Gabriel Chahine, Partner Booz & Company
In the near future, print newspapers in the Gulf Cooperation Council (GCC) region will reach an inflection point at which they will begin to lose share to digital media. Indeed, a Booz & Company survey shows that already three-quarters of respondents with broadband access have decreased or stopped their consumption of print news, or plan to do so in the next two years. As a result, maintaining the status quo is no longer an option for publishers. They now need to find a way to shift to Digital.
Overall print circulation in the U.S. and Europe has fallen substantially over the past five years, while the global ad spend market on newspapers shrank by 3 percent in the first half of 2010 compared to the same period in 2009. At the same time, digital ad spend grew by 8 percent. In the GCC, print newspaper publishers now stand on the edge of a major shift in the digital space that will transform their business models. The traditional advertising spend with the regional publishers is stagnating and the inflection point at which there is mass exodus towards digital consumption of news is likely to arrive in the next few years. Maintaining status quo is no longer an option.
Spared so far
Print publishers in the GCC may take some comfort in the fact that they have thus far been spared the fate of their peers in other markets. Since 2007, media analysts have been predicting that the inflection point between print and digital would come soon, as broadband penetration rates in the region continued to rise and catch up with those of more developed media markets.
However, in hindsight this argument has not held up. Broadband penetration is already high enough in the UAE, Qatar, and Saudi Arabia to make it comparable with Western countries’.
“However, despite this penetration, the print media business in these markets has been able to withstand the threat of digital migration. Newspaper publishers in Qatar, Saudi Arabia, and the UAE sold an aggregate 3.23 billion copies in 2010, an increase of roughly 2 percent per year over 2008,” said Gabriel Chahine, Partner Booz & Company. In Saudi Arabia, print newspapers have penetration rates exceeding 70 percent of the reading population. Print advertising has remained strong as well. Newspapers in Saudi Arabia had a 54 percent share of total net ad spend in 2010. In short, GCC consumers and marketers still use traditional print media, despite growing broadband accessibility.
Why was the conventional wisdom about the timing of the transition to digital incorrect? Three factors have thus far hindered the shift: limited digital news content, igital devices are with early adoprters and sophisticated users, and inadequate fixed broadband infrastructure. But the next few years will bring changes in each of these areas. From the growth of digital advertising to the decrease of smartphones prices, there are elements in to play certain to feed the unavoidable shift to digital.
Short term and long term priorities
“This may seem like bad news but news publishers in the region should take comfort in one fact. They are fortunate that unlike their counterparts in mature markets, they will not be surprised by the advent of digital news. In fact, they have an opportunity to see what is coming and prepare accordingly,” said Jayant Bhargava, principal Booz & Company. Most significantly yet, GCC publishers do not need to be digital pioneers—forced to invest substantial time, capital, and attention in a trial-and-error approach to determine what does and does not work in digital. Instead, they can adopt and localize strategies from the lessons already learned by print publishers in other geographies.
The priorities for GCC publishers in the next couple of years fall into two categories: reallocating resources from traditional to digital media by optimizing editorial and production costs, and investing into resources to build capabilities in digital content and ad sales.
Long term priorities on the other hand fall into two categories; seeing what does not work and seeing what does.
What does not work
There is a clear consensus on what does not work. “Almost certain to fail is the minimalist strategy of simply posting content digitally and trying to charge for it. Our survey of digital news consumers found that 74 percent refused to pay for content, outside a few key categories such as sports and breaking news. This finding is backed by the experience of publishers in other markets,” said Amer Lahham, Senior Associate Booz & Company.
What does work
Experience from other media markets shows that publishers have four ways to differentiate digital content, and thus convince readers that it is worth paying for.
Pure content play. If content is to have value, it must be differentiated from free offerings. To that end, publishers can specialize by creating highly specific vertical offerings that focus on specific areas of interest, such as specific business vertical, health, or sports.
Content and related applications. A further means of differentiating content and justifying its price tag is to offer essentially the same content with a substantially better user experience.
Content and complementary services. Adding premium and complementary services that meet individual needs on top of the content can significantly increase perceived value.
Content and partner products and services. Publishers can partner with outside providers of add-on products and services to create innovative, integrated offerings.
As traditional news publishers in the region set their agenda for the coming years, they have the opportunity to watch the digital news market evolve in other parts of the world. Print publications in those regions have suffered significantly by not adapting fast enough to meet the demands of digital media. They have seen major erosions in their readership and share of advertising spending, and revenue has fallen accordingly. This process has been painful for employees, executives, and shareholders. GCC publishers have a rare opportunity to avoid repeating this experience. However, if they wish to protect their market positions, maintain profitability, and compete in the digital universe, they must start preparing for the future from today, concluded Chahine.