January 19, 2014

Newsprint Publishers in the MENA Region Must Diversify their Media Opportunities to Survive in Today’s Complex Digital Era

With new digital platforms, devices and applications radically transforming media consumption, Booz & Company identify a three-pronged strategy for MENA newsprint publishers – facing major challenges to their business models – to effectively retain value.

In this day and age, digitization is continuously reshaping the media, with a dramatic impact on newsprint publishing. The media industry’s business models are particularly vulnerable to digitization; after all, media outlets such as newsprint publishers rely heavily on the consumption of content that is now widely available for little or nothing elsewhere. In fact, in the MENA region – and despite healthy population growth – readership levels of newsprint have started to decline. And, although there are new readers entering the readership age profile, approximately 70 percent of them are skipping the print versions and becoming digital-only consumers. These developments are, in turn, challenging MENA newsprint publishers’ business models, causing a structural depletion of economic value. In line with this, management consulting firm Booz & Company has developed three major steps that newsprint players today must take to ensure value retention. First, they should optimize operations by choosing where they want to be on the media value chain, and then consider where to make structured cost cuts. Second, they need to launch a digital transformation. Third, they should further strengthen the core capabilities that position them for the growth in adjacencies and build new revenue streams.

The Depletion of Value

Today, close to 76 percent of current newsprint readers in the MENA region – who have excellent digital connectivity – are expected to either decrease or stop their newsprint readership within a couple of years. This is causing a rapid and sustained decline in readership.

“From an immediate economic standpoint, the situation in the MENA region appears to be less bleak for newsprint publishers than in such highly disrupted markets such as the U.S.,” said Bahjat El-Darwiche, a Partner with Booz & Company. “MENA region advertisers targeting local audiences have historically favored print as an alternative to local TV, which was a less attractive venue because of its limited quality and the competition from freely available pan-Arab satellite broadcasters.”

These advertisers spent disproportionally on newsprint players as an effective way to reach a mass audience aside from the costly airtime, with high spill over, available on pan-Arab satellite TV.

In the MENA region, the decline in advertising revenue will proceed at an even gentler pace than in developed markets because of the resilience and dominance of local newsprint advertising spend. Indeed, the value of the newsprint advertising market in Saudi Arabia may actually grow a little in the coming two to three years in nominal terms. The market will, however, start to drop in value in 2016 with steeper declines in 2017 and future years because of digital disruption.

“Nonetheless, MENA newsprint players are still feeling the winds of digital change,” stated Jayant Bhargava, a Principal with Booz & Company. “Digitization is calling into question the operating models of MENA newsprint publishers and eroding shareholder value. Moreover, digitization has made significant inroads in the region, with over three-quarters of respondents in a recent pan-MENA survey indicating that they have adopted social networking.”

In reality, digitization levels are particularly elevated in the affluent Gulf Cooperation Council (GCC) markets, where the overwhelming majority of newsprint customers have access to broadband.

The response of many newsprint players has been to meet the challenge of digital disruption with investments in digital initiatives. However, although digital transformation is essential, it is not sufficient to recover the value lost within traditional operations. Simply put, the commercial model on these new platforms is weaker than in print. In contrast to the limited and valuable advertising real estate previously enjoyed by print, digital is far more competitive and fragmented.

In addition, the way-to-play in the digital space demands more than simply evolving internal capabilities and is significantly different to what newsprint players are used to.

The Three-Pronged Strategy

Newsprint players should respond to the digital challenge in a manner that provides them with opportunities for growth. This requires a three-pronged strategy: the optimization of core operations, digital transformation, and diversification into adjacent businesses by focusing on core capabilities.

Optimize Core Operations: The first agenda that regional newsprint players should adopt is to optimize their operations by making them more efficient and effective. This helps newsprint publishers to safeguard, and get the most out of, their traditional business; these existing lines of business matter because they are likely to account for the majority of revenues in the short to medium term.

