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Perspective Gabriel Chahine

Jayant Bhargava
Chady Smayra
Adel Belcaid

Winning in MENA’s
New Media Scene
Contact Information

Beirut
Gabriel Chahine
Partner
+961-1-985-655
gabriel.chahine@booz.com

Chady Smayra
Senior Associate
+961-1-985-655
chady.smayra@booz.com

Dubai
Jayant Bhargava
Principal
+971-4-390-0260
jayant.bhargava@booz.com

Adel Belcaid
Senior Associate
+971-4-390-0260
adel.belcaid@booz.com

Maha Nizam also contributed to this Perspective.

Booz & Company


EXECUTIVE Communications, media, and technology (CMT) players in the
Middle East and North Africa (MENA) region have experi-
SUMMARY
enced double-digit growth in recent years. However, they have
thus far been slow to capitalize on the accelerating shift to new
media. Although the business case for new media has yet to
materialize for most companies in the region, the market scene
is changing rapidly: Technologies are converging; traditional
lines of demarcation between telecom operators, media com-
panies, Internet players, and handset manufacturers are blur-
ring; and there is a vacuum in terms of the customized, readily
accessible, digital content that consumers want. To succeed
in this radically different landscape, players must understand
four key dynamics and devise strategies to capitalize on them:

1. The Regionalization of Media: 3. T he Shift to Advertising-driven


The digital platform offers true Revenue Models: Mobile platforms
pan-Arab coverage, providing will remain dominant for new
opportunities for regional media content, but will increasingly
expansion. Local players should adopt advertising-based revenue
quickly build regional online assets models. New media players will
and invest in the necessary content need to achieve fluency in common
and marketing to capture their and emerging advertising schemes.
share of the regional audience. 4. The Importance of Strategic
2. The Changing Demographics Partnerships: The new media value
of Connected Users: “Youth chain requires a wide range of
users” and “female socialites” competencies that fall within the
are emerging as the champions of domains of different CMT sectors.
new media and will account for Companies will need to secure dura-
the lion’s share of the regional ble partnerships with best-in-class
audience. Successful players will players that have relevant capabili-
build products and services that ties to complement their own.
address these segments’ quest for
ubiquitous and interactive content.

Booz & Company 1


THE RISE OF CMT players in the MENA region
have enjoyed impressive growth
expenditure grew at rates of more than
20 percent per year, with net advertis-
NEW MEDIA trajectories in recent years. Telecom ing spend crossing the US$2 billion
operators, for example, have mark. The number of free-to-air televi-
benefited from double-digit growth sion channels has more than tripled
in mobile penetration rates in most since 2003, spurred by strong growth
MENA markets since 2003. The in household annual income and the
most active telecom markets in the penetration of TVs in the region.
region already have penetration rates Similarly, other media channels, such as
exceeding 100 percent, thanks to publications and outdoor media, mush-
consumers’ propensity for owning roomed during the last five years.
multiple phones. In Saudi Arabia,
the penetration rate is close to 125 That expansion has slowed recently
percent; in the United Arab Emirates because of the proliferation of new
(UAE), it exceeds 200 percent. entrants, fragmenting media con-
sumption, and the worldwide eco-
Similarly, media companies have nomic slowdown. However, the good
enjoyed unprecedented expansion. From news is that the shift to new media is
2003 until roughly 2008, advertising accelerating in the region. Consumers’

2 Booz & Company


appetite for new media, be it through region—and around the globe—have cash-flow positive only recently, and
social websites, mobile content, or yet to turn a profit, even as they con- continues to explore business models
other offerings, is growing unabated, tinue to sign up ever-increasing num- that will enable it to extract maxi-
and advertisers are realizing the bers of new users. This makes the new mum value from its massive user base
tremendous potential impact on their media business case difficult to gauge of more than 400 million people.
business. While TV advertising shrank through traditional financial evalu-
in 2009, online advertising grew ation methods. It should be noted, Thus, before being able to secure any
by nearly 40 percent in the region, however, that investment in new profits, regional new media players
driven by new media’s unprecedented media is a long-term prospect; payoffs have to realize that they are looking
consumer insights and its ability to will start to materialize only after at a new type of media consumer who
measure return on investment. players have acquired a certain user is more complex and more sophisti-
base and devised adequate monetiza- cated. Successful players will need to
Despite these very attractive trends, tion models. Facebook, after almost understand those consumers’ needs
most new media players in the five years of operation, has turned and behavior and adapt to them.

Regional new media players have to


realize that they are looking at a new
type of media consumer who is more
complex and more sophisticated.

