share the distribution revenues with the operator

Partner with an infrastructure wholesaler in order to launch a MVNO by leveraging on the Brand and the content

Having succeeded in building a true Pan Arab audience on TV, Arabic media majors are leveraging their content on the internet

• MBC Group and Etisalat announced over 8 million videos being viewed by over 3 million visitors 65% from Middle East alone through internet TV” platform ww.mbc.net/shahid since its launch in 2008

• Ten Sports has signed an agreement with UAE-based du to launch its international beam to mobile TV subscribers in the Middle East

In highly competitive pay TV markets, as a result of FTV players are consolidating their presence through M&A activity

Showtime & Orbit

In highly competitive pay TV markets, as a result of FTV players, Pay TV operators are consolidating their presence through M&A activity

Showtime & Orbit announced merger in July

Zee TV is considering taking control of Taj TV, which owns Ten Sports. Zee had acquired 50% stake in the Taj TV-owned Dubai-based

Spacetoon in cooperation with Zain telecom is to initiate project of mobile SIM cards for kids And also in mobile contents production

AMG) has selected never.no's Interactivity Suite to support a participation-TV venture by AMG's Arab Television Network (ATN) to encourage audience interactivity

Source : Trade Reports 09

11Sources: Arab Advisor Group & PWC Arab Media Outlook 2008-2012

Driving Force behind Coverging trend in the regional Industry

The PWC Arab Media Outlook: 2008-2012 predicts that digital platforms in the Arab world could account for 80% of Advertising market in the coming years.

With various dynamics, Internet penetration is developing fast in MENA

Arab countries by GDP/capita; Mobile & Broadband penetration

Broadband penetration of pop (%) With a population of 300mn and 2/3 of them under 30 ME is key

growth area for New media. The region’s major media groups are targeting lucrative Arab youth market with user generated content, social network sites and multiplatform content on demand

Mob

ile p

enet

ratio

n of

pop

(%)

12

NMC(Regulatory

Body)

Viewers

Syndicators

Advertisers Channels

Program Producers

Money

Money

Audiences

Programs TimePolitical Process

Licenses

Compliance with guidance

ProgramsMoney

Money

Programs

MoneyPrograms

Inter dynamics within the contemporary Pan Arabian TV industry

Weak Strong Sources: Harold L. Vogel; 2007

13

Advertising spend in the Middle East and African (MEA) region is projected to increase 25 percent from 2008 to 2013 as per trade reports.

MBC moves into film finance with its first venture a short film The Circle, which was shown at the Gulf Film Festival.

PESTEL Developments for Regional Media Industry

1st Quarter 2009

Abu Dhabi Government launched a £1bn film fund.Under its patronage Imagenation Abu Dhabi, the film division of the ADMC, announced financing two new films through its five-year partnership with Participant Media: a family comedy titled "Furry Vengeance" and a remake of George A. Romero's 1974 cult classic, "The Crazies."

Po

liti

cal

2nd Quarter 2009

• His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, inaugurated the eighth edition of the Arab Media Forum

• Fallout in KSA royal circle with regards to media expansion of the Kingdom Holding Group

Tec

hn

olo

gic

alS

oci

alE

con

om

ical

4th Jeddah Film Festival cancelled in KSA after public protests.

• Funding, from the US$ 50mn Intel Capital Middle East and Turkey Fund, owned by Intel Capital, Intel Corporation

• Nielsen to launch People metering service in Dubai

Dubai refused permission to film sequel of TV series “Sex and the City” in the Emirate due to cultural factors.

LBC Office in KSA shut down over airing of content deemed culturally inappropriate.

• Etisalat & du announced the launch of a (HDTV) service • MBC Group and Etisalat announced over 8 million videos have been

viewed through their internet TV” platform on ww.mbc.net/shahid• Ten Sports signed an agreement with du to launch its international

beam to mobile TV subscribers in the MENA.

Leg

al

MBC network has penned a deal with Warner Brothers studios which has granted the broadcaster exclusive rights to content produced by the company until 2011.

