Technological advances pushing Egyptian media sector to adapt

The 2011 revolution in Egypt led to a flurry of new private entrants in the print media and TV markets, with many of them seeking to compete with public broadcasters and long-established traditional print titles for market share. The revolution was also a catalyst for changing viewing and reading habits. With a large youth population, an increasing number of Egyptians are choosing to consume information and entertainment online. As a result, TV networks and newspaper groups are grappling with dwindling subscription and sales figures as customers once taken for granted are migrating online. As such, the industry is at a critical juncture and – in the short term at least – as elsewhere in the world, the ability of outlets to adapt to digital mediums and a more fragmented audience will prove crucial.

Post-Revolution Expansion

The revolution of 2011 ushered in a period of frenetic activity, in which several new entrants sought to get a foothold in the market. In the five months after Hosni Mubarak, the country’s former president, stepped down, 16 new television channels obtained broadcasting licences. The Egyptian Media Production City (EMPC), the majority government-owned television studio company, announced plans to expand its studios, given that all 64 of its existing units were rented out after the revolution. Sayed Helmi, chairman of the EMPC, told The New York Times in July 2011, “Previously, there were periods of around [a] year or so when not a single new client would knock on our door to rent a studio or set up a new channel. The atmosphere is freer and the industry has been liberalised after the revolution. We expect more business to come our way.”

In addition to the growth of new entrants, the revolution led to a groundswell of support for reform of the sector, which included calls for the restructuring of the Egyptian Radio and Television Union (ERTU), the state broadcaster, and implementation of a new regulatory body to oversee the broadcasting sector. However, thus far reforms have been piecemeal and limited. While the Ministry of Information was officially disbanded in 2014, there are no regulations yet in place to empower the body that will replace it, the National Media Organisation. In the interim, the government has given Essam Al Amir, president of the ERTU, ministerial powers.

Audience Credibility

Despite the proliferation of new outlets – or perhaps as a result of it, due to the strong connections some outlets have to interest groups and political parties – Egypt’s media is struggling to re-establish credibility with its audience, a challenge not unlike that faced by some TV channels in the US. A May 2015 poll by independent polling firm Baseera found that only 9% of Egyptians believe what they see on TV. The figure for print was not much better, with 17% of respondents stating they believe what they read in the newspapers. Nielsen, a leading global provider of information and insights into what consumers watch and buy, has also conducted consumer surveys to assess media credibility in the post-revolution environment. According to recent results shared with OBG, satellite TV has the most credibility, followed by social media, which has outperformed print and radio.

Uphill Struggle 

These findings point to the difficult operating environment for traditional media firms under the current conditions. The ongoing political instability in the country “is affecting the economic models of print, TV broadcast and satellite players”, according to Hussein Amin, professor at the Department of Journalism and Mass Communication at the American University in Cairo. Indeed, there has been a spate of network closures in the last 12 months, a result of a change in the operating environment. Since Mohamed Morsi, the former president, was deposed in July 2013, more than 56 satellite channels have been forced to close.

In March 2015 the CBC network switched off its CBC 2 channel, just one of a number of high-profile closures in 2015. The American Chamber of Commerce in Egypt (AmCham) reported in July 2015 that Modern Sports, Mehwar 2 and Mehwar Drama all closed down earlier in the year, while the Dream Network, one of the leading satellite channels in the mid-2000s, failed to pay many of its employees on a regular basis for over 12 months. Many channels also still owe back payments to production houses.

ERTU

The ERTU, which is also having to contend with a number of new competitors, is seeing its performance impacted. The broadcaster had estimated losses of LE3.6bn ($490.7m) for FY 2013/14. The union’s total debts also reached LE20bn ($2.7bn). Opinions are divided on what should be done about this, ranging from abolishing the ERTU to restructuring it towards a licence-fee model, small-scale reform and stronger backing from public funds.

Hala Hashish, general director of the Media Production Centre at the German University in Cairo (GUC) and a former director of state-owned Nile TV, believes that public broadcasting suffered due to a post-revolution exodus, as well as aggressive moves to expand by new outlets. “The new media is run by businessmen and the role of public TV has been completely erased,” she told OBG. “All those who were skilled went into private TV or radio, or they went to Dubai.” Public TV used to capture the lion’s share of the advertising market, but it is now dwarfed by private channels.

Competitive Market

These are recognisable symptoms of a fragmented and competitive market. Many of the new channels that have sprung up in the wake of the revolution are struggling to generate revenues. Riham El Sawy, managing director of advertising agency Mindshare, said that 95% of television advertising spend in Egypt is on just five channels. According to an article in Business Monthly, an AmCham publication, there are around 20 channels competing for both premium content and viewing figures, as well as several smaller channels that air content without permission and which face no legal consequences for doing so.

However, the issue is not just a supply-side one. Demand is also shifting as consumer habits change. Many Egyptians are turning to the internet to watch their favourite shows. While pirating content is an issue, even sanctioned content online can lead to an erosion of revenue for television networks. Many TV stations have set up YouTube channels to try to capitalise on this market, but as much as 45% of this online advertising revenue goes to YouTube.