Booz & Company 3


CONSUMER 2.0: The passive consumer of professional
media content is fast evolving into
percent. Facebook now has more than
10 million users in the region.
CONSUMING an active “prosumer,” who not only
AND PRODUCING expects to consume personalized
media anywhere and anytime but also
With such profound shifts in con-
sumer behavior, new media involves
MEDIA contributes to content production. more than simply a different delivery
ANYWHERE, Increasingly, prosumers are socializing
and interacting with content creators
mechanism for content. Information in
the new media world must be directly
ANYTIME on digital platforms. Technology trends integrated into consumers’ lives—
are only accelerating these consumer accessible from anywhere, at any time,
shifts, particularly the shift to handheld on multiple devices, for continuous
devices and new applications capable consumption. This requires a new way
of delivering rich content with high of creating and presenting informa-
production values (see Exhibit 1). tion, which gives far more control and
choice to consumers. Such a strong
Accordingly, there has been a radical emphasis on consumers presents a pro-
shift from traditional media to digital found challenge for traditional content
communities. From June 2007 to June producers. However, it also creates
2008, the number of MENA consumers powerful new opportunities for players
active in social networking increased 66 that can best address consumer needs.

Exhibit 1
MENA Consumers Are Shifting to New Media at Accelerated Rates

Online User Consumption Behavior in the UAE and Saudi Arabia


(percentage of users)

Digital Media
2007 90
2008
78 80
77

58 58

50 48

40 39
33
28 28
23
21 20 21
15
13 13

3 4

Newspaper Magazine TV Digital TV Radio VCR DVD PC Mobile BlackBerry iPod


Phone

Note: Survey participants were asked the following questions: “Which of the following do you usually use to view media and entertainment content?”
“In the coming year, which of the following are you most likely to use in order to view media and entertainment content?”
Source: YouGovSiraj UAE and KSA Internet User Profile Survey

4 Booz & Company


A POTENTIAL Regional CMT players already have
a certain advantage in their loca-
the world average of US$10,000 per
capita as the medium).
HOT SPOT tion: Several characteristics make the
FOR NEW MEDIA MENA region particularly recep-
tive to the shift to new media. First,
The information and communications
technology (ICT) infrastructure
whereas traditional broadcast and necessary for new media is also
print media mostly operated within being put in place: Regionally, such
national borders because of regula- infrastructure has been the recipient
tions or distribution restrictions, new of largesse from both the public
media unlocks the entire Arab region and the private sectors for more
of 295 million people. Despite being than a decade now, prompted by
spread across a vast geographic area, market deregulation, technological
this audience possesses a fairly homo- breakthroughs, and consumer
geneous sociocultural heritage—and a demand. The MENA region’s telecom
relatively high literacy rate, with the operators were among the first in
six countries of the Gulf Cooperation the world to deploy commercial
Council (GCC)1 at roughly 75 percent high-speed 3.5G networks, while
or higher. In addition, several of its governments have invested in ICT
nations are extremely wealthy. By with specialized free zones and
the year 2015, in the Gulf states and programs to develop human capital.
Egypt alone, more than 13 million
households are projected to reach The region is also a hotbed for ever-
medium to high income levels (taking greater numbers of broadband con-

Booz & Company 5


nected users (see Exhibit 2). The total tendency of users to own more than one promising. Young people, the segment
number of broadband connections is mobile connection. The proliferation most likely to be comfortable with new
projected to increase at an annual rate of smartphones and iPad-like devices is media, make up a high percentage of
of 60 percent over the next five years further fueling this tendency, with users the population. For example, more than
to reach 132 million, representing a potentially keeping a smartphone for 55 percent of the Saudi population is
population penetration of 41 percent content-rich applications and another younger than 25 years old today.
in 2014. The region is also expected phone for voice and basic data usage.
to sustain an annual growth rate of In addition, machine-to-machine In financial terms, the size of the
8 percent in the number of mobile communication, currently in a nascent market for new media in the MENA
connections over the same period, stage, is expected to lead to ever-higher region, including advertising and
to reach a population penetration of mobile SIM penetration levels in the content (but not digital commerce), is
112 percent by 2014, driven by the region. Demographics are equally currently at $1.1 billion. This market

Exhibit 2
Broadband and Mobile Connections Are Expected to Grow Strongly in the MENA Region

Broadband Connections1 in the MENA Region, 2009–14 Mobile Connections in the MENA Region, 2009–14
(In Millions of Lines) (In Millions of Lines)

CAGR
132 354
+8% 340
323
300
271
CAGR 89 237
+60%

58

37
23
13

2009 2010E 2011E 2012E 2013E 2014E 2009 2010E 2011E 2012E 2013E 2014E
Penetration2 4% 8% 12% 19% 28% 41% Penetration2 82% 92% 100% 106% 110% 112%

1
Includes fixed and mobile broadband connections. Fixed connections account for 47 percent of the total in 2009 and 17 percent in 2014.
2
Penetration is calculated out of the total MENA population, which is expected to increase from 295 million in 2009 to 322 million in 2014.
Note: The MENA region includes Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, the United Arab Emirates, and Yemen.
Source: Informa (WCIS, WBIS); Booz & Company analysis

