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Broadcasters with video-on-demand and advertising companies with digital outdoor capabilities are areas to monitor in 2019
Thursday 22 Nov 2018 Author: Daniel Coatsworth

A lot of attention has been given to Google and Facebook as being core players in the world of advertising. Their platforms are, without doubt, extremely powerful given immense engagement with people around the world.

These companies, alongside Amazon, Apple and Netflix, make up the ‘FAANGs’ empire of firms which have a stronghold in the media sector, alongside other industries in several cases.

Of this group, many questions have been asked about the ability of Facebook and Netflix to sustain the level of growth required to justify their high share price ratings.

Facebook would need to take a huge share of global advertising to justify its equity rating, argues investment bank Liberum. It says the same goes for Netflix which needs to secure a continuous stream of new subscribers to justify the large amount of money it spends on content.

In Liberum’s view, one potential solution to their problem may be to acquire traditional media companies as a means of improving their advertising reach. Video is seen as particularly important to these types of companies as there is a big shift from money being spent on internet banners and classifieds towards video advertising.

Free-to-air broadcasters and outdoor advertising companies come into focus as many have new digital formats.

It is becoming commonplace to see an advertisement before you stream a film or TV content online. Video displays are also increasingly replacing traditional billboards or other display formats in places like transport hubs, shopping centres and high streets. They can provide more effective targeting as messages can change throughout the day.

Stockbroker Numis says the UK out-of-home (aka outdoor) advertising industry was worth £1.1bn in 2017, of which 46% of revenue was digital, up from 19% in 2012.

Broadcasters have invested heavily in formats that boost video-on-demand advertising engagement, plus viewer response to this format can easily be tracked. Learning how individuals react to certain advertisements plays to the strengths of Facebook and Netflix as their business models involve incredible amounts of data analysis.

They are experts at pushing relevant content, be it adverts or shows/films, to the right people, so one can see the logic in them potentially wanting to own a traditional media business as it would give them another growth leg.

The wheels could already be in motion. There was speculation earlier this year that Netflix was in talks to buy US billboard company Regency Outdoor as a way of accelerating its marketing and have access to the advertising inventory it desires. Alibaba – known to many as the Chinese version of Ebay – recently took a minority stake in advertising display group Focus Media.

Anyone looking for relevant London-listed stocks in this space should note that shares in Ocean Outdoor (OOUT) are expected to start trading by the end of the year, having reversed into cash shell Ocelot.

Ocean Outdoor runs the iconic display board in London’s Piccadilly Circus, as well as prominent outdoor advertising locations such as London’s IMAX and external displays at the two biggest shopping centres in the UK by spend, namely the Stratford and Shepherd’s Bush Westfield sites. (DC)

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