Yomna Sultan, associate director of consumer insights at Nielsen, said that the market must also contend with other developments. “The Egyptian market has recently become a hotspot for several new retailer chains that have an origin elsewhere, such as the GCC and Turkey,” she told OBG.

Production Profits

However, there is a silver lining to this increased competition. Although some companies have been shooting in new locations to avoid studio fees, for example, the EMPC continues to record acceptable results.

In the six months to June 2015, the company’s revenues increased by 15% to LE165m ($22.5m), although net income decreased by 43% to LE10.5m ($1.4m). The company is also working on thin margins, with a net profit margin of 0.79% for the period up to mid-year 2015.

Ramadan Bonanza

Another bright spot has been Ramadan revenues. In terms of networks, MBC Masr, a Saudi-owned free-to-air channel that offers programming tailored to the Egyptian market, has done particularly well in this area. One of the four big satellite players – the others being Rotana, Orbit and Bein – MBC Masr (one of the channels of MBC group) “won the race in Ramadan”, Amin told OBG. He added, “Their approach and content during Ramadan was excellent.” The company made sure to stack high-rating programmes, such as “Ostaz wa Rayees Qasem” (“Professor and Head of the Department”), back-to-back to retain viewing figures. This was important because, as Amin noted, the Ramadan season is when the channels “make big money”. Viewing figures after iftar, the fast-breaking meal after sundown, during the holy month can reach 70m, according to Amin. According to Business Monthly, at least 80% of the year’s original content is first aired during the month of Ramadan. In 2015 the combined production costs for all the Ramadan TV series reached about LE1.1bn ($149.9m).

According to Business Monthly, the month has become “nothing short of an arms race in which not just advertisers but channels and producers seek to do whatever it takes to push up ratings”. During Ramadan, channels pay approximately three times as much for content compared to the rest of the year. Famous Egyptian actor and comedian Adel Imam alone was paid LE35m ($4.7m) for his role in “Ostaz wa Rayees Qasem” during Ramadan.

Advertising

The 2015 season was marked by an emphasis on light entertainment and less talk shows and political programming, such as those that had dominated the airwaves following the 2011 revolution. Revenue generation for networks is predominantly driven by advertising, with the sale and resale of content coming in a distant second. At first glance, 2015 looked like a strong year for TV channels. There was a 17% annual increase in advertising spending during Ramadan in 2015, according to Mindshare, while advertising rates increased by 10-15%. The highest spend in the market by category is generally on drama, followed by big-ticket shows such as “X Factor” or “The Voice”, with chat shows in third place. During the revolution, chat shows could take up to 30% of the overall advertising spend, but this has since declined, according to Mindshare.

In 2015 MBC Masr, CBC, Al Nahar and Al Hayat generated the largest number of adverts, and thus the highest revenues. A minute-long primetime commercial slot ranges in cost from LE10,000 ($1360) to LE60,000 ($8180). MBC Masr commands the highest rate for such a slot at LE40,000-60,000 ($5450-8180), followed by Al Nahar TV at LE20, 000-50,000 ($2730-6810). In comparison, state TV sells a 60-second slot for LE5000-10,000 ($681-1360).

Regional Powerhouse

Despite the challenges facing Egypt’s TV industry, the threats to its long-standing position as a major production centre and advertising market in the region remain minimal. “If you look at the Middle East right now, Iraq will take years to bounce back and Syria in the past had excellent production quality that reached a peak in 2010, but which declined sharply after the civil war. So now you are basically just looking at the UAE as competition. But with the UAE, it is very expensive to produce over there and compete with Egypt in terms of labour and facilities,” Amin told OBG.

Print Media

Egypt’s print media is facing a proliferation of new outlets, many of which are online, posing a quandary that is common to publishing firms the world over. Traditional newspapers are now facing new challenges. “The future is those that are going to access news on smartphones, tablets and laptops,” Amin told OBG. He added that the old established papers “need to come up with new models to present their content and to appeal to audiences under the age of 28”. With around half of Egypt’s 90m people under the age of 29, newspapers can no longer fight demographics.

Many young and politically active readers are migrating to the internet and social networks. The number of internet users almost tripled from 15m in 2009 to 48m in January 2015, according to local news reports. Social network usage has been even more impressive, with Twitter usage increasing tenfold from 400,000 users in 2012 to 4m in January 2015, and Facebook reaching 24m users. This presents a serious challenge to the printed press, and some titles are beginning to react. Egyptian daily Al Masry Al Youm “has very comprehensive online models”, Amin told OBG. “They use push technology to send news briefs for smartphones and capacity to send videos to people’s mobiles.”

Outlook

It is a difficult period for both Egypt’s print and broadcast media. The revolution that brought such hope to the sector now looks very much like a mixed blessing. The industry has taken a substantial hit to its credibility at a time when it is slowly reacting to the global challenges presented by technological innovation.

Much that currently ails the sector is not unique to Egypt. However, many of the players in the local market have been slow to react to the challenge of monetising content in a world where viewers and readers are increasingly accessing it for free online.

Although a small number of networks and newspapers continue to thrive on the old advertising model, this may not hold for much longer. The immediate future could be challenging for one of the region’s oldest and most prodigious media sectors.

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The Report: Egypt 2016

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