Thursday, November 20, 2008

Economics of the Nigeria Media Industry

By Olu Akanmu

The media value chain can be simply described as starting from content creation and generation. Content creation may be news or entertainment such as drama, movies, sports and many others. Content is relayed on a vehicle, a pipe that conveys it to its desired audience. This pipe or vehicle is the television, the radio station or the newspaper which the layman describes as media. At the end of the value chain is the consumer of the content usually pre-determined audiences of various economic, lifestyle or demographic profiles which require the content for information and entertainment. The consumer of media content could either pay for what he consumes such as in satellite television and newspapers. The payment could also be done on her behalf by advertisers who pay for advertising spots inserted into the media to reach the consumer. Examples of this will include terrestrial television and radio in Nigeria whose income is largely derived from advertising revenue. However, there is a middle road characterized by the print medium (newspapers) whose income is a combination of daily title sales and advertising revenue. In this case, one can say that advertisers’ money is largely subsidizing the price of the titles of newspapers. Newspapers in Nigeria will probably cost three or four times their prices if not for the subsidy of advertisers. And how would terrestrial television have survived in Nigeria if not for the advertisers who keep them going, ensuring that they can bring to our cherished consumers the information and entertainment they so much desire. If therefore anyone has blamed advertisers in recent past for too-much advertising, it is important to remind them that without advertising, there would have been no news or entertainment on television, radio and the newspapers. The media would never have had the resources required to generate the content that our audiences require. We must however not forget the government in the value chain especially in the media it owns, where it plays the role of content generator and provider of subsidy through its subventions to its stations.

While data is not available, empirical evidence suggests that more than two-thirds of media revenue in Nigeria comes from advertising. The economics of demand and supply for advertising space in media such as television, radio and print is therefore critical to the health of the media and entertainment industry. The Nigeria economy is now on the part of enviable growth, thanks to the economic policies of the current government. Foreign direct investment is growing as multinationals invest anew to upgrade their operations and strengthen their firm’s competitiveness. The fact that all of the multinationals are doing this at the same time implies that intra-category competition has never been tougher than the present moment in the Nigeria market. At the same time, the forces of deregulation are breaking down monopoly power in sectors like telecommunications unleashing news waves of competition. These developments have accelerated the demand for advertising media-space. We only need to compare the number of advertising pages in newspapers today compared to five years ago. Sometimes, the newspapers even run-out of pages and they have to print extra pages as inserts just to carry more advertising. In essence, media space supply has not grown in tandem with demand. This large asymmetry in the supply and demand of media space has led to the highest level of media-inflation ever seen in Nigeria. Media inflation has been sometimes as high as 80% year on year in some high-demand media vehicles. Interventions on the demand side by advertisers through their associations and their buying agencies might have moderated the tide. This however has been difficult to control as the fundamental economics of the media industry keeps driving prices up until at least it reaches equilibrium prices. Some media owners have said that media in Nigeria has been under-priced relative to the prices overseas, that the industry is largely today witnessing an appropriate market correction. While we empathize with them, it is important to note that media prices are a reflection of the value of the consumer who consumes the content from media. The wealthier the consumer, the more revenue they can generate for advertisers and the more they will be willing to pay to reach them. The wealth of the Nigeria consumer cannot be compared to those of Europe and the America, hence media prices in Nigeria have remained relatively low compared to the first world.

Other issues that affect media prices in Nigeria include the un-even information flow in the media market between suppliers and buyers. This reflects the lack of sophistication of the media market where audience delivery information is not usually available to determine the true value of media properties. Suppliers have taken advantage of this by largely playing buyers (advertisers) against each other ensuring that they overbid the value of the property. The telecom industry has been particularly affected by this through the aggressive competition among the players and the view that the control of media is critical to market competitiveness. Media space competition does not know industry sectors. Telecoms players compete with soft drinks, breweries and other fast moving consumer goods. As telecom players drove up prices, other players have had to follow. This situation has presented a new challenge of marketing and media management efficiencies to advertisers as their budgets have not grown in tandem with media inflation.

The very low level of media segmentation in Nigeria also creates a situation where everyone (advertiser) on the demand side chases after the same media space. Most media stations have the same type of content for the same type of audiences and broadcast to these audiences at the same time across their stations. Hence, all advertisers have to place ads in the same stations, at the same time to reach their different audiences. For example, advertisers of products for children, youths, men and women place most of their ads around the drive time belt on the same radio stations. Such low level of segmentation creates over-priced media bands and under-priced media bands in low demand periods. This affects asset-utilization and creates market inefficiencies in the media industry. Media stations needs to become more segmented in their overall focus and programming. We are seeing the emergence of this trend in the evolution and success of new sports FM stations that have elected to focus on the male demographic audience of a particular lifestyle. In the print-medium, we have seen the emergence of youth focused magazines leveraging the hip-hop music genre to develop an enduring business. Are there other consumer demographics or lifestyle segments that other stations/medium could focus-on and create a market uniqueness, serve these audiences better than anyone and deliver them effectively and un-cluttered to advertisers at a premium? Such questions will help the media players build the competitive advantage necessary to win on sustainable basis.

