The Ernst and Young’s recently released Spotlight on Profitable Growth – Media and Entertainment highlights the fact that today’s audiences have more choice and the development of alternative channels of content distribution is disrupting audience aggregation, pricing and revenues as well as EBITDA (earnings before interest, taxes, depreciation, and amortisation).

Cheryl-Jane Kujenga, director at Ernst and Young, points out that internationally, interactive media is leading the industry in terms of growth and this presents Africa with both challenges and potential opportunities.

“Africa is still behind much of the rest of the world when it comes to developing its broadband infrastructure and this has slowed audience adoption of interactive media. “However, as broadband access improves throughout the continent, it will create significant opportunities for the industry,” Kujenga says.

She says the time it will take Africa to sufficiently ramp up broadband access remains a key issue, though the increasingly pervasive use of the mobile phone offers an ideal device through which content may be accessed.

“Africa is the world’s fastest growing mobile region and this emphasises the role that partnerships with the telecommunications industry will play in future development,” Kujenga says.

While Africa does not have the variety of interactive content that is available in more developed markets, there are opportunities for providers to create content for which consumers are prepared to pay.

“As demand increases so alert content providers will respond,” Kujenga says. Another point is that in emerging markets publishing remains a strong subsector within the media and entertainment industry, possibly due to the slower growth of interactive media in these markets.

The industry will need to consider whether this will be sustainable in the future.

“Publishers have a limited window of opportunity during which they need to adjust to the new reality.

“Africa will follow the trends in the rest of the world and, therefore, African publishers will face the same challenges that now confront their developed market peers,” Kujenga says.

During the recession publishers saw their pricing power decline and margins came under pressure as ad spend declined and competition, particularly digital providers, proliferated.
Aggressive cost cutting followed as publishers reduced staff, closed news bureaux, and cut employee benefits.

On a more positive note, the environment has improved. The pace of ad revenue decline slowed in 2010 and publishers are expected to move into more profitable territory.

Kujenga says traditional publishers have responded to the challenge from online providers by moving their content online and providing some very attractive offerings to the vast internet audience. However, very few have succeeded in developing business models that can translate their online content into bottom line profits and online ad revenues have so far failed to compensate publishers for lost print ad revenues.

“The move towards greater use of subscription based services, if successful, could add new profitable, revenue streams,” Kujenga says.