Is consolidation the way of the future?

The tail end of 2018 brought with it some major announcements between media companies and the booming out-of-home market. Nearly two months since NZME and Go Media enacted their partnership and MediaWorks and QMS Media announced their proposed merger, we have a chat with media agencies to see whether the latest developments are a sign of things to come.

In November, NZME and Go Media announced they had entered a sales partnership that will see the out-of-home company’s media solutions be included in NZME’s multi-platform offering.

For NZME, its a partnership that adds Go Media’s 1,100 out-of-home placement opportunities in New Zealand to its growing list of platforms: radio, print and digital.

At the time of the partnership, NZME chief commercial officer Matt Headland said it aimed to drive broader reach in key markets.

“This collaborative partnership will not only deliver a one-stop, multi-platform client media buying solution, it will complement and enhance the growing NZME media stable. There isn’t any other media buying point in New Zealand where you secure a print, radio, digital and OOH media campaign as a single transaction.”

The partnership was effective from mid-November, and while NZME sales teams in Auckland, Wellington, Christchurch and Hamilton now represent Go Media with its direct client base, advertisers represented by media agencies are continuing to work with their existing NZME and Go Media sales representatives.

Shortly after that announcement, MediaWorks and QMS Media tabled a potential merger. The transaction remains subject to agreeing final binding terms as well as several customary conditions – it is expected to be complete in the second quarter of CY 2019.

In the proposed merger, QMS would merge its local out-of-home, digital media and production businesses into MediaWorks. In return, QMS would receive a material, but not controlling, share of the company in the expanded MediaWorks business. Funds managed by Oaktree Capital Management, L.P would retain a majority.

At the time of the proposal announcement, MediaWorks chairman Jack Matthews said MediaWorks world be able to further enhance its ability to deliver local content and more effective advertising solutions to its customers.

But PHD group strategy director Simon Bird says he isn’t sold that media companies partnering with out-of-home companies is the most effective way forward.

“Media companies partnering with other media companies around the world is more interesting,” he says. “That way the can fight against the common enemy of other AV capabilities.

“Partnering with other same channels internationally would have more strategic benefits potentially than buying other assets in the same country. I’m sure they have a reason [for merging]but it’s not immediately obvious from a strategic point-of-view.”

Bird says that he doesn’t believe the current changes are necessarily an insight of things to come, as consolidation happens anywhere when trends are down. He believes such partnerships are of more benefit to smaller clients rather than large ones.

“There’s only so many media companies in New Zealand so it can’t go on forever. The role of the channel remains the same, they just have a new sales structure.”

Vizeum general manager Richard Hale believes the latest consolidation announcements are a sign of things to come across the board, in order to reach local markets with the competition of online markets. 

“This means that advertising revenue that has traditionally benefitted local companies continues to exit New Zealand, and instead land in places like California at Google or Facebook. Consolidation is simply a means of replacing that revenue.”

Hale says the timing of the MediaWorks and QMS proposal and the NZME and Go Media announcement was no coincidence.

“… Both involve companies with a legacy of traditional media forming relationships with companies that have invested heavily in digital out-of-home… which was the fastest growing media channel in December in the most recent SMI report.”

MBM managing partner Sean McCready agrees.

“It makes total sense for media companies to add out-of-home to their offering,” he says. “It’s an opportunity to expand their offering and grow revenue, and large media companies can use their existing sales structures and client contacts to their advantage.”

McCready also believes consolidation is a trend that will continue for some time yet, with NZME’s competitor Stuff likely to be the next to merge with another publisher – if they can find a buyer.

“Overall, media ownership is very tough these days. Profitability of print and TV has been in decline for a long time.

“Consolidation is about business health and survival. In the case of MediaWorks, acquiring a profitable out-of-home arm should help further strengthen the balance sheet, effectively helping fund the much less profitable free-to-air TV offering.”

Amplifi NZ general manager Richard Pook says the latest consolidations and potential future ones are inevitable as media becomes increasingly digitised.

“My view is that there will be a natural consolidation of local media companies across channels.”

He says the change is being driven by a number of factors including the technological advances that are enabling a digital-first experience, which reduces the disparity between each channel and the way that supply is bought. For example, digital outdoor screens, digital radio, digital TV are starting to use similar parameters to online display such as its trading currency, targeting options or buying platforms.

Another driving factor is the ability to build multi-channel reach and critical mass to tackle the significant local scale of the global tech giants, Pook says.

Finally, the desire of media owners to drive down the cost to sell and to service, to increase profitability and enable more money to be spent on content.

“The nirvana is buying made simpler, on fewer separate platforms with a common de-duplicated reach and frequency industry measure – the latter of which is probably a long way off.”

He says the differences between the two partnerships are clear, with NZME and Go Media looking for a cost-effective way to increase market and product penetration, particularly in the regional areas where NZME sales teams have good coverage.

Whereas, Pook says the MediaWorks/QMS proposed merger represents an opportunity for a quad media channel offer. He believes it will be harder to recognise the additional revenue, particularly when the systems, platforms and buying currencies are still so separate.

About Author

Caitlin Salter is a freelance writer who contributes to various publications at ICG Media.

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