Monday, 14 May 2012

Notes from my visit to the Arab Media Forum

I spent last week in Dubai attending the Arab Media Forum and visiting with a number of local media and telecoms companies. Development of a large media – particularly TV and movie - industry seems to feature on the strategic plans of almost all Arab states, so I was interested in getting an impression of how they compare as well as a sense for how the Arabic media industry in general is evolving.

A long (form) journey

To date, Arabic media’s greatest success is to create at least one global news brand – Al Jazeera – which has been instrumental in expressing the Arab voice in the region and worldwide. The overwhelming sense I got in the this visit (and in previous ones) was that the desired next step was to have the same clarity of voice in long form content as they do in short form. This is particularly for engagement of the Arabic diaspora worldwide, who are currently poorly catered for.

To achieve this, my view is that regional producers need to improve the overall quality of the output they produce, both technically but also – vitally – creatively. The former is clearly happening to some degree. The Arab Media Outlook, a weighty tome launched at the conference, states that average cost-per-hour has risen nearly 20% YoY since 2009 and is now around $80,000/ hour. Assuming an average level of wage inflation, an increase of this magnitude is almost certainly due to a combination of improved (more expensive) crew, increased shoot time, better quality equipment and increased post-production time. In a world where import content is high definition and high concept, this is definitely a good sign.

Creativity is, however, a worry for me. For a start, the market is dangerously fragmented. Uniquely because of shared language and national proximity, this fragmentation takes a geographic form – Dubai, Abu Dhabi, Qatar, Egypt and Tunisia were all shouting loudly about their ambitious investment plans in studios and film production. Although the game is not zero-sum, there is obviously insufficient audience and therefore advertising money (the vast majority of Arabic TV is free-to-air) to support the scale of growth being talked about without diluting spend excessively. Box offices are also low in the region. Even Egypt, with a population of 80Mn and the 3rd oldest film production industry in the world grossed less than $40Mn in box office takings in 2011. The market would have to show massive growth to fund sufficient hours of production to train an industry. TV is where it’s at... but perhaps a shift to pay models will be required to fund increased content spending.

The above situation will only worsen as the ongoing rebellion in Syria, which is one of the region’s key TV producers, leads to commissioners reverting to other locations. Geographic fragmentation is compounded by an excess of enthusiasm about the type of media industry that each location will support. Frankly, everyone seems to want to do everything and is willing to shout very loudly about said ambition.

My experience in setting up media and technology hubs strongly leads me to believe that it is much better to start small and focussed, dominate a particular competency and then both actively incent adjacent businesses to relocate there as well as creating the economic environment for new and existing adjacent businesses to want to move to the hub. Contrary to popular sentiment, the media industry is not really converged and that birds of a feather flock together. My perception is that each of these hubs should become clearer about their value proposition and stick to it for a while.

Similarly, content commissioners have a responsibility to develop the local independent producers by focusing their spending over a period of time. With the current content standards, even if there are a few creative flops, the improvement in production quality that will come from surety of revenues is alone worth the risk. Financial security also leads to willingness to take creative risk; ultimately the key to a sustainable creative industry.

Latent creativity exists, but the environment is hostile

Sadly, taking creative risk in the Middle East still often means taking personal risk. Sometimes that risk is physical. Although there have doubtless been some successful products from the Arabic language film industry and it is liberalising a little, there’s still an elephant in the room. The issue du jour at AMF was Arab Spring, with journalists and particularly film makers coming under vitriolic attack for exploiting and exaggerating the situation for personal advantage. What I’ve seen doesn’t lead me to suggest that in other markets this would have been a grounded accusation, but it is yet another example of a taboo subject in the region.

In my view, constraining free speech naturally constrains innovation as pushing the envelope can lead to vilification or worse. Furthermore, the Diaspora may be less receptive to staid creative concepts than local audiences as they are more exposed to content from other sources. Being creatively uncompetitive will therefore starve the market of vital export revenue.

Sadly, Arab countries such as Lebanon with more progressive laws have such severe security problems that they’re not a realistic location for content creation. It will be interesting to see how post-revolution Egypt develops as it remains the region’s content powerhouse. If it finds a balance between satisfying cultural and religious sensibilities and creative freedom, then there seems to be great opportunity for them in export markets.

Despite a proportionally large device base, digital Arabia is under-performing

Perhaps unsurprisingly in a region with such high levels of individual wealth, smart devices are booming. As a colleague pointed out to me, a large proportion of the technology products bound for Europe transit the region, so even if things aren’t officially available the grey market provides the latest technology almost before it hits the western markets. Furthermore, with most accommodation being new build, in-home connectivity is excellent and, theoretically at least, so is broadband connectivity. In terms of the latter, I found the wireless speeds to be excellent – comparable to central London – but the wired/ Wifi speeds to be disappointing, particularly for websites hosted outside Dubai. Needless to say, the large expat community that cycles through the country means that many of the consumer technology items have short replacement cycles. Curiously, they also seemed to be quite expensive, with plasma screens costing roughly twice what I’d expect to pay in the UK.

Some kind of national firewall is in use to police “inappropriate” content at the borders. It seemed remarkably unsophisticated, however, as I was easily able to find workarounds. I suspect it is an older system that works on keywords, rather than being DPI. I may be wrong and more techie than I think!

Probably because of the massive preponderance of smart devices, Arabs are avid application downloaders, with over 50% of smartphone users saying that they download at least one application every two months. This is despite 80% of them expressing a preference for Arabic applications and only 12% of those applications that are available being in Arabic. The average self-reported spending on applications is $25 a year, with an average of 32 applications per device. 88% of users say that they’ve paid for an application.

But despite this apparent demand and sophistication, digital Arabia is yet to hit the accelerator pedal (as an aside, hitting the accelerator pedal seems to be an activity much loved by drivers in Dubai, who are universally appalling!). To put the problem into context, e-commerce is a miniscule market. 99% of Saudis have never bought a product online and even in the UAE, 84% have never purchase and only 13% purchase something at least once a year. Stranger still is that only 3.3% of advertising spend in the region is online, compared to well over 20% in any other developed market. Perhaps this explains why newspapers remain a print-only proposition and subscription content services like Netflix and Spotify are non-existent despite the large volume of available local film and music titles.

My gut feeling is that this lack of progress in pure digital media is down to lack of competition, particularly in the carrier market. Telecoms companies are all state-owned and are effective monopolies. There’s also no cable TV or pay satellite industry to speak of, partially because sports rights are sold extremely cheaply to bring cultural benefit. There’s no shortage of investment money to provide these services and create great digital businesses, there just isn’t incentive. Right now it feels like it’s sufficient to stick to monetising traditional media through traditional channels.

That will be fine for a regional Arabic content economy, but I fear it will inhibit the growth of an export-led economy for the foreseeable future.

Closing thoughts

I was left pretty fascinated by what I saw in Dubai. On one hand, I had some wonderfully stimulating conversations with smart, switched on people, who were hungry for ideas on how to grow their businesses. On the other I sensed inertia caused, curiously enough, by too much capital availability and creative constraint in the media and not enough competition in telecoms.

Putting aside the creative issue, my view is that to be successful in digital media you need to monetise in lots of small ways as a value-generating complement to traditional. If you have billions in the bank, the few hundreds of thousands you can make in the first year of a digital content product don’t seem worthwhile, so people don’t focus sufficiently on it to make it a success.

But as we all know, the rate at which digital Acorns grow into digital Instagrams is quite tremendous. If it doesn’t find a way around this problem, then the Arabic content market will fall ever further behind its international competitors.

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