Our survey of media companies' share prices shows clearly that the sector is in plenty of trouble. Ten of the 15 companies we looked at saw their shares fall by as much as 30% in the past year. None of them matched the 12% growth shown by the FTSE 100 index.
So what's up? The problem can be summed up in one word: advertising. The advertisers are not spending enough and traditional media are watching aghast as budgets get diverted to new media. The answer so far for old media has been a dash to get into those revenue streams but it isn't enough to plug the gap at the moment.
Most companies insist that the advertising downturn is cyclical. That's beginning to sound like wishful thinking, though, when events such as the football World Cup, usually anticipated as a key booster of fortunes, fail to deliver any uplift. If these problems are structural, it's really bad news for the likes of ITV and GCap Media, as they struggle to protect their revenues. Technological innovations such as Sky + that allow people to avoid advertising don't help either.
The underlying problem is diversification in the media: the audience for TV and radio is scattered across many channels, while newspapers are locked in an inexorable cycle of decline. Society as a whole is more diverse and fractured, more a collection of individuals with varied interests and identities than a populace you can simply assault with the same message. The mass media is a lot less mass than it used to be and "the masses" don't exist in the same way. So advertisers are keener to use products where they can get the attention of a niche audience and less inclined to pay a premium for reaching millions.
If this analysis is correct, the challenge for media companies is immense and the share price performance of the past year may prove to be no aberration but a harbinger of trouble ahead, the extent of which the market is only just appreciating.