6 Booz & Company


is largely dominated by mobile so far have not been. The demand international players are now
and content as opposed to at-home in MENA countries for integrated beginning to recognize the region’s
Internet or advertising. We expect this content and information delivered potential, as indicated by Yahoo’s
figure to rise to $3.3 billion by 2014 with new media functionality has recent acquisition of Maktoob and
(see Exhibit 3). Tremendous growth exceeded supply. There is a notable Facebook’s partnership with Connect
in advertising and Internet access shortage of local digital offerings. Ads to sell advertising in the MENA
is likely, though discrepancies will region. As the global players focus
remain between mobile and at-home Global heavy hitters such as Google, more intently on the region, the
Internet access. Digital commerce is YouTube, and Facebook dominate competitive threat facing homegrown
also expected to become a lucrative regional traffic, not by design or CMT players will only grow larger.
category, with a projected market of intent but predominantly because
$2.3 billion by 2013. of the brand awareness they have However, unlike in developed
developed in their home markets. markets, the new media game here is
Yet if the market potential is clearly To date, few regional sites have just beginning, and there are no clear
expanding, the content offerings been able to compete. And these winners yet. CMT players have the
potential to gain not only revenue
and brand loyalty but also better
insights into consumer behavior.
Exhibit 3 These insights could go beyond mere
New Media Revenues in the Region Are Expected to Triple demographic data, encompassing such
information as purchase histories and
MENA’s New Media Revenues
brand preferences. These players will
(In US$ millions) Online “own” the consumer interface in a
Mobile way that traditional media players
2009 2014E
cannot, and their audiences will be far
$7 $760 $322 $2,400 $902
$100 more attractive to marketers.
(1%) (4%)
$90
(28%)
$502
(56%)
$753 $2,300
(99%) $232 (96%)
(72%) $400
(44%)

Content Advertising Content Advertising


Total = $1.1 billion Total = $3.3 billion

Source: Booz & Company

Booz & Company 7


COMPETING To achieve this success, however,
CMT players need to understand how
from other operators but must
consider every other CMT player, in
IN THE AGE OF their industries are changing. The new MENA countries and worldwide, as
CONVERGENCE media space is a complex ecosystem
in which companies are encroaching
a potential competitor. Global brands
such as Apple and Nokia are adopt-
on one another’s former positions of ing new business models that force
strength. The walled-garden approach carriers to reassess their approach and
that CMT companies have employed service delivery. The strongest Internet
in the past is no longer viable. All players are already making inroads
CMT players are finding themselves into operators’ existing models by
operating in a new value chain in introducing open source mobile
which telecom operators, media platforms that feature strong sync
companies, handset manufacturers, functionalities. Hardware manufac-
and Internet players no longer turers are increasingly offering con-
compete solely within their narrow tent and applications through mobile
categories but rather across the devices, and reaping more revenue:
entire new media space. And the core Blackberry offers an app store for its
capabilities that they have developed handheld devices, handling all aspects
and mastered are no longer sufficient of the service except billing. Apple’s
to compete effectively. app store not only sells content and
applications for its iPod and iTouch
Telecom operators, for example, face handheld devices, along with laptops
a confluence of issues—specifically, and desktops, but handles billing
saturating penetration rates and through its iTunes site. The telecom
deregulatory moves that weaken operator provides access—often at
incumbents’ advantage. In addition, flat monthly rates—and nothing
the dominant market position that more, while Apple pulls in ever-larger
incumbents once enjoyed by owning revenues and develops loyal fans.
physical infrastructure is eroding,
thanks to nontraditional competitors There are also indications, such as
that don’t own a network but bundle eBay’s acquisition of Skype, that
their services attractively. CMT companies outside the telecom
space are looking to offer voice and
In short, they can no longer worry data service themselves. In Japan, Dell
simply about the competitive threat is launching a mobile virtual network

8 Booz & Company


operator (MVNO), which will allow media companies’ imperative to Moreover, media companies
it to bundle data services with its change, given the disdain most young are watching more and more
laptops. Nokia is contemplating a people feel for traditional print and nontraditional players offer digital
similar service in Japan. broadcast formats. Customers of content to consumers. Nokia, for
all ages are increasingly interested instance, recently launched a digital
Traditional media companies in the in user-generated content, which music store in the UAE, where it
region are in a similarly tenuous undermines the role of professional controls 75 percent of the handset
position, confronting a range of content producers. market. Orange signed a multi-country
significant challenges fostered by agreement with Nokia to cooperate
the shift to new media. Media Monetization is another challenge for in offering music, gaming, maps,
distribution channels are increasingly media companies. Formerly profitable location-based services, and mobile
being controlled by competitors models of advertising and paid circu- e-mail. Saudi Telecom launched a
(e.g., online portals dominate online lation and subscriptions are no longer consumer Web page in Arabic called
traffic; telecom operators control the only ones that matter in the new M3com.com, which it contracted
touch points to mobile media). media universe. Digital content deliv- with Maktoob to design and launch.
Marketers are demanding more ery offers potential new monetization The site is rapidly gaining traction
interaction with audiences and more avenues on entirely new platforms, and offers a custom start page, news,
precise, measurable ads—a transition such as content syndication, search sports, yellow pages, photo and
that many print and broadcast placement, and interactive media. video sharing, travel and financial
media companies around the world Yet these new platforms come with information, and social networking.
haven’t managed to navigate. The their own challenges, including highly
youthful population in MENA specific customer demands and a Maktoob’s involvement, which
countries intensifies traditional plethora of new competitors. happened prior to its recent

