In the media industry we are experiencing the end of a period when domestic media companies have largely dominated home media markets and its replacement by a globalised era when media companies of massively greater scale, exert hugely increased power over national markets. This is happening at unprecedented speed, fuelled by a potent mix of technological power and deep-pocketed venture funding, largely emanating from California.
With this dominant theme infusing most of the predictions, I would like to wish readers all the best for 2018, and offer 6 predictions for 2018 and beyond.
Apologies for the tardiness - Australian flu has hit the family hard, turning the house into a casualty ward.
BARB’s new ‘Project Dovetail’ data will show Netflix is the UK’s 5th largest channel. Netflix will be shown to be on the heels of the major broadcasters.
Not only the quant nerds will be fascinated by BARB’s (the television ratings research company) planned release in March of quality data for the first time about the volume of audience viewing across all the many devices on which TV is consumed today.
I believe the data will show just how rapidly the challenge of Netflix is growing for the traditional broadcasters, placing Netflix in fifth place not far behind Channel 4 and BBC Two in terms of volume of viewing.
The numbers will show just how potent a potential challenge Netflix is to the traditional broadcasters as it grows penetration in younger households and takes an ever larger slice of their drama and factual viewing.
The ad-driven FANGs (Facebook, Amazon, Netflix and Google) will win between $30 and $35 billion of fresh advertising revenue globally in 2018. Almost every advertising reliant media company will feel pain as a result.
It has become popular for pundits to write that traditional media will fight back in their domestic advertising markets in 2018.
There will be some local successes. There always are. But despite Facebook weaknesses already demonstrated in the first weeks of this year which will temper its jet-fuelled compound growth, the advertising-driven FANGS as a group will increase their advertising revenues by around 27% this year to achieve total advertising revenues of over $170 billion globally.
To give some context, the global advertising market is worth around $560 billion and if the market grows by 4% which seems reasonable, this will represent $22.5bn of new spend, significantly less than the compounding growth of the FANGs.
Underlying advertising market growth for non-FANG media companies looks unlikely.
Facebook will continue to show frailty, particularly among younger users. Despite this the power of its data will keep the advertising dollars rolling in. Social traffic dependent businesses will struggle as the degree of their dependence becomes clear.
Nobody knows the real user data bar Facebook but, qualitatively, the last 6 months has seen a move away from Facebook’s main social platform among influential, younger, maven characters and research groups suggest the trend is continuing. It is likely that this is a key factor driving Facebook’s moves to clean up and simplify its news feed.
These trends are hard to reverse. Facebook has a fight on its hands.
Businesses such as Buzzfeed and Lad Bible built around massive, social traffic volumes will find their models squeezed hard as Facebook moves the goal posts dramatically and unpredictably as they focus all their efforts on rebuilding the Facebook habits amongst those drifting away. Facebook knows it has to succeed or the golden goose will start to look ragged.
Facebook may have an audience problem but the power of its data remains supreme, so despite the weakness, revenue growth will remain powerful.
Two massive advertising and marketing service companies will try to merge. Regulators will hum and haw and then say ‘yes’.
Three forces will drive further consolidation of the advertising and marketing monoliths. The major groups, which have largely kept up the momentum of profit growth, apart from the crash of 2008, have suddenly found the drivers of their growth faltering as a range of factors have colluded. Clients have applied greater pressure to reduce costs and increase trading transparency; the opportunities to profit from trading deals have been squeezed; the FANGS have stood up to the buying groups’ desire for improved terms; and previously lucrative other services have faced greater competition from lower cost digital upstarts.
The result in 2018 will be that discussions between major groups start up again and come to a sharper conclusion than the aborted discussions between Omnicom and Publicis in 2014. The regulators will be persuaded by the global scale of the FANGS and Disney-Fox scale global media mergers to say ‘yes’ without terms being too harsh.
The objective of the merger will be - despite the headline messages of an exciting growth story - to cut costs and boost margins.
Consumer magazine and newspaper publishers will take tougher decisions. There will be brands they choose to invest in. Others will become cash cows.
David Carey, CEO of Hearst magazines, in an interview with Mr Magazine in December 2017, said “I think that when you visit us five years from now, I believe we’ll look back on 2017 as a period of calm, by comparison to what comes next.” He is right.
Continued pressure from news stand sales declines (volumes have fallen approximately 40% in the last 5 years) and double-digit compound advertising declines mean that even the most precious of publishers are taking some tough decisions – even Conde Nast have shuttered a brand, Glamour.
In 2018 publishers will take a far more ruthless approach to their portfolios as they work to become smaller, sustainable businesses. Brands without a long-term future will have their costs hacked as remaining lifetime revenues are maximised; a shorter list of brands with long-term value will receive greater investment. In an over-supplied industry, more brands will disappear.
Must-have content businesses will prosper as consumers get used to paying more. Others with weaker content will find consumers shrug and go elsewhere.
Consumers are getting used to paying for quality content. Price rises are expected and accepted if not welcomed each year. The New York Times and the FT are making great progress with 2.2m and 700k paying subscribers respectively.
2018 will see an increasing number of news and factual brands focus on securing revenue from the consumer. It will be hard going. Consumers have been trained during a decade and a half of mostly free content to ruthlessly discern the content they really need and are willing to pay for.
Listening to consumers explain precisely why the magazine style content that they used to pay for is now provided more effectively for free on Instagram and YouTube is an education. If there isn’t clear blue water between the quality and usefulness of the paid-for and the freely available content publishers will be sadly disappointed.