The media revolution: as considered by Delphi Europa’s Furnes

Espen Furnes, Norwegian manager of the Delphi Europa fund, has outlined factors he believes will make winners of certain players in the media sector.

This might be stating the obvious but, over the past two decades, one industry in particular has undergone a revolution – the media industry.

In our search for good investment opportunities, we often see that an industry undergoing changes can offer exciting investment trends. During change phases, the rule is usually that winners become losers and that the winners are usually not the ones you had expected. The media industry is basically a large, extensive industry that contains many different types of companies and products. The industry consists not only of newspapers and TV but also of book publishers, trade journals, cable TV companies and purely online magazines. There are also many companies that provide support services to this sector, such as in advertising. The revolution in the media sector is so radical that it can safely be said to be the most dramatic change to the industry since the invention of the printing press.

Initiated by digitisation

The revolution was initiated by the digitisation of media products. Unlike many other industries, media products are easy to digitise. Nevertheless, the digitisation processes that started in the mid-1990s are still ongoing. Some revolutions take longer than others. Even at the end of the 1990s, after the appearance of the internet, many people forecast that the traditional media would go under in the space of two to three years. Surprisingly many companies still exist and, paradoxically, many of the newspapers, for example, are still profitable. However, Norway’s newspapers are struggling with plunging profitability, but so far many of the newspaper owners appear to be apathetic and not very willing to change.

Less willingness to pay

The willingness to pay for media content has fallen dramatically, and this is exactly the large newspaper companies’ dilemma. Moving away from the newspapers’ traditional subscription and advertising revenues and over to the online newspapers’ purely advertising revenues means a huge loss in revenue. Many companies have tried to introduce online subscriptions but there is no willingness to pay while the free alternatives are so easily available. So how are the owners and managers in the large media houses to resolve this problem? We believe that extensive cost cuts, combined with wider news distribution, are the solution for the financially strongest media houses. In our opinion, the weakest will go under.

At Delphi, we believe the average media consumer is only now really noticing the revolution. A good example of this is the way in which many people start their day. While people used to read a newspaper at the breakfast table, more and more now use a tablet computer for this activity. This is happening more than 15 years after the first online newspapers appeared and can be summed up in two rules-of-thumb: in the first place, it takes time – a lot of time – to change the way in which we consume goods and services. Secondly, the development of the right, user-friendly technology will be the factor which triggers changes in consumers. When analysing an industry that is changing, we must see both these factors in context.

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