Marketers are demanding more interaction


with audiences and more precise, measurable
ads—a transition that many print and
broadcast media companies around the world
haven’t managed to navigate.

Booz & Company 9


acquisition by Yahoo, underscores the leading the applications game—with a Google’s massive brand presence. If
way that Internet companies perhaps clear focus on controlling content and the venture succeeds, it may open the
pose a bigger threat to telecom advertising as well. way for many other players to start
operators and media producers than providing communication services
the two pose to each other. Online Such initiatives have given these and bypass telecom operators by
players have come of age in the companies access to a wealth of using the Internet.
accelerated new media marketplace, consumer behavioral data, which
so they’re not as organizationally can be used to tailor sophisticated To succeed in the radically differ-
challenged by this environment marketing campaigns. As a result, a ent landscape of media convergence,
as more established companies in few have started building end-to-end players must understand where new
the CMT space. They were the ad-service platforms, putting them in growth will come from and how to
first to tap into changes in media direct competition with ad agencies. capitalize on it. In particular, they
consumption and control the digital Others, like Google, now offer mobile must deliver content on multiple plat-
interface with audiences by building operating platforms. The company forms, in a way that gives choice and
strong communities around e-mail launched an open source applications control back to the users. To achieve
and search capabilities. That has platform for its Android phone, this goal, they need to leverage four
been followed by more sophisticated which is available both through key dynamics: the regionalization of
applications such as social networking multiple carriers and directly through media, the changing demographics of
and user-generated content. Today, Google’s sales channels. The Android connected users, the shift to ad-driven
the Internet “gorillas” control the has generated a tremendous amount revenue models, and the importance
majority of online audiences by of publicity so far, in part because of of strategic partnerships.

10 Booz & Company


KEY DYNAMIC #1: Very few media outlets offer pan-
Arab marketers true regional cover-
distinct, causing a division of ad bud-
gets between the two markets.
REGIONALIZA- age. Satellite TV is currently the only
TION OF MEDIA advertising medium that reaches the
whole MENA region; newspapers,
By contrast, leading websites in the
region—such as Maktoob, MSN
most magazines, radio stations, and Arabia, and kooora.com—already
outdoor advertising are all locally capture audiences from all over the
focused. Even the reach of satellite TV region and consistently rank among
is limited to either the GCC coun- the 10 most visited sites in most
tries or the Levant; viewers in these MENA countries (see Exhibit 4).
markets have different viewing habits,
content preferences, and dialects. With The digital platform is creating a unique
the exception of Rotana Cinema, opportunity for local media players
which has achieved significant viewer- to expand regionally. Doing so will
ship in both markets, top TV channels increase not only their reach but also
in the GCC and the Levant are totally their relevance to pan-Arab advertisers.

Exhibit 4
Leading Websites in the MENA Market Provide Truly Regional Coverage

Traffic Split of Leading MENA Websites, january 2010

Maktoob MSN Arabia Kooora

Other Other Egypt Other


21% Saudi Arabia 20% 20% 21%
31% Saudi Arabia
Syria 2%
Algeria 2% 39%
Oman 3% Morocco 2%
Syria 3% Algeria 3% Syria 3%
5%
Kuwait 3% Morocco
Kuwait 4%
Jordan 4% 6%
Libya 4% 11% 36% Jordan
6% 23% 8%
UAE 4% UAE Saudi Arabia 16%
Algeria Egypt UAE
Egypt