Evidences suggest that media-inflation trend will continue in the short to medium term. The unified licensing regime in telecommunications will further drive-up demand for media space by telecom players. More players will come to the market, some with a war-chest funded by the new finances which they have raised. One of the telecom players recently raised a one –billion dollar financing, the effect of which we shall see in its market drive and demand for media space. Competition forces in the financial service sector, as a result of bank consolidation will also generate new demand for media space as many banks seek opportunity to strengthen their consumer franchise. In markets like South Africa, the financial service sector is one of the biggest advertising spenders. The Standard Bank of South Africa dominates the sponsorship of cricket while the English Premier League is sponsored by the Barclays Bank. Such trends from the financial service sector are eventually going to happen on the Nigeria soil.

We are yet to see an earth-shaking development on the supply side of the media industry. We are yet to see the entry of new players in television or radio on a scale that can increase supply, give broader choices to audiences and advertisers and impact on the economics of the media. New print-titles especially in magazines are springing up, largely a copy of themselves, targeting the same audiences with the same type of content. Such titles have therefore not made fundamental differences. The outdoor medium is also getting saturated as new roads are not being built. Every supplier has had to find space on the current roads leading to sometimes ugly media clutter on our skylines. For outdoors in particular, this is good news for outdoor medium owners. Outdoor media inflation especially in the un-conventional spaces like wall-drapes have sky-rocketed as advertisers outbid themselves for the limited number of spaces available.

A critical character of the television and radio sectors of the media industry in Nigeria is its fragmented nature. There are about eighty terrestrial television stations and ninety radio stations in Nigeria. South Africa, a bigger economy than Nigeria has only four terrestrial television stations. Most of the television and radio stations in Nigeria are not economically viable even with subventions from those who are government owned. Most of them are too small to deliver the minimum critical mass of audience that will make them attractive to advertisers on a sustained basis. This is apart from the huge transaction costs and market inefficiencies of buying media in such a fragmented industry. They also lack the resources to generate or buy good content to attract audiences. And they cannot get those resources without advertising. They are therefore locked in a vicious cycle of economic quagmire. Some level of industry consolidation may be inevitable in the Nigeria electronic media sector. We see emerging trends in this direction with the evolution of partnerships and program networks among different stations. The need for stronger market efficiencies would however drive industry consolidation in the medium term.

How can we make the media industry and market more efficient? Markets are efficient when information on goods and services flow freely among buyers and sellers. Such information helps to determine the true value of goods and links the right buyers to the right sellers while ensuring fair economic prices. It is critical that buyers and sellers in the Nigeria media industry work together to improve the quality of audience-rating information used to determine the true value of media properties and spaces. Some newspapers could do far better if their media-space prices reflect the true market-value of the audience they deliver rather than the standard industry association rates. By so doing, they will become more attractive to advertisers who would then be able to spread their media-spend across more newspaper houses. The fact that media spend is concentrated in four newspaper houses in Nigeria implies the need for a new pricing regime in the newspaper industry. We need a collective industry effort to increase the sophistication, gathering, accuracy, robustness, recency and dissemination of audience delivery and rating information. Pending the eventual consolidation of the small media players, we will need to encourage media networks to reduce transaction costs. The media industry does not need a regulatory intervention such as the Soludo solution. Market forces are likely to be sufficient to force the necessary consolidation. The regulator however has a role to play through suasion and encouragement of consolidation among media players. We must also strengthen contract enforcement in the industry. If the media market will be efficient, we must change from using the law of the jungle of “might is right” to the rule of law. Media contracts must be executed by media owners in its true spirit, carried at the time designated, and in the right form. The rights of sponsors of media programs as prescribed by law must be respected. The ambushing, in whatever form of sponsored properties without the consent of the sponsors must stop. All players, big and small must respect the law and not abuse their market power. Buyers of media spaces must also honour their contracts by paying the media houses as at when due. The Nigeria media has all the potentials to be a robust and strong industry. It only requires the collective efforts of all industry players working together to create an economic value chain that is truly efficient.

Olu Akanmu
October 2006

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