It’s a tough year for Malaysia’s Media Prima.

The company is battling against macro malaise to shore up its core traditional businesses. At the same time, management want to profitably grow emerging digital revenues with a sustainable monetization model as well as leverage content production and a library of 70,000 hours.

Media Prima's share price is down ~12% for the year (to August 15 close), underperforming both Astro and Star Publications.

Year-on-year company revenues fell by 11% in 1H 2014 and by 17% in Q2, with operating profit declining by 30% and 40% over the same periods.

CORE FRANCHISES WEAKEN

The company's print and free-to-air TV franchises contributed more than 80% to 1H 2014 revenues and ebitda but there are concerns across both businesses. 

A tough macro environment, weakening consumer sentiment and the recent MH370 tragedy have contributed to a softer advertising market, significantly impacting Media Prima’s print and TV businesses.

While management are keen to attract more non-traditional advertisers in 2H 2014 in order to stem revenue erosion, macro realities are challenging.

In particular, subsidy rationalization schemes and the implementation of GST may further hurt consumer sentiment and limit the scope for advertising growth.

Over 1H 2014, Media Prima’s net free-to-air TV ad sales fell 8% year-on-year while Ebitda contracted 20%.

At the print business, total revenues and Ebitda fell by 16% and 31%, respectively. The print business remains under pressure from online media and weakening consumption, resulting in sequential circulation and advertising declines. This is prevalent across the sector.

The company's four free-to-air TV stations retain leadership with a 42% aggregate audience share over 1H 2014, led by TV3 with 25%.

Yet, both audience and advertising share are fragmenting with the growth of more local pay channels from pay-TV giant Astro. This trend may intensify with the upcoming rollout of digital terrestrial TV (DTT). 

Details are expected to be finalized over the coming months but it appears that Media Prima will leverage DTT infrastructure provided by a third-party consortium to enhance transmission of its existing channels and potentially bid for new channels where it has first right of refusal ahead of new entrants.

DTT transmission fees paid by Media Prima to the infrastructure owner are yet to be finalized. The company has spent more than US$20 million over the past three to four years to upgrade its studio and broadcast equipment to digital, completing the process last year.

DIGITAL POTENTIAL

One potential bright spot is the company’s digital media business, which grew sales by 9% in 1H from a low base and is approaching breakeven.

Greater monetization here is key as the company looks to capitalize on Tonton, an online video platform. Tonton users grew 27% in 1H 2014 to reach 3.8 million and management are hoping for a revenue boost from Tonton Premium, a pay-per-view service.

Digital is expected to reach breakeven next year and start making money in 2016, benefiting from lower bandwidth costs and more revenues from Tonton.

Digital is one key way for Media Prima to leverage its library of 70,000 hours. The company is also growing its Primeworks Studios business, which produces 5,000 hours worth of content every year, focusing on program sales and syndication across Asian and international markets.

Primeworks engaged in two co-productions this year, with Fuji TV in Japan and Singapore’s MediaCorp, while licensing deals have been struck with Telekom Malaysia and ABN at home, and with SingTel and StarHub in Singapore.

Primeworks sales contributed 7% to company turnover in 1H 2014.