Source: Effective Measure; Booz & Company analysis

Booz & Company 11


KEY DYNAMIC #2: In the new media universe, the audi-
ence is no longer confined by restric-
print. As long as these companies
rely on physical content, they will
CHANGING tions such as delivery areas or service be challenged to gather precise
DEMOGRAPHICS contracts or even national borders.
Instead, it includes everyone who can
data on their customers through
traditional social-research practices
OF CONNECTED access content via the Internet, and it such as surveys and focus groups.
USERS is segmented by usage patterns. Media companies that shift these
publications to digital formats will
In that context, telecom operators and simplify this issue, thanks to the
Internet players have an inherent com- inherent interactivity of online media.
petitive advantage in new media audi-
ence targeting, because they already Given the unique nature of the digital
have interactive touch points with audience, all CMT players need to
consumers. Those touch points give understand its makeup. Our proprie-
them access to a world of data, which tary research has established four key
they can analyze by examining users’ audience groups for new media in the
digital footprints and usage patterns. Arab world (see Exhibit 5). Any new
initiative from CMT companies must
Media companies, on the other hand, be undertaken with these four cat-
face a large challenge in analyzing egories in mind, with a clear idea of
their audiences. Although several which audience it will target and how
print publishers in the region have it will serve that audience’s unique
recently become more adept at needs more effectively than competing
tailoring content to well-defined content, services, and applications.
segments—for example, newspapers
with local editions and magazines Youth Users (33 percent of the
aimed at more narrow interest market): This audience is extremely
groups—such ventures remain comfortable with electronic media,
hampered by the constraints of having come of age during the advent

12 Booz & Company


of digital technology, and it tends to from wealthy, non-working women Until now, digital offerings have
lead other groups in terms of usage to working females in the low- to mostly targeted professionals. Youth
trends. The youth category’s main digi- middle-earning income brackets. users and female socialites, although
tal content is sports, games, and music. they constitute 64 percent of all
People in this group, like their coun- Leisure Males (31 percent of the users, remain largely underserved.
terparts in other parts of the world, market): This audience also spans These segments demand highly
rarely use media in traditional formats. income levels, from old-money localized entertainment content,
Hearst recognized this global trend and elites to low- and medium-income such as lifestyle content and games.
transformed Elle Girl, its magazine for earners. Leisure males use media Significant opportunities exist for
teens, into an online-only brand. technology to socialize, but also to get media players and other content
entertainment and political news. aggregators within these segments
Female Socialites (31 percent of over the medium to long term.
the market): Users in this group Professionals (5 percent of the
engage in new media primarily for market): Although this is the smallest Also, the makeup of the new media
self-expression and to connect with audience, it is the most attractive for audience demands a shift toward infor-
friends and communities that have marketers and advertisers, because mation developed for mobile devices.
similar interests. Their preferred its users spend far more money than The number of PC-based Internet con-
content is lifestyle media, along those in other groups. These are nections in the region is growing, but
with music. Notably, the segment pragmatic users, primarily accessing mobile users will remain the predomi-
includes people at all income levels, business information. nant connected community.

Exhibit 5
The New Media Audience in the MENA Region Comprises Four Key Segments

Mobile Connected Users Growth by Segment, 2009–14 Professionals


(In Millions of Users) Leisure Males
Female Socialites
Youth Users

CAGR
(2009–14)
249 258 5.8%
239
209 226 5.39% 5.38% 7.8%
195 5.11%
4.85% 5.05%
4.89%
30.06% 30.08% 5.2%
30.29%
30.55% 30.33%
30.90%

31.65% 31.74% 31.74% 6.1%


31.62% 31.65%
31.32%

32.98% 32.97% 32.95% 32.81% 32.80% 5.7%


32.89%

2009 2010E 2011E 2012E 2013E 2014E

Note: The MENA region includes Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, the United Arab Emirates, and Yemen.
Source: AMRB Survey, Informa; Synovate Madar; Booz & Company analysis

Booz & Company 13


KEY DYNAMIC #3: Whereas new media revenue in many
developed markets is derived from
short, there is a large, unmet, and
growing demand for high-quality
THE SHIFT TO an “advertising-plus” approach of digital content that can attract and
ADVERTISING- ad revenue plus subscriptions or
transactions, new media revenue
support advertising (see Exhibit 6).

DRIVEN REVENUE in the MENA region is primarily As that changes, revenue from the sale
MODELS generated through user fees for
content accessed through mobile
of content is likely to be overtaken by
advertising revenue, primarily to reach
devices. The need to balance consumers on mobile devices through
revenue from content with that from broadcasting, embedded content,
advertising remains a big challenge display, and search-related ad formats.
for the region’s CMT sector. In short, the regional market is wide
open for a shift to ad-supported
In part, the gap between the amount revenue, with marketing that supports
of revenue earned from fees and that platform-independent content. Instead
earned from advertising stems from a of consumers paying for access to con-
lack of viable options. Popular local tent, the coming model is for advertis-
sites lack the qualities that advertisers ers to pay for access to consumers.
consider essential; they have poor
creative design, weak content, poor The evolution of sophisticated
service levels, little user-friendliness, marketing approaches will only spur
and a lack of bilingual support. In this trend, thanks to digital content’s

14 Booz & Company


ability to support ads that are more the presence of 10 to 15 percent cuts 2014, which is a steep growth curve
targeted, interactive, and accountable in overall marketing budgets. but in alignment with the rapid
than those in traditional media. In expansion of digital marketing in
2009, online advertising in MENA The regional digital ad market is other areas. In the U.S., newspapers
countries increased 40 percent, despite estimated to reach $900 million by took 127 years to reach $20 billion

