Media spend suffers in Malaysia's confidence crisis

Editor’s note: Soon after the publication of this article in the November issue of Campaign Asia-Pacific, Media Prima, Malaysia’s largest free-to-air TV broadcaster and owner of the New Straits Times Press announced a mutual separation scheme. The group hopes at least 10 per cent of its 4,600 workforce will take up this offer.

At a financial briefing on 6 November, Media Prima announced after-tax profit of RM106.7 million (US$31.8 million) for the first nine months (ending 30 September) of 2014. This is a 30 per cent drop from the same period last year. At the event, Tan Sri Johan Jaaffar, chairman of Media Prima, blamed “market uncertainties, weaker consumer sentiments and the tragic incidents involving flights MH370 and MH17”, which resulted in “advertisers being more cautious over advertisements placed during this period.”

The following article discusses precisely these issues and the impact they have had on Malaysia’s media and advertising industry. 

In the past year, Malaysia has had to face a storm of international media coverage like never before. The national government came under fire time and time again for its poor management of the disappearance of flight MH370, only to be hauled over the coals once again after the downing of MH17 just four months later. The glare of international media interest  also dragged issues such as racism, corruption and crime — normally suppressed by Malaysia’s highly-controlled press — into the light of day.

One compounding factor for Malaysia’s advertising scene is a drop in both consumer and marketer confidence. Consumer confidence, which had been at a low ebb since the end of 2013, only scraped above the 100-point threshold in mid-2014, according to Malaysia’s Institute of Economic Research. 

“Honestly? The situation here feels like a pair of jeans you’ve put on and have since shrunk and now feel a little tight,” says Andreas Vogiatzakis, managing director of Omnicom Media Group Malaysia. “The sluggish economy and cautious consumers is starting to squeeze at a level that affects marketing budgets.”

While not every sector is affected — hypermarkets, supermarkets and FMCGs are in general performing better than other categories — industry sources estimate that marketing budgets in Malaysia to have dropped by 10 to 15 per cent from two years ago. 

Clients are also cutting their budgets for the second half of 2014, says Girish Menon, CEO of GroupM Malaysia, affecting the prices the agency has negotiated for clients. “This has led to several very tough conversations.”

The combination of poor consumer confidence in a normally ebullient nation and the negative press has spooked several major MNC marketers, commented a media agency leader, off the record. “When given the choice, MNCs are shifting their budgets elsewhere to markets where people are more in the mood to spend,” commented the source. 

Surprisingly, however, Nielsen’s regular ad spend report shows the Malaysia’s advertising industry in apparently robust health, growing 13 per cent in the first six months of the year to RM6.8 billion (US$2 billion). Nielsen even reports that airline spending grew 31.7 per cent in 1H2014 vs 1H2013. 

But several well-placed industry sources express doubt over Nielsen’s figures, saying they don’t reflect the deep discounting that’s going on behind the scenes. “Discounting levels are higher now and real money spent has come down,” says one source. “The tone on the ground doesn’t reflect this level of positivity at all.”

Not all media agency bosses are quite as gloomy, however. Ranganathan Somanathan, COO of Starcom Mediavest Southeast Asia believes that ad spend only looks lower when compared to a government spending boost in 2012 and 2013 in the lead up to the elections. “Besides advertising, the government was also providing allowances to buy computers and smartphones, this increased both consumer sentiment and spending.”

Trapper Havas Media’s CEO Sivanathan Krishnan is also optimistic. The agency, he says, is in the unique position of working mainly with SMEs in Malaysia. “Thanks to our niche business model, we haven’t been affected as much by international currents,” he says. If Malaysia’s agencies were to place more focus on local companies they would be less subject to external market forces, Krishnan adds. 

Nevertheless, the industry as a whole agrees that it is facing one major problem, which had been evident even before the plane crashes: talent. “If anything, the talent shortage has been intensified,” says Vogiatzakis.

The more challenging economic climate has left media agencies with fewer resources to fight for the talent they need. And ‘fight’ is the word to use. Malaysian agencies have to compete not just with each other but also with technology companies entering the market, such as Google and Spotify.

Malaysia’s brain drain is also another issue. According to the World Bank, between 2000 and 2010, 1 million Malaysians have moved abroad. While there are many factors that drive this migration, such as racism and a lack of meritocracy, the chief reason is the comparatively low wages paid in Malaysia. Recruitment firm Font places the median annual salary for media agency employees in Malaysia at $20,000, compared with $52,000 in Singapore and $39,000 in Hong Kong. 

“Employers abroad even prefer to hire Malaysians because, frankly, we’re cheap, multilingual and grateful,” says Priya Bala, country manager for Font Malaysia. 

With margins squeezed, Malaysian agencies are unable to compete internationally in terms of pay. One source even claimed some global and regional offices deliberately refused to approve pay rises in order to keep Malaysia a “high-margin market”. 

But some agencies have started working hard at retaining and attracting talent based on culture, interesting work and decent work-life balance, says Bala, and the industry is starting to appeal to prospective talent. She cites Mediabrands and GroupM as two such agencies.

Nurturing talent and in revenue diversification away from the market’s dependence on traditional media buying are the way ahead, says Vogiatzakis. “The key in effecting change, between the old and the new, is balance.”

Our view: Malaysia is in transition and media agencies may need to invest heavily in new revenue streams before the old ones have completely dried up.