“The optimization agenda needs to be integrally linked to the future strategy,” said Sami Abou Jamous, a Senior Associate with Booz & Company. “Newsprint publishers need to choose where they want to be on the media value chain. This allows them to respond to cost pressures stemming from declining circulation and advertising revenues by showing where they can cut costs in a structured manner and where they should focus resources for new opportunities and expansion.”

The cost agenda will span the full business construct.

Launch a Digital Transformation: The second agenda for newsprint publishers is to design a digital transformation that addresses the changing dynamics across two fronts: readers and advertisers. On the readers’ front, digital transformation is vital because user behavior toward media and news is changing rapidly thanks to new platforms, devices, and applications. The digital transformation is different from the reflexive digital initiatives taken by many newsprint players

“Newspaper companies have poured money into websites, apps, live blogs, video, and the likes without any clear strategy or value proposition,” added El-Darwiche. “MENA newsprint players can learn from these errors. They can instead use digital transformation as a means of retaining the most lucrative segment of their readership migrating to the digital platform as well as attracting a new segment of readers.”

On the advertiser front, user dynamics are prompting disruptive responses in light of steadily declining readership. In response, newsprint players need to offer a compelling set of digital advertising solutions to remain in the game.

Executing such a digital transformation requires a deep understanding of the segmentation pertinent to digital audiences. This entails understanding the digital audience segments; facing advertising disruption; getting the digital story right; and, building successful models for digital newspapers.

Ensuring Growth

The third major step for newsprint players is to access new revenue streams by diversifying into adjacent value pools playing on extensions of core capabilities. Although the efficiency agenda and digital transformation are critical imperatives, they will not fully offset the depletion in economic value.

“Diversification and growth in adjacencies are vital to rebuild shareholder value and position the organization for growth,” said Bhargava. “The development of core capabilities and diversification are therefore intimately linked.”

These core capabilities are likely to coalesce around the three major positions that leading newsprint players around the world have adopted in response to the disrupted media market: leading content producer, leading publishing curator or dominant advertising sales provider.

Choosing the ideal position should be based on what you do better than your competitors and which capability set differentiates you in the local market. Once they have chosen what kind of publishers they want to become, newsprint players can put themselves back on the growth curve.

  • Leading Content Producer
    Leading content producers supply the purest form of journalism. The newsprint players that have successfully become leading content producers started with differentiated content production capabilities that allowed them to capture both traditional and digital audiences.

  • Leading Publishing Curator
    A leading publishing curator offers a unique user experience. This can involve extending the user experience to other verticals such as audiovisual, gaming, tourism and hospitality, social networks, and e-commerce, while focusing on serving specific target segments consistent with the brand identity.

  • Dominant Advertising Sales Provider
    Newsprint players that are dominant advertising sales providers are present across multiple media platforms, in digital and print. They exploit this capability to cross-sell advertising and gain further scale, meaning that growth is built into this position.

“As they seek to retain value and position themselves for growth, newsprint players need a keen understanding of how their choice of core capabilities influences their three-step strategy,” said Abou Jamous. “The right capability system needs to be in place if newsprint players are to achieve operational efficiencies, undergo proper digital transformation, and reinvent themselves by reinforcing their core capabilities.”

The three objectives are intertwined and linked to the core capability on which the organization places its bet for the future. This determination needs to take into account which capability has provided a source of sustained competitive differentiation for the publisher in its traditional business.

Each of the three main strategic directions is as good as the other if executed coherently and supported by the correct set of capabilities.

To conclude, newsprint publishers have to make strategic decisions about their future. The status quo or tactical moves are no longer viable options. Digitization, rapidly changing consumer behavior, stiff competition from new entrants, and advertising disruption renders their current models unsustainable. Diversification into new opportunities along the media value chain is the only way to ensure a retention of value and future growth. To be able to access new opportunities, however, requires more than cutting costs, investment in digital technology, and evolving current capabilities. Newsprint publishers need to choose what kind of media players they want to be, based on which core capability they would like to place their bets on. This will not only drive value and growth opportunities; it will also inform how they optimize their operations and transform digitally.