Exhibit 6
Digital Ad Spending in the MENA Region Remains Below That of Developed Markets, with Room for Growth

Advertising Spend Split per Country, 2008


(In US$ Millions)

$166,375 $26,318 $15,317 $34,478 $12,417 $11,573 $5,557 $2,677


3% 3% 2%
10% 7% 6%
Digital 14% 9% 11% 15%
25%
17% 21%
Other 9% 20%
24%
11% 13%
Print 35% 23% 50% 42%
35%
39%

63% 64%
51%
TV 42% 40%
35% 36%
25%

U.S. U.K. France China Brazil Russia India ME

Digital Advertising Spend per Capita (US$)


64 96 22 1.9 2.2 4.9 0.15 2
Developed Markets Emerging Markets

Source: Zenith Optimedia; Booz & Company analysis

Booz & Company 15


in ad revenues; online media have platform as a mainstream advertising The shift to ad-supported revenue will
garnered that amount in just 13 vehicle. Both growth in broadband offer substantial advantages for the
years. And there is substantial room penetration and the proliferation of companies that can get it right—most
for growth—the current advertising smartphones are expected to create notably by establishing a two-way
investment per user in the MENA a fundamental shift in the nature of information flow that gives marketers
region is just $2, compared with the online and mobile advertising. Online insight into brand preferences, pur-
global average of $27 (and the U.S. ad spending, which is currently chasing patterns, and other valuable
average of $64). New media currently focused on display advertising, consumer information. Advertisers
makes up less than 2 percent of will start to shift to rich media have demonstrated a willingness to
the advertising spend in the region, and embedded ad formats. Mobile pay a premium to reach targeted audi-
whereas analysts project global levels advertising, currently a telecom ences through ads that are interactive,
will reach 19 percent by 2011. operator play since it is dominated by that are measurable, and that deliver
SMS and MMS advertising, will shift higher success rates than ads to more
This rise in ad spending will depend to content-related ad formats (see broad-based audiences. For instance,
on increasing acceptance of the digital Exhibit 7). free daily newspapers, with their

16 Booz & Company


scattershot audience, can draw only As the battle for advertising share in which telecom operators, and
40 percent of the cost per thousand intensifies and more of marketers’ traditional media to a lesser extent,
ads that special-interest magazines money moves toward digital, the lack essential competitive advantage.
with narrower audiences charge. traditional lines of responsibility This leaves them vulnerable to other
Performance-based ads that pay for among marketers, agencies, and players in the CMT space. The key
click-through can be even more effi- media companies have blurred. advertising capabilities—relationships
cient in reaching consumers. Advertising revenue is another area with marketers, brand pull, ad

Exhibit 7
The Nature of Online and Mobile Ad Spending Will Change

Online Advertising Revenues Split Mobile Advertising Revenues Split


(2009–14) (2009–14)

100% 100% 100% 100%


8% Display 7%
Rich Media 1
6% 26% 22% Rich Media2

25% 9% Search
9% E-mail

24% Mobile TV
29% Search
SMS/MMS 93%
15% Display
61%

36% Display/Sponsorship
30% SMS/MMS

2009 2014E 2009 2014E

1
Includes rich media as well as video-embedded advertising.
2
Includes video, games, and music clips embedded in advertising.
Source: Madar; Zenith Optimedia; Parc; Group M; Ovum analysis 2007; Booz & Company analysis

Booz & Company 17


inventory aggregation, search engines, “private label” media offerings for partnerships with service players to
content and ad portability systems— marketers, or by using their integrated grab their share of the emerging mobile
are sweet spots for ad agencies and media properties to enhance the value ad revenue. Yahoo, for example,
niche technology players. of marketers’ own media. Roughly 91 has handled ad sales for Vodafone,
percent of media companies surveyed T-Mobile, and 3UK over recent years.
Media companies need to figure out in the region already provide some Vodafone entered into partnerships
how they can turn this development kind of advertising service, such as with MySpace, YouTube, and eBay to
into something positive. They campaign development, branded bring Internet services to mobile sub-
have the opportunity to take on content creation, and the like. scribers. And Telefónica and Vodafone
responsibilities that were once the made strategic investments in Amobee
exclusive domain of ad agencies— As for telecom operators, several Media Systems, which specializes in ad-
either by using their skills to develop in other markets have formed sales serving solutions for mobile operators.

