Facilitating creativity: A growing middle class and a dynamic media sector are fulfilling expectations and more

With a vibrant TV and print media sector, in addition to a growing online presence, Indonesia today presents a wide spectrum of platforms and styles for advertisers and media investors. There is also an increasing sense of confidence and creativity in the industry, which is expanding on the back of robust economic performance and an increasingly wealthy, growing population, anxious to try out new products and lifestyles. As retail surges so does media and advertising, with much to expect from both in the years to come.

PLAYERS & FIGURES: The current sector in many ways reflects the history of the country over the past two decades. Prior to 1989, during former Indonesian President Suharto’s rule, the country had only one TV channel, TVRI, while newspapers and magazines were kept on a tight leash by government censors. TVRI was also a government propaganda channel, while the permitted political party, Golkar, or the Party of Function Groups, established the Suara Karya newspaper. Senior government figures, such as Harmoko and Bacharuddin Jusuf Habibie, also later bought control of Pos Kota and Republika. Indeed, these latter moves were part of a post-1989 effort to introduce the private sector into the media, albeit via approved entrepreneurs often related to Suharto himself. In 1989 RCTI began broadcasting, the first private station to do so, and is still on air today as one of the Media Nusantara Citra (MNC) group channels. It was soon followed by Surya Citra Television (SCTV), which also continues to broadcast.

The next key period was from 1997-98 and the overthrown of Suharto and the start of the reformasi, or post-Suharto period. Under democratic governance, the media was given a greater deal of freedom, with a wide range of broadcasters and publishers entering the market. This period saw the beginning of several large, private sector media conglomerates, such as the Kompas/Gramedia (KGG) and Grafiti Pers groups, both in print. Several previously banned publications, such as Tempo, also restarted, symbolising a rebirth of the more vibrant Indonesian media of the days immediately following independence. Post-1998, in TV, the Bakrie Group and Indosiar also entered the sector with the free-to-air (FTA) segment predominating.

CENSORSHIP: The reformasi period also saw the shutdown and subsequent re-establishment of the Ministry of Information, which lost its powers to arbitrarily revoke print and broadcast licences; the TV industry has since been supervised by the Directorate General of Radio, TV and Film. In 2000 the Ministry of Information was rebranded the Ministry of Communication and Informatics (Depkominfo). The Indonesian Film Censorship Board also watches over movies, although these days it has no overtly political role, being restricted to censorship on the grounds of “public morality”.

Print media enjoys considerable freedom, without any watchdog or censor, and legal action is now a more common channel of restraint. Press law has been frequently revised since reformasi began, and the Broadcasting Law of 2002 clarified what had been an ambiguous legal status for TV stations before then. Depkominfo issues broadcast licences via its Indonesian Broadcasting Commission (KPI). Renewable licences run for five years for radio stations and 10 years for TV stations.

MEDIA GIANT: While the reformasi period began with a major wave of new entrants and old titles resuming service, the years since have seen a process of consolidation in the sector that has resulted the majority of ownership across media platforms residing in a handful of key groups. The most popular media today in Indonesia is undoubtedly FTA TV. Around 150m out of a population of 242m have access to FTA broadcasts, according to sector statistics, accounting for some 60-70% of all advertising expenditure (adex).

Three powerful business families – those of Hary Tanoesoedibjo, the Bakries and the Sariatmaadjas – dominate this segment via their respective conglomerates. The Tanoesoedibjo family is behind MNC, the largest group, which has three FTA channels: RCTI, MNCTV and Global TV. According to MNC’s 2011 annual report, these three took a 38% prime time market share, divided between 22% for RCTI, 10% for MNCTV and 6% for Global TV. The group also has a network of local TV stations, known as SINDOTV, previously known as the Sun TV network.

MNC has an in-house production unit, MNC Pictures, and sells its archived content abroad, as well as to other channels, including MNC’s brace of pay TV channels. The latter are run through MNC Sky Vision, which operates Indovision, TopTV and Okevision. In radio, the group broadcasts from 31 different locations across the country via four different formats: V-Radio, Global Radio, Radio Dangdut Indonesia and SINDO Radio.

IN PRINT: MNC also owns several print media outlets. These include one national daily, Harian Seputar Indosiar, and the launch of digital pay TV service NexMedia for the greater Jakarta area. This gave the group three FTA channels, with SCTV and O Channel, the latter a home shopping channel and the former one of the largest general channels with some 180m potential viewers nationwide, according to the company’s 2011 annual report.

Emtek also has its own in-house production company, Screenplay. The company is structured so that it now has two subsidiaries, Surya Citra Media (SCMA), and Indosiar Karya Media (IDKM), which are also listed. SCMA controls SCTV, while IDKM controls Indosiar. According to IDX data from July 2012, EMTK controlled 79.66% of SCMA’s stock and 78.76% of IDKM’s, but this was before EMTK’s proposed stock splits took place.

