Investing in the News: opportunities in a challenged marketponiedziałek, 16 sierpnia 2021
The news industry – and TV news in particular – is a strange place to invest on face value. This is in part due to the unpredictable nature of the news cycle, and post-Brexit, the ‘Trump Bump’ and Covid-19, we may even be heading for an era of “news fatigue”. This is coupled with increased questions about the viability of the industry’s prevailing business model. Nevertheless, there are opportunities for investment as incumbents seek to evolve to keep hold of their audiences, and outsiders seek to disrupt.
One of the major challenges for investors is navigating the industry’s most common business model. Most commercial 24 hour news channels are funded by traditional TV advertising with some carriage from distribution platforms, such as pay TV operators. National TV advertising is inherently cyclical, and in slow structural decline in many mature markets. News has become increasingly hard to advertise around, given both the unpredictability of the content and the growing perception that all news is ‘bad’ news. The model is also contending with increased “cord cutting”, and news channels are not typically deemed a significant driver of subscribers to demand high ad fees. Cord cutting is also driving moves away from linear TV viewing, and for younger demographics this is particularly the case for news – with real-time updates from social media, or “for me” content from podcasts now freely available, and in many cases, more preferable.
Digital ad revenues have offered some green shoots of growth, but these have largely been disappointing due to a proliferation of digital news natives who have dominated the audience. Google and Facebook have also taken the lion’s share of growth at a market level.
Pan-regional news channels suffer from a particularly challenged niche advertising market and frequently rely on their national government sponsors for subsidies. Several governments are reducing support for flagship channels on the grounds they are seen as less relevant now than they were in the 1990s and 2000s. However, other state sponsored channels such as Russia Today and China’s CGTN have received substantial state support to scale up their distribution, content and marketing globally.
Another reason why the industry can be off-putting for investors is that many potential news assets are effectively out-of-bounds due to existing ownership structures. In addition to being off-limits, public service broadcasters skew the commercial market by taking up a large proportion of audience numbers, in many cases due to their prominent channel positioning. In some markets this tends to leave fewer gaps for commercial players, and reduced revenue potential.
Motives for investment are varied
Despite these challenges, the industry still attracts investment attention periodically, both in terms of M&A and new ventures, and some motives are considerably easier to get your head around than others.
Rational drivers of M&A include a desire to access distribution, talent, or scale. Distribution was the motive behind Al Jazeera’s investment into Current TV in the US – the channel was rebranded and secured immediate access to tens of millions of homes (before being taken off air years later). Talent was a driver of Comcast’s investment into Vox Media, with many of Vox’s talent being used to front NBC content. While Nexstar’s $6.4bn acquisition of Tribune Media in 2019 made it the largest owner of TV stations in the US and allowed it to leverage scale-driven synergies with improved national coverage.
Other channels such as Euronews have also attracted 3 major investments over the past 6 years - twice by Egyptian billionaire Naguib Sawiris, and by NBC. Despite afrorementioned challenges to the models of pan-regional, multi-language broadcasters like Euronews, it is seen as having strategic value given its substantial global distribution and a highly valuable audience of business and political elites. Outside of TV, there are multiple examples of investment into news by wealthy individuals, the most prominent being Jeff Bezos’ acquisition of the Washington Post.
GB News seeking to follow Fox’s footsteps
There is also the theme of broadcasters seeking to exploit perceived gaps in the market by offering a different political or stylistic perspective on the news agenda. The classic example was Rupert Murdoch’s Fox TV which is now a highly profitable multi billion dollar business. GB News, backed by Discovery, is the current example attracting the headlines, seeking to shake up the UK’s BBC and ITN dominated TV news landscape with a highly opinionated, anti-woke agenda. The journey has been bumpy so far, and the channel may find itself sailing close to the wind in terms of the UK’s regulation around impartial TV news coverage.
Increased cord cutting is also prompting changes, even if these are borne out of necessity. CNN’s direct-to-consumer streaming news channel, arriving in 2022, is a clear acknowledgement that its current business model of ad and cable subscriber fees is under pressure. CNN+ will be a means to get younger consumers who do not have cable into the CNN viewing habit, and they will hope to convert those who currently turn to CNN.com for digital news content. But persuading consumers to pay for news content has been a long battle for the newspaper industry, which only the most premium brands are winning. In TV, the range, quality and exclusiveness of content required to trigger viewers to subscribe is a substantial hurdle.
Commercially speaking, TV news channels on a standalone basis are rarely exciting vehicles for investment. But the incumbent players will need to invest to stay ahead of the consumption trends reshaping the market, and sustain their profitability. This will involve consolidation for scale and investment to acquire new talent and skills. In addition, news channels retain an intangible value that goes beyond commercial rationale. They will remain important flagship assets within the portfolio of major media groups, many of which still have journalistic DNA at their heart, as well as acting as symbols of prestige or vehicles of soft power for wealthy individuals.
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