18 Booz & Company


KEY DYNAMIC #4: Because the new media value chain
includes such a wide range of
the winners. To ensure success, the
new partnership should have a clear
THE IMPORTANCE competencies and skills—content business plan of its own (not simply
OF STRATEGIC production, purchasing and
aggregating content, selling ad
a modified version of the partners’
existing business plans), along with
PARTNERSHIPS space, advertising management, an explicit and differentiated content
application service provisioning, proposition, sufficient management
access, billing, customer equipment talent, and complementary capabilities.
terminal management—no single
company can possibly develop all the Common risk factors in these partner-
necessary expertise. As a result, CMT ships include overly ambitious and
companies will need to go beyond premature expectations for the part-
their own comfort zones by joining nership—understandable given the
forces with other players that offer tremendous opportunities that new
complementary competencies (see media provides—along with incom-
Exhibit 8). Collaboration is king. patible business cultures, particularly
between telecom companies and
In this context, the ability to forge media players; a lack of autonomy;
the right partnership, on the right and the tendency to get myopically
terms and at the right time, will define focused on solving business model

Exhibit 8
Both Telecom Operators and Media Companies Will Need to Forge Strategic Partnerships
to Expand Along the New Media Value Chain

New Media Value Chain


Current Space
Potential Strategic Thrusts

Content Content Content Advertising Application Service Access Customer Care Customer
Creation and Acquisition & Aggregation Management Service and Delivery & Billing Equipment
Production Management Provisioning Terminal
Management

Traditional
Media

Telecom
Operators

Source: Booz & Company

Booz & Company 19


and technological problems at the offered—voice and data access—is application giants like Google, Yahoo,
expense of consumers. increasingly commoditized. As a and Facebook, all of which have high
result, operators can no longer rely on brand recognition and a larger user
Telecom operators and media compa- conventional competitive tactics such base than most national operators.
nies have taken various approaches as price cuts, promotions, and basic
to striking up partnerships along the product bundling to maintain their Several regional incumbent operators
new media value chain. edge in the consumer segment. have taken steps in this direction,
offering mobile TV, IPTV, online
Telecom Operators Instead, they need to diversify their portals, and other ventures, with
Telecom operators in the region are revenue streams by capturing a larger the goal of retaining customers and
still reaping the biggest share of digital share of application and content increasing average revenue per user.
revenue, thanks to their control over providers’ revenues, which are likely These deals involve sourcing content
distribution channels and access to to make up the fastest-growing through joint ventures with media
customer intelligence on a subscriber layer of the new media market. companies and securing technical
base of more than 200 million users. Competition in this layer will be access through application service
Yet the service they have historically intense and dominated by current providers (ASPs).

Operators need to diversify their


revenue streams by capturing a larger
share of application and content
providers’ revenues, which are likely
to make up the fastest-growing layer
of the new media market.

20 Booz & Company


The underlying imperative for telecom portfolio over which it exercises a connectivity services to enabling
players is to secure a certain control high degree of control. It has acquired the customer’s digital experience,
over content so as to guarantee multiple production companies, partnering is critical. Operators
a steady and competitive supply. coproducing 24 films since 2007, and are well positioned to lead this
Operators are actively acquiring and signed agreements with Hollywood digital revolution, provided they
aggregating content, typically through producers for access to their libraries. can overcome the organizational,
proprietary portals. Examples Orange now has five film channels technological, and business model
include 3UK and Vodafone Live and two sports channels, along with challenges at hand.
in the U.K., both of which bundle video on demand and a catch-up
content from a variety of sources and TV service. Its advertising sales Media Companies
handle the advertising that comes division, Orange Publicité, bundles Media companies attempting to
with it. 3UK launched its service in marketing campaigns across three compete effectively in new media
2001 and worked in conjunction platforms—TV, mobile, and Internet. have two principal options, which
with production companies to can be thought of as conservative
create mobile TV and other content, Regionally, both STC and Etisalat and aggressive. In the conservative
delivered over handheld devices to have expanded their access and option, they leverage their traditional
its target market of professionals and control over the content part of the assets and monetize them through a
teenagers. Vodafone Live adopted new media value chain. STC launched 360-degree approach. That involves
a broader approach: Through its a joint venture with leading media taking offline brands onto the Web,
relatively long history, the service has players SRMG and Astro, while or building online-only ventures
gone from fairly primitive content Etisalat partnered with Orange to in which traditional content gets
like ringtones and wallpaper to gain access to its content library. recombined and aggregated (such as
full-fledged 3D games and mobile with Condé Nast’s food site, www.
TV. Orange, on the other hand, If telecom operators hope to make epicurious.com, which includes
now has a comprehensive content the transition from simply providing information from the company’s

