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2017 BUSINESS OUTLOOK FOR THE MEDIA INDUSTRY

Here are my perspectives on 2017 economic challenges and opportunities from an agency perspective a media entrepreneur’s perspective.

Nigeria, Africa’s largest economy faces its worst economic crisis in 25 years, which was caused by low oil prices that have eroded both government reserves and spending, and shortage of the greenback in the system. 2016 was tough on many advertisers and agencies, many advertisers cut spend due to the state of the economy.

Advertising is sensitive to the economy, generally more so than consumer spending. In many developed markets, advertising has grown more slowly than the economy when the economy has been weak and more quickly than the economy when the economy has been strong according to McKinsey & Company (Global Media report 2015). More recently, however, advertising has generally lagged economic growth over the entire economic cycle because of the growing share of digital advertising in the overall advertising mix. The primary reason is that digital ad rates are generally much lower than ad rates in traditional media. Consequently, advertisers can maintain or expand their reach through digital media without necessarily having to spend more money. This recent trend is expected to be the case over the next few years in Nigeria as well.

Chart 1 – Top 20 Category Spenders

BRANDEYE

2016 industry spend data is not officially available as at the time of this report, but from all indications, 2016 was lower than the 2015 spend according to some credible sources in Nigeria leading media monitoring agency.

Agencies will be pushed harder on fee, as advertisers demanded more value at lower or same spend level. Non-working DMEs received significant cuts and more allocation went in the direction of BTL/Activation, as advertisers resorted to more short-term strategies.

Despite the general recession, I have met and discussed with a few Marketing Directors of FMCGs (Food Beverage Sector) and Managing Directors of some Agencies who explicitly stated that 2016 was their best year in a long time (3years); both from a turnover/billings standpoint, as well as from a profitability standpoint. So, clearly, not all companies/agencies felt the impact of the recession!

The year also witnessed significant political occurrences; most memorable being the BREXIT and the election of Republican celebrity and serial businessman, Donald Trump, as US President. These key political decisions will continue to have significant impact globally and, of course, in Nigeria, as the world awaits the full implications of these historic events. With America and Europe focusing on growing domestic economy, the Nigerian and African markets will continue to remain attractive to the Asian companies in 2017 and beyond, as the new growth frontier.

2017 promises to be a better year for the Nigerian economy and businesses, as it is expected that we will turn the bend from the 2016 recession. Telecom companies will remain the top spenders, with the Breweries retaining their 2nd position and other FMCGs will queue up afterwards.

Agencies that have clients in these sectors and related sectors can still expect a sizeable volume of business, as competition even gets steeper. The technology/digital boom will continue being driven by the following;

1. Growing audience

a. Growth in internet users

b. Growth in number of active social media users

c. Growth in number of mobile subscription

2. Growth in smart phone access. Feature phones will have increased ‘smart’ capability/features.

3. Access to computer to rise, with boost in public school technology investment by Government and private sector.

GOVERNMENT

Government will have more to spend with the improvement in public sector accountability (through the TSA and more disciplined spend). The positive talk with OPEC will begin to yield good fruits and price of crude will gradually pick up with cuts in production by OPEC. I project that price of crude will rise from $50-60 pb. The increased effort to diversify the economy and push non-oil export will yield marginal revenue for the Government and will translate into more public sector funding and investment in infrastructure.

CONSUMERS

From a consumer perspective, I do not think consumer spend will reduce, because it is already hot the lowest/bottom. However, consumers will be more analytic and spend more time comparing products/brands to ensure they get best value. Household products, foods/drinks that meet the fundamental basic needs will be top on the priority list.

I believe advertisers will focus on their key priority markets and will have few State strategy and not necessarily national strategy as some States becomes less economically viable. Lagos State will become the “5th Largest Economy” in Africa (assume Lagos is a country) from a GDP stand-point, after Nigeria, Egypt, South Africa and Algeria. Lagos has also put forward the biggest budget in her history; the budget has allocated over 62% to capital expenditure which includes the famous 4th mainland bridge which would definitely create a great ease of doing business.

Table 1 – Top African Countries by GDP (Nominal)

 

S/No

 

COUNTRY

NOMINAL GDP

($ Billion)

1 NIGERIA (Excluding Lagos) 406.96
2 EGYPT 330.76
3 SOUTH AFRICA 266.21
4 ALGERIA 165.97
5 LAGOS STATE 131.04
6 MOROCCO 108.09

SOURCE: Adapted from IMF World Economic Outlook (WEO), October 2015 & 2016

Lagos State GDP hits $131 Billion.

Against all expectations, Nigeria will attract more FDIs, with Lagos State as the preferred destination due to its high population and high purchasing power; improving ease of doing business and improving infrastructure. To radically improve its business attractiveness, Lagos will need to find ingenious ways of legal resolution of business/commercial disputes and tax harmonization.

Summary;

• Total advertising spend to increase versus prior year.

• Telecoms and Breweries will be forced to invest due to projected increased competition in the sectors.

• More investment will flow towards Digital advertising (leading with mobile) and digital. Spend on traditional advertising will decrease, though total marketing spend will marginally increase.

• With the exception of multinational FMCGs, other advertisers will explore opportunity for agency convergence and one-stop shops to drive down non-working DME. Agencies that can offer more than one specialized service will do better than specialist agencies.

• There will be more pressure on agency fees and retainership contracts will take a greater hit, as advertisers will tend towards service fee contracts with the flexibility to cut down expenses if need be. Smaller to medium agencies will benefit from these industry changes as long as they remain nimble, professional & efficient in their operations.

• Clients/advertisers will put pressure on agencies for longer payment period/term as part of the hedge against business dynamics.

• Agencies will have to collaborate more, drive innovation more than ever before and offer more value for same or even reduced spend by their client. More than ever before, agencies that invest in modern practical tools and technologies will win big time over the ones that do not.

• Affiliations will remain important, but will not guarantee business retention, as advertisers seek more agile, nimble, cost-efficient agencies.

• Content will remain king as audiences will gravitate online and offline for exciting contents that can travel seamlessly across platforms.

• Result/KPI driven campaigns will be of utmost importance, which creates an avenue for efficient tracking and monitoring.

• KPIs will mostly be “projected profit”, “lower cost per contact”, “defined conversion rates” driven.

ADVERTISERS’ CHALLENGES

In this shifting landscape, there will be increasing demand from advertisers for more comprehensive data and analytics to justify investment. Media agencies must be willing to make the right commitment to test media performance and demonstrate channel effectiveness as well and build models that are predictive for decision making.

In conclusion, I believe that 2017 will offer unique opportunities, the most adapt & flexible agencies will have strong year as we turn the economic bend, it promises to be very exciting. I strongly believe that Nigeria’s economy will rebound and record growth in 2017, perhaps 2.5% (+/- 0.3%), despite the challenges posed by weak oil earning & foreign exchange.

As a final word, strategic media planning & buying will require BETTER THINKING to achieve BETTER RESULTS.

By Femi Adelusi
Managing Director Brand Eye

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