How The Economy Affects Media Costs
Inflation has been creeping up. The price of maize meal crossed Sh100 this year . The USD crossed 90 recently. Media inflation in Kenya has averaged around 15-20 per cent in most years. Kenya `s media industry has traditionally carried a cost structure quite dependent on imported inputs . The most sensitive has been the print media . Newsprint and transport are conspicuous costs in the business of publishing newspapers; both are heavily dependent on import prices. Transport because of dollar denominated fuel and vehicles. Newsprint is imported as well. When consumers have to pay twice as much for food, raising cover prices for print media becomes a non-option. There are no prizes for guessing the options.
The price of radio increases nearly every month as newer stations emerge. Every time a new station enters the market another station loses listeners. Advertisers on the older station immediately start paying per contact due to reduced listeners. Fragmentation has driven inflation on radio more than any rate rises and this may be the factor to watch .
Despite lots of nudging from regulators, Kenyan television still carries about 40 per cent of content bought from outside. Most content is paid for in forex.(And that includes Nigerian movies !) Fortunately the margins between the cost of most imported programmes and advertising rates have been decent for a while and that could help keep things as they are. Importantly though, the rate differences between stations in Kenya are quite huge and stations covering costs and rate gaps may be tempted to raise rates
Most advertising online is dollar denominated. This means that the currency of exchange in advertising is the dollar. When the currency appreciates the ads become expensive, when it depreciates they become cheaper. The pricing of the dollar to the shilling immediately raised online prices. Most websites on ad networks should significantly see an increase in revenues. In audience and cost terms, the largest local publishers will be selling at a slight discount when they trade in local currency. Thanks to cut throat competition, the mobile industry has not found the courage to raise tariffs and that will keep the costs of SMS stable. That means the mobile medium will remain comparatively competitive.
The outdoor industry has been in near deflation. For some reason this industry has absorbed its internal costs without passing them on to clients for several years. Due to competition for prime space and increases in rates, the industry has to pay site landlords more. City authorities have also adjusted the rates on outdoor every so often. Their imported component is significant and the effect on currency may be harmful to them.
So what should we all do when rates go up. For starters, media planning is a comparative business, we generally compare the costs of audiences across media channels and choose the most viable or least expensive. If the rates go up comparatively then nothing changes. Advertisers have also been looking inward for channels they can create and utilise cost efficiently. Then of course there is the use of negotiation to keep cost steady. Mainly effective in the short term as the forces that drive these costs up are real. More effectively, advertisers should review how they buy their audiences to ensure that they get the best combination of cost and audience. Very often the most expensive channels are also the most effective and fighting price without building a clear picture of how the channel delivers on return on investment may be unhelpful. Smarter media planning can be where the real savings emerge from.
The writer is the CEO of PHD media agency.