CONGLOMERATES IN ACTION: Another important FTA TV outfit is Trans Corporation, or TransCorp, which owns Trans TV and a stake in Trans7. TransCorp itself is part of CT Corp, a major Indonesian conglomerate. According to figures from the firm quoted in the local press in August 2012, Trans7 had an average 13% share of FTA audiences and Trans TV had 12.5%. Trans7 was targeting greater growth through sports coverage, cooperating with ESPN and commencing Spanish La Liga football coverage. This put Trans7 in competition with SCTV, which secured UEFA rights in 2012. European football is extremely popular in Indonesia, usually securing a major slice of adex.

Trans7, originally TV7, has two other major stakeholders, Bakrie and KGG, with the latter the largest media conglomerate by far in the print world. This demonstrates the consolidation process still further, given that media rivals in one field may also hold stakes in each others’ companies elsewhere.

HISTORICAL ROLES: KGG, meanwhile, has a history going back to the 1960s. The group has a flagship national newspaper, Kompas, while Gramedia runs a large chain of bookstores. Yet in 2011 KGG also moved into TV, with Kompas TV, targeting a 6% market share with programming aimed across the ABC+ spectrum and in cooperation with 10 local TV stations.

One other FTA channel is Metro TV, owned by the Media Group. This is the country’s first 24-hour news channel, while it is also the only station to broadcast some programmes in Mandarin. Media Group also own the Media Indonesia daily and several local print titles.

The state FTA TV channel, TVRI, also broadcasts nationally, with some 22 local stations also part of its portfolio. Indeed, it is the local stations that have been attracting the major groups in recent times. This is partly because of the unavailability of licenses for new national channels, a factor that has driven a wave of mergers, acquisitions and partnerships between big media groups and local players in recent years.

LOCAL CHANNELS: Local TV has also been expanding the numbers of channels in recent years; the sector’s professional body, the Indonesian Local TV Association, saw its membership rise from seven channels to 41 between 2002 and 2011. Share of TV audience, however, has stayed much the same, with Nielsen figures showing the annual percentage of the total TV audience going to local channels fluctuating between 2.1% and 3.2% from 2005 to 2010.

Most acquisitions of local TV broadcasters are not therefore related to capturing a large, new local audience, but more to do with using local channels to deliver the national group’s content – a strategy made more pressing by IT infrastructure bottlenecks. Cable is scarce outside a few districts of Jakarta, while frequency for national transmissions is limited. This leaves methods of delivering programmes to either satellite, which is expensive, or rebroadcast via a local TV channel that already has an allocated and licensed broadcast frequency. In 2018 analogue broadcasting will come to an end, with phase-out beginning at the start of 2012.

PERFORMANCE FIGURES: The five listed media outfits mentioned above, MNCN, VIVA, EMTK, IDKM and SCMA, had a high average price-to-earning ratio (p/e) in the first half of 2012 of 76.82, along with a return on equity (ROE) of 29.47%, according to figures from Indonesia Finance Today (IFT). This was a high ROE, beating Malaysia with 15.17%, though less than the highest, Thailand at 35.4%. The p/e figure was somewhat distorted by VIVA and IDKM, however, with MNCN showing 29.09, with a 22.3% ROE. “One of the reasons for the high valuations,” IFT media analyst Danny Wijaya said, “is that the government is no longer issuing permits for national TV stations. This doesn’t apply to local TV though, so big corporations have been moving there.”

According to research by sector analysts Media Partners Asia, in 2011 the private sector FTA channels’ audience shares broke down to 17% for RCTI; 16% for SCTV; 14% for Trans TV; 12% for MNCTV; 10% for Trans; 7.1% for Indosiar; 8% for Global TV; 7% for ANTV; 5% for tvOne and 3% for Metro TV. On the pay TV side, the current low level of subscriptions – IFT estimates around 2m in 2012 – demonstrates the great potential that this segment still has. Currently, around 1.6m of the total are with MNC Sky Vision. In 2011 this company had an EBITDA of Rp724bn ($72.4m), with the company’s executives telling OBG their expectation for 2012 was to surpass the Rp1trn ($100m) mark.

MNC Sky Vision also went public as MSKY. They had a market capitalisation of $1.8bn in October of 2012. The station benefits from being the only pay TV channel with its own satellite, Indostar II, co-owned with SES and broadcasting on the higher quality S-Band, giving it a visible edge over competitors. It currently has some 112 channels, 15 of which are in-house exclusive and 10 exclusive third-party channels.

