Home > Media Economics > In Search of A Sustainable Business Model

In Search of A Sustainable Business Model

(This is a copy of an article written for BroadcastPro)

On the surface, the free-to-air television sector in the Middle East is thriving. Viewing time is one of the highest in the world. Even in the turbulent political environment of 2011, research indicates that the advertising market has continued to grow. Hundreds of channels exist yet satellite operators can’t keep up with demand and continue to launch new satellites. International players such as Newscorp and Turner have made investments in Middle East media. The region’s population is growing rapidly and is very young by global standards, thus making it attractive for advertisers. The large number of broadcasters supports an eco-system of profitable entities ranging from international and regional production houses to infrastructure providers and media professionals.

In reality, a minuscule number of broadcasters are profitable. Ad figures are inflated by rate card monitoring that does not take into account regular heavy discounting. On a net basis, ad spend per capita is lower than global benchmarks. In the absence of a single regulatory body with authority over the many countries in the region, the advertising and broadcasting sectors are practically unregulated. In advertising, this has led to aggressive but not always transparent sales practices. In broadcasting, the lack of regulation has led to large discrepancies in the quality of content. Audience measurement is either non-existent or relies on antiquated methodologies.

The rapid development of satellite Direct-to-Home distribution, while a necessity in the past to avoid strict government control of the television sector, has come at a cost. Broadcasters and advertisers cannot target individual markets and therefore larger countries tend to get the lion’s share of television spend while local TV advertising budgets are diverted to newspapers.
Despite the lack of profits, new channels continue to launch, at times as misguided commercial ventures but mostly in pursuit of non-commercial goals. This is fine in a normal free market scenario, but with the lack of audience measurement and no regulation of the claims channels can make or how their advertising inventory is sold, the market becomes distorted. Its overall value is diminished as too many players are left chasing an undervalued advertising spend.

There is no short term solution or quick fix for the various issues afflicting the TV sector in the Middle East. Many are regulatory and related to the multi-country footprint of the sector and therefore cannot be easily resolved. Ultimately, the current key players in the Middle East’s television industry including broadcasters, advertisers, media buyers and sales representatives, are best positioned to improve its prospects by taking pragmatic steps to increase revenues, reduce costs, and support transparency.

Key actions include:

All parties should support the introduction of audience measurement tools. The UAE is the only major Middle East market that is close to launching people meters.

Broadcasters can increase their revenues if they work closely with advertisers. The evolved advertisers need to expand their arsenal beyond the 30-second spot to cut through the clutter. Yet currently the content development process at broadcasters barely involves their ultimate clients. If more budgets are to be allocated to TV, broadcasters must reach out to advertisers and seek to develop content that entertains audiences while integrating brands in a seamless non-intrusive manner.

Broadcasters should begin to shift their mindset to that of content owners and capitalise on new platforms to increase revenues: IPTV platforms are emerging in Saudi and other countries. OTT is a nascent but promising sector. Satellite operators are considering spot beams. YouTube viewing on mobile is one of the highest in the world. Broadband penetration is growing rapidly in key markets. All these platforms provide opportunities for content owners to create more relevant localised content, extend television brands onto the web and mobile, generate syndication and licensing revenues, or explore new advertising mechanisms.

Broadcasters can reduce content costs by sharing productions across markets or acquiring rights for smaller geographic territories. The pan-Arab channel is a convenient myth and very few channels can be both popular with audiences across all countries and be able to generate revenues from those countries.

Advertisers too must play a role in rewarding broadcasters that create premium content with verified audiences. In too many instances, the short term focus on reducing spot rates has led to a negative ripple effect across the advertising value chain.
The TV sector in the Middle East must repair its business model if it wants to sustain itself in the long term and attract investment on a commercially viable basis. Eventually, internal voluntary reform, if not exercised, will be replaced by externally imposed regulatory reform.

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  1. April 12, 2012 at 5:56 pm

    I wonder if you read the article by Habib Battah in the inaugural issue of Bold magazine. Not that I find your blog post anything else but well-founded, But three figures cited by Habib help to show just how absurd the situation is in the Middle East… about 1,000 channels… about a billion dollars… $6.5 billion in annual operating costs!

    And yet there are still people launching new operations. My ex-employer in Abu Dhabi phones from time to time to discuss ambitious plans, most recently last weekend.

    “How can you state in a single page of text,” he asked “the benefits of amalgamating my two channels with the two owned by (a very important personage)?”

    In reponse I sent him Habib’s article in the probably vain hope that for once he might read something longer than an SMS.

    And I thought for a while. It is not, in my view, that the Middle East needs a new model for the televeision broadcasting industry. The future holds promise only for those who are passionate about creating compelling high-value content of all imaginable genres. In their quest to get their content to as wide an audience as possible the clever ones will look beyond the established state broadcasters, beyond the ‘vanity’ channels, and rely more and more on distribution methods which have little to do with traditional television broadcasting.

    • April 13, 2012 at 11:36 am

      Hello Malcolm. I actually did read the article (based on a twitter link) and I agree with you that, should they continue in their current state, the many channels that exist today will continue to throw good money after bad. However, it is a fact that most of the known channels (a fraction of the 1000s out there) are backed by governments (directly or indirectly!) or very high-net-worth individuals and so most likely will not be contemplating shutting down anytime soon. They therefore have a choice: do they continue losing money day-in day-out with no hope of improving their financial situation or do they make some changes in how they operate to reduce their losses while seeking new methods of distribution? Indeed many do not care about the level of their losses as it pales in significance relative to other spending but I can’t believe that this holds true for all.

      With regards to the digital platform opportunities, television still holds two advantages over purely digital startups in the Arab world: reach and funding. Even in advanced digital markets like the US television has remained a primary outlet for people to spend their time. Yet the major US broadcasters have understood (after much trial and error) that they have great content on their screens that can also succeed and thrive on the web. The irony of the situation is that a “traditional” media company in the Middle East has vastly more funds and reach to propel a web or mobile content play compared to a new startup. If the existing media players recognize the longer term opportunity in distributing their content across all available platforms, they can turn the perceived “threat” of digital into an opportunity. I strongly believe that in the Arab world, due to the lack of a business model for traditional broadcasting, that digital is actually an opportunity to generate revenues and engage with audiences for the incumbent players rather than a threat.

      • April 13, 2012 at 12:46 pm

        I value your thoughts on this topic. My huge regret is that my eight years in the Sandlands resulted in nothing I can look back on with any pride. I sincerely hope that your voice will be heard… mine was not!

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