Market Thoughts: July 2018 | Merging and Mixing Demand

By Dave Turner (Head of Investment)

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What a mixed bag for the first half of this year. Market demand has certainly slowed, however some channels are performing better than others. According to SMI, Q1 2018 finished just slightly down YOY (-0.8%), while Q2 slipped back -4.7% YOY (even with the Commonwealth Games driving significant expenditure into the market), resulting in a total H1 performance of -2.5%.

Outdoor remains the hero with a +2.7% YOY (Jan-Jun), however we are now starting to see instances of supply outweighing demand.

Digital has stepped into the arena of revenue declines, and YTD revenue fell back -0.6% YOY (Jan-Jun). Why is this occurring when digital audiences continue to grow? There are a number of reasons: some brands in the market over-invested into digital, transparency/reporting is still a common concern, but most importantly, digital media buyers are now much smarter and have the tracking/measurement tools to effectively inform and evaluate the best and most efficient inventory for a given campaign. This decline can be attributed to a rise in flexibility that achieves better effectiveness over simply efficiency.

The way content is consumed has changed, and will continue to change at a faster rate than ever before—a prospect which is extremely exciting. That said, mass reaching channels such as television and radio will retain their efficiency in the New Zealand market, and this will continue for some time yet. We do not expect to see significant change in the coming six months, however the market will remain inflationary, predominately driven by audience declines and the further fragmentation of content. Demand will be a mixed bag, and we will be closely watching the recent business and consumer confidence reports as there are a few red flags starting to appear in the economy.

It seems mergers are now becoming the norm with Australia leading the charge. While not all have gone through (such as oOh! Media and APNO last year), it is clear that consolidation for a number of these media businesses is the only option to ensure they remain competitive against the global digital giants.

oOh! Media will acquire Adshel, saying goodbye to the Adshel name in both Australian and New Zealand markets. Street furniture and retail have perfect synergies, and both companies already offer quality inventory, a valuable audience and are extremely impactful. The ability for them to offer street through to retail will be an extremely compelling offering. It’s highly likely this will be approved.

The other buy-out (APNO and JCDecaux) does not change much in NZ, however it will mean we will have the world’s largest out-of-home company in this market. There will be a significant emphasis on investment, product development, and no doubt a longer-term focus of expanding out to smaller format. Once the AT contract (which Adshel currently hold) comes up for renewal, this will be potentially the most competitive negotiation and pitch processes we have seen in this market. I am almost certain this purchase will be approved.

As time progresses, it unfortunately looks like the NZME and Stuff merger is even more unlikely—especially since the recent news of the proposed Fairfax and Nine takeover in Australia, it is inevitable this will shut down any possible merge in this market.

A lot has happened already in 2018, and I can guarantee there is more to come.

Date: August 07, 2018