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              How the Gulf is moving to digital            

              Arabian Business

              March 16, 2015
              in IT & Telecom
              0

              The Middle East and North Africa region has one of the fastest growing media industries in the world, driven by rapid digitization, high consumer spending and a younger demographic. The landscape is changing and will be almost unrecognizable in five years’ time, according to many industry analysts.

              Driven by strong growth in digital commerce and games, the market is set to expand rapidly in the coming years.

              In particular, the media advertising market is expected to grow from $15.5bn in 2014 to $21.5bn in 2019, according to research by consultants Strategy&.

              “Out of all the platforms, the most prominent growth is going to be in digital,” says Jayant Bhargava, a partner with Strategy& and a member of the firm’s global communications media and technology team. “And in digital, it’s going to be mobile and video that’s going to do extremely well. Games, which is already growing very fast, will continue its growth. In games, we will see the local and regional games take a little more share. Today, 90 to 95 percent of the gaming consumption is global.”

              Despite plenty of hype, mobile advertising hasn’t exactly taken hold in the region. Mobile penetration in the UAE, for example, is the highest in the world, and yet the region comes last globally for ad spend as a percentage of overall digital spend, with just 4.6 percent. Compare that with the US (42.8 percent) or Western Europe (21.2 percent) and it becomes clear that there is plenty of scope to develop it further.

              At the heart of the problem appears to be the slow adoption of mobile-friendly websites, which has thus far stifled the opportunity to truly grow the segment. Companies also need to develop a specific mobile strategy, which is more beneficial in terms of return on investment, Bhargava says.

              “We have seen a greater propensity for people to pay for content if it’s delivered on a mobile platform, which we think is going to become a more important platform in the region, so you will see more monetization which will create the business case for investment in the content production,” he says.

              Bhargava says there are more internet broadband users on mobile than on a desktop PC, further strengthening it as a business model.

              “If you look at digital trends of consumption, in many categories of content, mobile is being favored by consumers with more smartphones and tablets. This trend is far more profound with the youth community,” he says.

              Elie Aoun, president of Ipsos, a global market research company, says the potential on mobile is exciting.
              “There is a big potential when it comes to mobile advertising, but it’s not measured [right now]. What we know is that mobile is now the second screen after TV in the region, so the potential on mobile is huge,” he says.

              Accessing content on mobile, particularly data-hungry video, requires a strong mobile broadband network.
              Vidya Nath, a research director at Frost & Sullivan’s digital media practice, says access varies from country to country.

              “The region is highly fragmented, so over the next five years there will be quite a bit of change in way mobile broadband will be accessible to people in the region. However, the contrasts are very sharp [in the region]. We have an online index for 20 to 25 countries in the region and it will take some time to close the gap. It’s pretty wide,” she says.

              The region has also witnessed huge demand for Arabic content. Bhargava says there has been a cultural shift among young people, which has spawned a tremendous creative energy, and an untapped demand for local Arabic content.

              Investment in Arabic programming has been sorely lacking when it comes to mainstream broadcasters that have previously favored importing Western programs.

              “If you look at the content supply that’s been in the market and what’s been consumed historically, you would find that the premium content has been a lot of Western content. OSN, for example which is high-paid content, most of their library would be Western content,” he says.

              Over the last 12 months, however, he says there has been a change and people are demanding more high-quality Arabic content.

              “There has been a gap in terms of supply of high-quality Arabic content and the hurdles have been talent, the people who can produce this and it has also been availability of investment capital – somebody who would go and invest their money in producing a very high quality, local content. Over the last year, we are seeing this changing a bit.

              “It’s creating a supply issue – historically there hasn’t been a supply of high-quality Arabic content.
              Demand is there but what’s been missing is talent and investment capital, which creates this untapped demand potential,” says Bhargava.

              In order to supply the demand for Arabic content, particularly in Saudi Arabia, younger producers have taken to the internet, and YouTube, where tens of thousands of followers are logging on each week to watch a fresh, new brand of television.

              “This [untapped demand potential] is being served a lot today by the Arabic youth. It may not be high production quality but it is high quality in terms of the messages and you see this in the platforms that are developing now on YouTube, which are essentially led by Saudi youth.

              “You have companies such as UTURN who are getting amazing amounts of traffic on these, and which is a starting point for serving this untapped demand for local Arabic content.

              “They are getting [a lot of] viewership and getting success, even with content that is not of high quality; it speaks to the culture and the day-to-day issues of the region and is getting a lot of traction. It’s basically saying there is a lot of untapped demand for Arabic content and there are clear signs that if somebody was to invest in this, it would be a meaningful investment,” he says.