• US Lawmakers proposed legislation to label satellite providers Arabsat & Nilesat as terrorist organizations because of TV stations they carry like al-Aqsa, al-Manar TV and al-Rafidayn TV

• MBC ordered to pay AED 2.5 million in compensation by Dubai Courts to the heirs of late legendary singer Abdul Haleem Hafiz for breach of copyright.

Sources: Trade Reports 2009

14

Contents

Media Industry Context

Economic Recession Effect

Appendix

15

Spiral of Decline for Media Companies created by Economic Downturn

Advertising corresponds to general Economic Conditions

Media companies are affected differently

Sources: Picard, 05; Doyle, 02

2

Low Retail Sales Low advertising revenue

Reduced expenditure on content, personnel, equipment marketing

Selling or possible closure Further reductions in financial resources

Less desirable audiences less ad-revenues

Lack of ad-revenue/ Profitability for broadcasters/publisher

Low GDP

1 3

456

7 8

Advertising SalesRetail Sales GDP

With the effects of economic downturn clearly hitting retailers everywhere, they have slashed their advertising budgets (as advertisers set budgets based on the percentage of retail sales) and are advertising as little as possible..

Currently there is no means to effectively project how deep the recession will be, but whatever the depth it will be difficult for media.

Most media can survive the collapse of credit markets because they have high cash flows and typically require less short term credit than manufacturing / retail firms. Because most can acquire their most important resources without accessing credit lines or issuing commercial paper, banks struggling to keep their heads above water are not a major short-term concern. However, those Media firms with large debts due short-term that were hoping to refinance face significant hurdles. Some will be rapidly shedding media properties in order to stay afloat as seen with some Business Partners of DSC

16

Middle East Television market embraces for a downturn

Rule1: A 1 percent decline in GDP produces 3-5 percent decline in advertising expenditure.

This is clearly visible in Middle East market projections for 2009-2012.

Revenue Growth rates of Top Media Players Q2 08-Q2 09

6.6 6.37.0 7.4

6.3

-0.2

2.74.2

5.8

10.5

5.96.7

8.1

0.2

-11.2

-1.6

1.4

7.1

5.35.4

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP Growth

Adspend Growth

Till 07 when GDP was soaring so was Ad-spend

The CAGR projections for UAE in 2009 are bleak (a mere 6% growth optimistically) not surprisingly Ad-spend slum is projected for a 60% abatement

When US goes down the world follows.

For detailed projections see

Appendix slides 58-59

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Print media are more affected than other media in Economic downturn

• Newspaper and magazine decline tend to be 3 to 4 times as deep as television

• The phenomenon is clearly visible in Pan Arab Markets• Spurred by soaring ad-budgets of the region’s property

and financial companies, the number of publications in the Middle East almost doubled in the past three years to 1,800 by the end of Y2008

• Broadsheets given their domestic reach were preferred way above Pan Arab satellite platform with a much larger reach. Emaaar alone spent around AED 55 million on advertising in 2008.

• Cash strapped media organizations owe half a billion AED as unpaid advertising fee

• As of today More than 100 Middle East based Magazines have shutdown since the start of recession.

• Gulf news which weighed more than a kilo in Nov 2008

weighs 650 grams today!

Total advertising revenues and growthMENA region, $Millions and %, 2007 – e2009 as estimated on

third quarter of 08

Advertising market growth is to slow down in MENA

)

6.6 6.37.0

7.4

6.3

-0.2

2.7

4.2

5.83.5 3.3

2.43.2

-2.5

-8.8

-2.8

0.1

1.62.4

5.4

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP Growth

Adspend Growth

For detailed projections see

Appendix slides 60-61

18

Lessons from the past….Effects of Recession on Consumer Expenditures for

Books in the UK 1992-1994 (U.S. $ Millions)Advertising Revenue of the US Newspaper Industry during

the 1990-1991 Recession (U.S. $ Millions)

29,000

29,500

30,000

30,500

31,000

31,500

32,000

32,500

1990 1991 1992 1993

4,100

4,200

4,300

4,400

4,500

4,600

4,700

4,800

4,900

1992 1993 1994

Although Indian film industry released 1000 movies in 2007 compared to 590 for Hollywood, Bollywood is still a smaller market with its domestic box office takings of $1.8bn and $214mn overseas in 2007 and compared to Hollywood’s $9.6bn and $17.1bn

Before the Economic crisis Bollywood was witnessing an increase of 15% in its domestic box office earnings to $1.8bn compared with a growth of just 2% in US. The growth was driven by rise in construction of multiplexes; boom in Pay TV Industry with 350 channels on air waves (of which 201 are news and current affairs,180 non-news ,67 private channels uplinked from abroad). International investors such as Viacom, NBC, Disney invested $1.5bn in Pay Tv & Movie ventures.