The calculation of MNC and other pay TV players is that the growth in the nation’s per capita incomes will organically grow the numbers of potential subscribers over the next few years. According to MSKY, some 15m17m households could currently afford pay TV, suggesting a seven-fold increase in audiences would be possible even ahead of further real income rises.

RADIO ON: The radio segment in Indonesia is extensive, even if its share of adex is low. The Indonesian Private Commercial Radio Broadcasters Association (PRSSNI), established in 1977, had some 774 stations listed as members in 2011, while the total number with licences had been 1248 the year before, according to PRSSNI data. Thus, as in TV, radio stations are by and large coming increasingly under the control of the same handful of large groups, via mergers and acquisitions. In 2011 KGG owned 12 stations, MNC Group 18 stations, MRA Media 10 stations, Mahaka Media 15 stations and CPP Radionet 40 stations. The latter, unusual for Indonesia, operates only in the radio segment.

HOLD THE PRESS: In the early years of reformasi, between 1998 and 2000, the government granted almost 1000 permits for new print media, according to a Ford Foundation-funded study undertaken by the Centre for Innovation Policy and Governance, Hivos and the Manchester Business School in March 2012. By then, two large groups had come to dominate the print scene, however, with most of those 1000 new entrants long gone. KGG owned some 88 print media titles in early 2012, including 27 in its subsidiary, the Tribun Group, while the Jawa Pos News Network (JPNN) had 171. JPNN traces its routes back to the Radar Group and Grafiti Pers Group. JPNN also controls around 20 local TV stations. Other players in print included MRA Media with 16 titles, Femina Group with 14 and BeritaSatu Media Holding, with 10 titles.

In terms of market share, Kompas is the most widely read newspaper nationwide, with MARS Research Specialist figures showing it had 18.4% of all readers in 2010, up from 17.2% in 2009. The Jawa Pos came second, with 16.2% in 2010 and 15.3% in 2009. Third was Pos Kota, which had been second in 2009 with 16.6%, but then fell to 12.2% in 2010. Other major titles were Suara Merdeka with 9.7%, falling to 7.3% over the two years, Warta Kota, rising from 5% to 7.2%, and Pikiran Rakyat, rising from 5.2% to 6.8%. Figures for 2011 and 2012 were unavailable. In English, the Jakarta Post and Jakarta Globe are in daily competition, with the former owned by Bina Media Tenggara, the latter by BeritaSatu. A number of English-language magazines are also in circulation, such as BeritaSatu’s business title, Globe Asia, and Tempo’s English-language version.

GRABBING ADEX: The advertising agency sector has grown in recent years, with several ad and PR outfits listed on the IDX. The sector is heavily regulated, however, and technically closed off to foreign firms, although some do operate via certain creative structuring arrangements. Two important Indonesian agencies listed on the IDX are Fortune Indonesia and Mahaka Media. Both recorded major hikes in advertising revenue in the first half of 2012. The former reported 86% of its Rp254.4bn ($25.4m) in total revenue came from ads, while the latter said its Rp137.5bn ($13.7m) in total sales included Rp51.5bn ($5.15m) from newspaper ads, Rp32.3bn ($3.23m) from outdoor ads, Rp30.3bn ($3.03m) from TV and Rp10.5bn ($1.05m) from magazines. This gives a fair view of the overall spread for stand-alone ad and PR companies, as many big TV stations have their own in-house agencies, meaning work is skewed towards print and other platforms.

Blitz Megaplex and Group 21, meanwhile, have around 90% of the cinema screening market between them. Cinema audiences remain strong in Indonesia, with the local creative sector also boosted by international successes such as 2012’s “The Raid”. In 2011 Indonesia saw adex outperform even the expansive South-east Asian market. The year closed with 21% in 2010, according to Nielsen figures, with total adex rising from $1.74bn to $2.21bn, and with the fourth quarter of 2011 up 27% up on the fourth quarter of 2010. Indeed, adex is expected to grow vigorously on the back of GDP expansion and spending by multinationals and locals in a fast-growing retail market. MPA predicted a 15% compound annual growth rate in net advertising revenues in the five years from March 2012, with TV advertising expected to grow by 16% by 2016.

OUTLOOK: The years ahead are likely to continue to see FTA TV dominate adex, while audiences for pay TV will grow, contributing increasing earnings to media giants. Print will likely continue to see circulation fall, but this will be unlikely to impact adex just yet. Indeed, with an expanding economy, print continues to buck the global trend and see its adex share holding. Meanwhile, online media will likely boost its current small share, but it may take time for any major breakthrough (see analysis) to occur. With strong economic fundamentals, media and advertising look set to continue double-digit growth, with competition for quality content also likely to heighten as a way to build audiences.

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The Report: Indonesia 2013

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