The government’s conundrum
State of the MENA media market — Part 3
This is the final part of a 3 part analysis on MENA’s media market. Here are part 1 and part 2.
The role of governments
As a relatively small number of large international tech companies are capturing a bigger and bigger share of media consumption and revenues, the calls for government intervention are becoming louder and louder. Some ask for the breakup of „big tech“,some for protectionism to save local media companies and some for new regulation. So, what should governments in the UAE, Saudi Arabia, Egypt and the rest of the region do to foster a healthy media ecosystem?
The first question that needs to be answered is what we are trying to solve for. Governments shouldn’t have a responsibility to protect the status quo or the way newspapers and TV used to look like. Instead governments should aim for a media and business environment where:
- Its citizens have access to a diverse set of options to stay entertained and informed (including quality journalism) at a reasonable cost (including the cost of potential data abuse)
- Large businesses and SMEs have effective ways to market their products and services at reasonable prices
It isn’t clear how breaking up “big tech” or local media protectionism would help these objectives. In the best-case scenario, it would be a temporary solution but in a more likely scenario the attempt to fix something through the wrong means would create a whole set of new challenges that hurt consumers and businesses alike.
What governments should do instead is create an environment where competition in the media industry and quality journalism can flourish. This should include new rules and regulation where current market dynamics are imperfect. It should also include honesty about the complexity of these issues and the tradeoffs that would accompany new regulation.
Total anonymity and zero data collection by businesses, for example, makes it more difficult to fight online crime. New regulation to protect consumers from data abuse often has the unintended consequence of reduced competition. The more openly we discuss these difficult tradeoffs, the easier it will be to create a a beneficial regulatory environment that is understood and followed by consumers, academia and businesses alike.¹
One of the least controversial and most impactful contributors to a healthy media landscape is a competitive business environment. Whilst competition in the media industry has traditionally been imperfect, governments can do their part to assist a level playing field. Porter’s five forces² — particularly around the threat of new entrants and barriers to entry — can help to understand where governments can play a role to foster competition. Most leading media and tech companies in todays world benefit from a combination of switching costs, network effects, economies of scale and government regulation that make it difficult for new entrants or substitutes to compete with them. Governments can play an active role in reducing some of these barriers to entry, in introducing and enforcing sensible regulation and in fostering a healthy ecosystem overall.
Reducing switching costs and network benefits
Just like mobile number portability is important to reduce switching costs in telecommunication, data portability is important to reduce switching costs in the tech and media industry. Making it easy for you to take your friends and interest graph to another social network, for example, reduces switching costs and makes it easier for new entrants to get adoption. It also allows new entrants to benefit much faster from demand side network effects and thereby reduces another barrier to entry aggregators often rely on. This makes a regulatory framework that ensures data portability and interoperability an important building block to assure healthy competition in the digital age.
While data portability has clear benefits for competition there are also tradeoffs that need to be considered. One of these tradeoffs is that data portability typically goes both ways, meaning leading aggregators would also be able to import data from smaller players. The biggest tradeoff, however, is not related to competition but to data privacy and security. Data portability, unfortunately, makes the misuse of data by third parties more likely. In a way, Aleksandr Kogan³ passing data he collected via an app using the Facebook login API⁴ to Cambridge Analytica, is the perfect example for data portability gone wrong.
When governments introduce regulation to foster data portability, it is therefore crucial that there are clear rules about the roles, responsibilities and consequences for each party when information is moved, including a worst case scenario where information is abused by the party it is being moved to.
Enforcing data transparency and punishing abuse
Most consumers seem ok with providing data to tech and media companies so that these can improve their consumer and advertising products in return. After all, this allows the companies to provide a superior user experience that is often free.
Government’s shouldn’t interfere in the consumer decision-making process. However, governments should put safeguards in place that guarantee high standards for the safety of consumer data and transparency on how consumer data is being used by businesses. Only when consumers are clear about the real tradeoffs can they make the right decision for themselves. Whenever data usage is not transparent enough⁵ or abused, governments should crack down and punish the bad actors.
Limiting abuse of market power
Despite a governments best intention to create a level playing field, market imperfections can lead to situations where leading players abuse their market power to limit competition or to extract undeserved benefits. Examples for this kind of behavior are exclusive supply agreements, the tying of products⁶ and predatory pricing.
All of these behaviors should be prohibited if healthy competition is being undermined, particularly in MENA where many smaller companies rely on the massive consumer access international tech companies have. Is it fair, for example, that Anghami has to pay Apple a 30% (15% after year one) share for revenues that are generated through the App Store? Granted, the App Store provides important benefits for consumers and developers (e.g. security) but are 30% (a cost Apple’s own streaming service doesn’t incur) a fair amount for the value provided and costs incurred?
Antitrust law and action are complex⁷, and the respective US and EU government bodies do not always get it right but it is an important tool nonetheless. MENA governments should add this to their toolbox and strengthen their antitrust regulation and enforcement to assure a competitive marketplace.
The flipside of regulation
Regulation can play an important role in assuring a level playing field for competition. However, it can also be a source of reduced competition. The EU’s General Data Protection Regulation, for example, helps to protect the privacy of EU citizens but it will probably also reduce competition. Not just because its implementation is expensive but also because it leads to more walled gardens. Large aggregators with huge amounts of first party data benefit from third party tracking but it is the smaller players and new entrants that are a lot more dependent on it.
