1. UK Media Sector Market Landscape

The media sector in the UK includes TV Production and Distribution, Advertising, Publishing & Events, News Publishing, Book Publishing & Magazine Publishing. The global media and entertainment industry is expected to have a revenue of USD 2.3 trillion in 2020, and it is expected to grow to USD 2.6 trillion by 2023 as per the Pwc report. The US is the industry leader, and the media and entertainment industry revenue in the US is close to USD 735 billion.

The UK's media industry has performed robustly over the past few years; however, the revenue of the media and entertainment sector is set to decline in 2020 as per the Pwc report. The revenue of the media and entertainment industry is expected to fall by 6.7% in 2020. However, the revenue of the media and entertainment sector is expected to grow at a CAGR of around 2.8% between 2020 and 2024. The revenue of the sector is estimated to be around £79.8 billion in 2024.

The health crisis has affected the different sub-sectors of the media industry differently. While media sub-sectors that are used by the consumers staying indoors have flourished, the sub-sectors that are more popular outdoors have witnessed a decline. The segments such as over-the-top (OTT) platforms, podcasts, in-home content have done well. On the flip-side, outdoor media events, outdoor advertisements, magazine purchase during travel have performed poorly.

The pandemic has transformed the media sector, and the industry has adapted to digital channels for business opportunities. Many of the B2B events and outdoor events have been conducted virtually, and it has opened new avenues of growth. The current situation has made the media industry adapt to new methods, and it is placing the UK's media sector in a better position to cope up with any future disruption of a large scale.

Before the onset of the pandemic, the traditional commercial TV revenues were contracting, and it was mainly because of lower ratings of the channel portfolio, while the commercial revenue of the online platforms was increasing. Prior to the lockdown, close to 40% of the radio listening was outside the home, in-car and at work. The pandemic has shifted the radio listening pattern and as people are staying at home.

The OTT video platforms and video games & esports are currently in the limelight; however, digital advertising and B2B information are also expected to rebound.

Key Trends in the Media Sector

• Subscription Model - The paid services for the media content is rising. The organizations allow limited access to the articles or data on the open-source and provide the majority of the content for paid subscribers. The publishers have shifted the focus to membership products, subscription and donations and are lowering their reliability only on advertisements. As per the survey performed by the industry expert, people with a higher interest in news, wealthy consumer groups and people with a degree level are more likely to pay for subscription-based content.

Fig 3: Proportion of Subscription Video-on-demand (SVOD) by Subscribers by Age in the UK

• Increasing Use of Smart Phones for Digital Content - The rising penetration of smartphones has tremendously supported the business of the media sector. The first time smartphone users in the UK use it to access news websites or applications as per a survey. In the UK, according to an industry expert's survey, 43% of the smartphone-first users used it to view news for their first contact.
• Podcasts - The digital audio files have become more prevalent in recent times and are considered one of the key means to reach a mass audience. The podcasts in regional languages have a large number of audience, and they are more appealing to the younger generation. The adoption of voice-enabled IoT (internet of things) devices have also supported audio listening.
• Media Content Aggregators - News aggregation, is not unheard, but artificial intelligence and technology tools have increased its adoption. The continuous pop-ups by news websites for paid content and subscription have made more people move towards news aggregators such as Google News and Apple News.

Risk Exposures to Media Sector

• Trust Issues - The trust in the mainstream media has declined, and people believe that the media content is biased. The uncertainty in the current environment has made it hard to distinguish between facts and rumours. The biased perspective in the media reports related to global events has made people question their credibility. Sources with less accurate reputation have lost business.
• Negative Impact on Mood - In many cases, the content on media harms the viewers. The content sometimes leads to lack of concentration in daily tasks, leads to arguments and at times overload with information.
• Over Consumption of Time - Some of the media contents are considered to be time-consuming and wastes the time of the viewer rather than educating about anything.
• Polarized Political News - Media channels broadcast content that is pro towards one political segment, while against the other. At times the viewers consider such channels as corrupted and bogus, which leads to a decline in the viewership and the rating.
• Fake News - The lack of content monitoring on media platforms can lead to the circulation of fake news. The spread of false information can lead to economic and political instability.