Booz & Company 21


food magazine along with online- In the aggressive approach, media HP partnered directly with MTV
only content, all presented with companies embrace new media as Networks to promote a contest to
Web functionality). Editors and a relevant opportunity to diversify design the skin of HP’s new special-
programmers have significantly more their business. In addition to tran- edition entertainment laptop. MTV
insight into consumer interests and sitioning existing properties, this Networks independently managed the
behaviors than ever before. Search approach involves building a digital promotion of the contest selectively
traffic, social networking, and blogs business. Syndication and content in 13 countries via its television, Web,
now provide a 24/7 window into management is one such diversifica- and mobile channels.
what resonates with audiences. The tion opportunity. For example, in the
digital platform enables editors and U.S., Fox manages the sports chan- In another take on the aggressive
others to more precisely measure— nel at www.msn.com, but the site’s approach, several media companies
and perhaps even anticipate—content lifestyle content is syndicated through have partnered with a mobile virtual
appeal more accurately than any a relationship with Hearst. This network enabler (MVNE) to develop
other medium. The editorial function approach also involves new business a branded reseller or full-fledged
can benefit, as advertising already units, either launched or acquired, MVNO centered on its content. An
has, from more sophisticated centered on new media, such as News example is Amp’d, which partnered
analytics. We expect to see media Corporation’s purchase of MySpace. with T-Mobile to offer music videos
companies using data on consumers’ and other youth-oriented media to
Web behavior to help editors and Large, category-leading media U.S. consumers.
other executives make better decisions companies are developing “media as
about content development, the service” strategies to support direct Another U.S. example is Disney,
breadth of their coverage, and how relationships with major clients which offered content from its cartoon
best to present stories (video, audio, and deliver an expanding range of library, accessible on cartoon-branded
text, or interactive media). marketing solutions. For instance, phones, along with a second venture

22 Booz & Company


that offered sports content on branded services that focused on a particular Irrespective of the approach tra-
phones through its ESPN division. ethnic audience and did not try to ditional media players take, it is
incorporate a global brand. important to note that digital is a
Both Amp’d and the Disney and totally new game. It’s not only a
ESPN branded-service ventures A regional example of the aggressive matter of transforming their content
failed, somewhat spectacularly, which approach is GETMO Arabia, a new for multi-platform consumption. A
shows the extreme difficulty of a venture between the Abu Dhabi digital brand has to respond to a new
media company expanding beyond Media Company and Arvato Mobile’s generation of consumers who demand
content generation and possibly Middle East division. The venture personalization, interaction, social-
management of an in-house ASP. is aimed at distributing digital ization. Building this brand requires
Shifts in this direction on the value content and music on mobile integration of technology and leading-
chain require technical expertise that platforms. GETMO launched in late edge applications, a different editorial
so far has been beyond the capacity 2008, and although it has become philosophy, and an appreciation for
of media producers to either develop a popular digital download portal partnerships and alliances, sometimes
internally or acquire and successfully in the Middle East, it does not have with competitors. It requires a funda-
integrate. In fact, the most successful a long enough track record for its mental shift in business principles and
MVNOs have typically been no-frills success to be evaluated. operating models.

A digital brand has to respond to a new


generation of consumers who demand
personalization, interaction, socialization.

Booz & Company 23


Conclusion The CMT space in the MENA region
is at a significant inflection point;
The sheer pace of change in the current
market makes strategic options difficult
traditional revenue streams are being to evaluate. Yet there is no advantage
upended by new technologies and a in waiting for the situation to resolve.
seismic shift in consumption patterns. Customers and competitors will not
Vastly different from the environment wait. The market is only going to get
of just a few years ago, the market more competitive as convergence erases
today resembles a dynamic, com- the sector boundaries that formerly
plex, and interconnected ecosystem divided business segments.
in which telecom operators, media
companies, Internet players, technol- What’s required in this environment is
ogy players, and ad agencies depend a more open platform for the delivery
on one another to thrive. of applications and content. For CMT
companies in the region, this means
However, it is also a brutal competi- they will need to expand beyond their
tive arena in which winners are rap- historical areas of expertise. They need
idly distinguished from losers. CMT to do more and offer more, in a way
companies must try to anticipate that anticipates consumer trends. To
future demand—and make necessary reach that goal, they will need to think
arrangements to develop or otherwise regionally, gain a better understand-
secure infrastructure, marketing, ing of audience segmentation, devise a
and other key competencies—even monetization model that can capitalize
as consumer behavior and technol- on the strengths of digital advertising,
ogy continue to evolve at accelerated and cultivate a willingness to form part-
rates. They are in essence aiming at nerships, allowing them to expand their
moving targets. service offerings along the value chain.

24 Booz & Company


Endnotes
1
The GCC consists of Bahrain, Kuwait, Oman, Qatar,
Saudi Arabia, and the United Arab Emirates.

About the Authors

Gabriel Chahine is a partner Adel Belcaid is a


with Booz & Company in Beirut. senior associate with
He focuses on deregulation, Booz & Company in Dubai.
privatization, and strategic He focuses on strategy,
transformation in the communi- organization, and operations
cations and media industries. related to the convergence
of media, technology, and
Jayant Bhargava is a principal communications.
with Booz & Company in
Dubai. He focuses on growth Chady Smayra is a
strategies, restructuring, senior associate with
business planning, and Booz & Company in Beirut.
mergers and acquisitions for He focuses on sector
the media sector, specializing in development strategies,
convergence and new media. convergence and new
business models, mergers
and acquisitions, and
the CFO agenda for the
telecommunications industry.

Booz & Company 25


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