Whenever new regulation is introduced, it is therefore important that implementation costs are kept as low as possible, that it is a regional effort that aligns with international standards rather than a country by country effort and that tradeoffs are being discussed openly.
A positive environment for media companies in general
Governments across the region can also do their part in making both ad-based and subscription-based business models more likely to succeed in general.
For subscription-based business models the simplest way governments across the region can support the ecosystem is by taking the fight against piracy more seriously. A crack down on illegal cable, satellite and OTT services alongside stronger consumer education wouldn’t just help Pay-TV operators in the short term but also shift consumer mindsets and benefit all subscription services in the long-term.
For ad-based businesses the support governments can provide to the ecosystem is a bit more indirect. One of the biggest challenges for any ad-based media company in MENA is the small size of the media advertising market⁸. The MENA region (excl. Iran and Turkey) has a population that is roughly that of the US, but its media ad market is about 50 times smaller. The lower GDP of the MENA region explains about 8x of the disparity but that still leaves 6x to 7x to other factors. While media ad spend is roughly 1.25% of total GDP in the US, it is only about 0.2% in MENA. Even when adjusting for the sizable oil and gas sector, which spends much less on advertising, there is still a massive gap.
Some of the problems causing this gap are the responsibility of the industry. The fact that there still isn’t a reliable and independent measurement system for all forms of media, is a good example for that. Other issues causing the gap are structural though and governments can influence them. The share of the private sector in the region’s economic activity is still small compared to the rest of the world. SMEs in particular represent only a small fraction of GDP in leading Gulf economies like Saudi Arabia. In addition, many core sectors are still lacking healthy competition. All of this is holding the growth of the advertising market back. Empowering private companies and small businesses even further and increasing the competition in key sectors would go a long way in establishing a healthy media market.
Subsidizing quality media
There is another lever governments in the Middle East and North Africa have, to support the media industry: Subsidies. In varying degrees and forms this is already happening in the UAE, Saudi Arabia, Qatar and many other countries in MENA and the rest of the world. There is also a rational argument for subsidies that many economists would agree with.
There are benefits (aka positive externalities) to society in having well informed and educated citizens that are not fully captured in a private market, even if the private market is efficient.
While there is a rational argument to subsidize quality media, the amount, form and beneficiaries of these subsidies are rightfully debated.
The MENA region is extremely diverse and the government approach to media regulation and subsidies varies substantially from country to country. What I would hope for in general though is less support for organisations with out of date business models that provide commoditised filler content. Instead, I would wish for even more support of balanced, high quality content that provides a unique perspective from the region.
Conclusion
The media and advertising industry today is fundamentally different from the pre-internet one. Not just in terms of consumption patterns but even more importantly in terms of industry dynamics and sustainability of business models.
Unfortunately, many media companies in MENA still seem to be stuck in the pre-internet era, ignoring a reality in which:
- Content that isn’t differentiated is effectively worthless
- The D2C space (especially subscriptions) will be the main battleground for any media business with significant content costs
- Advertising as primary business model is only sustainable if content costs are low and ad solutions are second to none
- The long tail in media advertising (SMEs) has outgrown the largest clients
- The user experience (including content and its filtering, curation and personalization) has replaced distribution as key competitive advantage
- Tradeoffs instead of silver bullets are the key feature of most government regulation
Companies that ignore these facts and blame a slowing economy or “big tech” for decreasing revenues and margins will fail. Content creators and media companies, however, that embrace the new industry dynamics have an opportunity to create profitable businesses with a much more global footprint.
As far as consumer and advertiser welfare are concerned, the situation is much better than most commentators suggest. Rapid technological change and shifting consumer preferences will keep todays “winners” on their toes, particularly if governments in the region take their responsibilities seriously while being mindful about regulatory tradeoffs.
Todays’s and tomorrow’s media landscape in MENA looks fundamentally different from yesterday’s but different doesn’t mean worse. On the contrary, if businesses and governments face reality and do their parts, the MENA media landscape has the chance to look a lot more diverse and healthy than it used to.
Footnotes
[1] Alex Stamos (a professor at Stanford and ex CSO of Facebook), provides an overview of tradeoffs here: https://youtu.be/ATmQj787Jcc
[2] Porter’s Five forces framework is a tool for analyzing business competition. Porter’s five forces include the threat of new entrants, the threat of substitutes, industry rivalry, the power of suppliers and the power of customers.
[3] Aleksandr Kogan was a research associate at the University of Cambridge at the time but developed the app in a personal capacity
[4] An application programming interface (API) is a set of rules and specifications that allows different software programs to interact with each other.
[5] Insufficient clarity for users around Facebook’s data portability practices with third party apps were a key component of Facebook’s 2019 FTC fine, for example.
[6] In 2018, Google was fined for tying Google’s search and browser apps to the Google Play Store, for example.
[7] In the case of Apple, for example, it would first have to be established that Apple actually has a dominant position and that it is unfairly abusing it.
[8] ad spend here is referring to money spend with classical media companies as well as tech companies that operate in a grey zone between media and tech. It excludes other forms of marketing (e.g. trade marketing) that don’t support the media ecosystem.