As Economic crisis set in advertising & sponsorship revenue has dried up. Pay TV stations slashed their price by 60% to get film rights. Slowdown has halted big investors like Reliance expansion plans and co funding project with Spielberg worth $500-million. The market trend of internationalization is negative currently. India's entertainment industry, appears to be thriving nonetheless as compared to others given its growth phase in industry life cycle .

The slump in consumer spending due to the economic downturn has hit the European media and entertainment industries. PwC estimates that the average net debt to earnings ratio for European media companies has risen from 2.8 times to 3.1 times over the past year. Economic crisis has aggravated the potential financing threat faced by media companies should the macro-economic conditions persist.

Hollywood runs on credit. $15 billion was invested into films btw 2005-08 by Wall Street banks and hedge funds . The financial crisis is forcing these investors to pull out of billions of dollars worth of film deals; opening the door for specialty investors to scoop up Hollywood assets at discount prices. Securing financing in the new environment has become much harder shrinking supply chain. Approx 200 films are slated to hit theaters in 2009, down from about 219 major studio releases in 2008 and 236 in 2007.

Int’l Media Market Post Recession’ Onset

20

Contents

Media Industry Context

Economic Recession Effect

References

Methodology -Secondary Research Basic References

• The Economics and financing of Media Companies: Robert G. Picard ;2002

• Competitive Strategy for Media Firms: Sylvia M. Chan-Olmsted; 2006

• Entertainment Industry Economics: A Guide for Financial Analysis :Harold L. Vogel; 2007

• The Long Tail: Why the Future of Business is Selling Less of More by Chris Anderson (Hardcover - Jul 11, 2006) • Arab Media Outlook: 2008-2012 (2nd Edition)

• Bad news dominates media business: Financial Times, Feb 2009 http://www.ft.com/cms/s/bb2a7a06-fc31-11dd-aed8-000077b07658

• Curtain Falls on Bollywood Boom: Financial Times , May 2009 http://www.ft.com/cms/s/0/7bba7bdc-390d-11de-8cfe-00144feabdc0.html?nclick_check=1

• Bollywood dreams on: Financial Times , May 2009 http://www.ft.com/cms/s/0/3ddea8d6-4ac1-11de-87c2-00144feabdc0.html

• Debt burdens stifle European media activity : Financial Times , Feb 2009 http://www.ft.com/cms/s/d4086f20-f230-11dd-9678-0000779fd2ac.html

• Over 100 media titles shut down in Mideast , Maktoob, July 2009 http://business.maktoob.com/20090000007450/Over_100_media_titles_shut_down_in_Mideast/Article.htm

Methodology -Secondary Research Basic References (cont’d)

• After Years of Rah-Rah Growth, Media Firms Present a Grim Picture: Wharton, March, 2009• http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4359

• Subdued Market at Cannes , The Wall street Journal, May 2009 http://online.wsj.com/article/SB124260307795828519.html

• Kylie does Bollywood: Stars go east to beat the Hollywood crunch, The Guardian, March, 2009 http://www.guardian.co.uk/film/2009/mar/14/bollywood-kylie-minogue

• Media industry in the region braces for one more sluggish quarter, Zawya, May, 2009 http://www.zawya.com/story.cfm/sidZAWYA20090503033413/Sluggish%20Quarter

• Research agencies differ on regional ad spend fall, Zawya, July 2009 http://www.zawya.com/Story.cfm/sidZAWYA20090713044604/Research%20agencies%20differ%20on%20regional%20ad%20spend%20fall%20%20/

• Middle east Merger addressing Fragmentation, Rapid News, July 2009 http://www.rapidtvnews.com/index.php/200907134245/middle-east-merger-addressing-fragmentation.html