The Covid-19 pandemic has accelerated the change of consumer habits and the digitalisation of media consumption, with consequences for the credit outlook for the traditional media sector – not least in Germany.
“The structural challenges that media companies have faced for a long time have intensified amid the Covid-19 pandemic and all the diverse restrictions that consumers have faced,” says Dörte Mählmann, director at Scope Hamburg.
“Advertising budgets are shifting to online channels as consumers spend more and more time online, but it is the dominant platforms – Google and Facebook – which are the main beneficiaries of this digital shift,” says Mählmann.
Some traditional subsectors have recorded a sharp decline in revenues such as the 16.8 % fall in print advertising revenue for newspapers and magazines in Germany in 2020 from the year before. The trend is likely to continue as new technology enables more intensive mobile media consumption.
“The pressure on market participants to adapt to this accelerated digitalisation will remain high, implying heavier levels of capital spending and growing funding requirements,” says Mählmann. Traditional media companies are shifting gears strategically, visible in increased M&A activity and growing capital-spending requirements.
“The challenge is to balance the risks related to the less predictable cash flows generated by new growth segments and the declining cash flows from traditional business lines. The increasing leverage and volatile credit metrics will negatively affect the credit outlook for media companies with a still strong traditional focus,” says Mählmann.
Analyst: Dörte Mählmann
Media: Matthew Curtin