              The companies Bhargava that says have been successful in monetizing their content have had plenty of interest from broadcasters to give their shows a mainstream platform.

              “Today it’s being monetized by advertising but these companies are 50 or 60 Arabic youths sitting in a small office and producing content. The amount of investment queries these guys have got in terms of people knocking on their doors to take a stake in their company is phenomenal. The future monetization, in our view, there could be a convergence of this over-the-top short videos into mainstream television, which could even be on a paid platform that could create the monetization,” Bhargava says.

              Nath, who last week presented a white paper on the media industry outlook on TV everywhere in the MENA region at trade event CABSAT, says broadcasters themselves are beginning to recognize the demand for Arabic content, starting with small, high-quality short content.

              “There is a lot of focus from the broadcasters, as well as the content creators, and many of the distributors are becoming content producers, which is what we have seen with Netflix.

              “What we will see in the next three years is that a lot of content will come up in the different types of format, which is not similar to what we watch on television. We will probably see a lot of experimentation around the duration of the format which means that a lot more short content will be available. There are companies like OSN and Icflix who are investing quite a bit in the creation of such content.

              “You cannot predict what the growth of the business will be, because ultimately it’s not about making the volume of content, but the quality of content.

              “The good thing is that suddenly there is quite a bit of passion in the industry to boost up the production of the local content. The industry was a little stifled – you had access to 500 channels, but there was not much variety in the genres. Those challenges are being overcome and there is a lot more experimentation happening in the industry to boost Arabic content and to produce very interesting and entertaining content,” she says.

              Nath says in order for TV companies like Icflix and OSN to make their mobile offerings more profitable, they will have to look at their pricing, which she says will, in time, come down by half in some cases.
              “None of the players in the market have spoken a lot about how they are looking at the price strategy. As an analyst, what I believe is that even though they have been focused on the GCC, and even though in the GCC some of the leading ones have managed to capture a significant subscription base, ultimately if you really want to penetrate the market in a wider scope and make your services available to a larger number of people, they will have to reduce their pricing from where it is now,” she says. “Today’s average pricing is between $7 and $10 per month per user. I believe over the next five years that pricing will fall down to about $5. If you don’t make your service affordable, you’re not going to be able make a dramatic change to your net addition,” Nath adds.

              She says more and more broadcasters over the coming three years will make mobile apps available, and the content aggregation and distribution models will completely change, as they bid to make their content more widely available.

              “What we’re seeing happening increasingly is that the division between the linear TV channel department and the digital division is slowly being blurred. Broadcasters will find it easy to unify their services around all three platforms instead of differentiation,” she adds.

              Aoun, who has 20 years’ experience in the media industry, says online companies are also looking to compete with TV.

              “What’s happening this year – and I think it’s something very unique to our region – is that digital, especially companies like Google, YouTube and even Facebook with its own video, are looking to compete with TV. So they know that the biggest budgets in our region are on TV and they are finding ways of how they can position,” he says.

              Bhargava believes it might be time for international companies like Wirecom or NewsCorp “who know how to produce high quality [TV] and have the best tools” to come to the region and engage with the young producers.

              “The time is right for the international majors to look at the region, because traditionally all these companies have looked at the region, Disney included, and said 'we’ll ship our content as it is and let this [region] be a distribution hub and [we] won’t produce content that is tailored for the region',” he says.

              “If you look at how the pay part of the media market is growing, I think there’s a case for these international companies to consider how they look at the Middle East as part of a global expansion strategy.”

              Bhargava says gaming, which makes majority of its money through payments (mostly in-application), will continue to grow in the region, eventually equaling the size of television viewership.

              “Gaming in a decade from now is going to be as big as the television industry in the Middle East and that’s going to be largely through paid content," he says. "People are willing to pay for games more than they are willing to pay for content on the digital platforms. We will see the local and regional games take a little more share. Today, 90 to 95 percent of the gaming consumption is global."

              And digital is where Bhargava says the future lies for the media industry.

              “Out of all the platforms, the most prominent growth is going to be in digital. And in digital, it’s going to be mobile and video that’s going to do extremely well,” he says.

              Aoun believes this will be the year we finally see real growth in digital advertising.

              “For the last five years, we have been hearing that digital will be taking off and advertising will be increasing. I think 2014 was the first year it started to happen very seriously and I think this will be the case in 2015,” he says.

              “Everybody is saying this year will be a difficult year. What I personally say is that this is a year of transformation because especially, as I told you, what’s happening with companies like YouTube and Facebook who are seriously looking at competing with TV in our region. Traditional media and TV have to respond to that,” Aoun adds.
              Arabian Business
              16 March

               
               
               
               
               
               
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