Benchmark Index Performance

Based on 6-months performance, the media sector outperformed the FTSE-100; however, the performance was below FTSE-250. The FTSE All-Share Media index generated (11.43%) return, which was better than FTSE-100 (5.79%) return. The FTSE-250 index generated (20.5%) return.

Fig 4: Six Months Index Performance

(Source: Refinitiv, chart created by Kalkine Group)

SWOT Analysis 

Media Sector Outlook

The media and entertainment revenue in the UK is expected to increase to £79.8 billion by 2024 and grow at a CAGR of around 2.8% between 2019 and 2024 (as per Pwc report). The health crisis would impact the media sector in 2020, and it is expected to witness a decline in revenue of ~6.7%. The UK is the largest Over-the-top (OTT) video market in Europe, and it is expected to be a market leader through 2024 in this segment. The OTT video market witnessed growth in 2020 as more people spent time at home and entertained themselves. The OTT revenue in the UK is expected to grow by 18.6% in 2020 to £1.7 billion. The subscription video-on-demand (SVOD) is the fastest-growing segment that includes platforms such as Netflix and Amazon Prime. The launch of the new products that include BritBox, Apple TV+ and Disney would support the OTT market in the UK. The revenue of the OTT video market is expected to grow at a CAGR of 10.5%, and SVOD revenue is anticipated to grow at a CAGR of 11.7% between 2019 and 2024.

The pandemic has weighed down on the digital advertising market as the consumer spending has plummeted over the last few months. The advertising revenue on the UK internet platform is expected to fall by close to 5% in 2020, whereas the advertising revenue of the print media and the outdoor segment is expected to be down by 24% and 30%, respectively in 2020. The shift to online channels for the consumption of media content has made the availability of content in mass. The industry is grappling with the challenge of creating new sources of revenue generation.

2. Investment analysis and stocks under discussion (INF, PSON, ITV, YOU)

After gaining insights into the media sector, we would look at the business model of four media players listed on the London Stock Exchange.

A. Informa PLC (LON: INF)

(Recommendation: Buy, Potential Upside: 10.02%, Market Capitalization: GBP 8.31 billion)

Informa PLC is a UK based company that organizes events and exhibitions, and the leading brands of the Company provide intelligence based products and data-driven services. The Company has five operating divisions that include Informa Connect, Informa Intelligence, Informa Markets, Informa Tech and Taylor & Francis. Informa is included in the FTSE-100 index.

B. Pearson PLC (LON: PSON)

(Recommendation: Buy, Potential Upside: 18.31%, Market Capitalization: GBP 4.49 billion)

Pearson is a UK based company that is engaged in the business of educational publishing and assessment services. The key clients of the Company are schools, colleges, corporations and students directly. Pearson is a FTSE-100 listed company.

C. ITV PLC (LON: ITV)

(Recommendation: Hold, Potential Upside: 8.98%, Market Capitalization: GBP 3.61 billion)

ITV PLC is a UK based company, and it is an integrated producer broadcaster (IPB). The Company creates, owns and distributes content on multiple platforms globally. It operates the family of free-to-air commercial channels in the UK and delivers its content through linear television broadcasting and on-demand through the ITV Hub. ITV is included on the FTSE-250 index.

D. YouGov PLC (LON: YOU)

(Recommendation: Expensive, Potential Downside: 17.54%, Market Capitalization: GBP 1.10 billion)

YouGov is a research data and analytics company. The Company supports the marketing activity of media houses, brands and media agencies. The Company has 37 offices worldwide with more than 3,300 clients and around 1,100 employees. The Company is listed on the FTSE AIM 100 index.

*All forecasted data and peer information have been taken from Refinitiv, Thomson Reuters.

*The Buy recommendation is also valid for the current price as covered in the report as on 18 November 2020.

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