Breaking news: Growing opportunities for domestic and international media investors

Since TVRI’s 25-year monopoly in television was ended by the launch of RCTI in 1989 by Media Nusantara Citra (MNC), and Surya Citra Media’s SCTV shortly thereafter, the media sector has taken great strides in Indonesia. A number of large diversified conglomerates have emerged since, though these now face competition from smaller-sized firms. Indonesians have the luxury of choice, with 10 free-to-air stations. Although advertising expenditure has proved resilient to the 2009 downturn, larger groups have been dealing with stagnating revenue by controlling costs aggressively.

LINKS WITH POLITICS & BUSINESS: While many larger media groups are linked to business and political interests, the politicisation of the media predates President Susilo Bambang Yudhoyono’s launch of the Jakarta daily Jurnal Nasional in 2006. Although media freedom in Indonesia increased considerably after the end of President Suharto's rule in 1998, there is a long tradition of close relations between media and government.

For example, 13% of Hary Tanoesoedibjo’s Global Mediacom is held by Suharto’s second son Bambang “Tommy” Trihatmodjo. Global Mediacom is also connected to the Golkar party, with group founder Surya Paloh losing a 2009 bid for party chairmanship to Aburizal Bakrie. Rupert Murdoch’s Hong Kong-based STAR Group acquired 20% of ANTV in 2005. The Bakrie Group merged ANTV and TVO ne in 2011 to form a combined holding, Visi Media Asia, and hopes to list 14.7% of the group on the stock exchange to raise $80m in the end of 2011 or beginning of 2012. Rupert Murdoch maintains a 7.5% stake in the merged group.

KEY CONGLOMERATES: Global Mediacom’s pay-TV subsidiary, MNC SkyVision, dominates the market with its Indovision and Top TV brands and is planning an initial public offering (IPO) in 2012. The conglomerate also runs Seputar Indonesia, the country’s longest running news programme and the third-largest in Indonesia, as well as one of the largest radio networks and several online portals. Its $1.1bn listed subsidiary MNC holds the largest content library in the market, with 90,000 hours of entertainment and growing. MNC has announced plans to buy several local TV stations in 2011. Its existing channels, RCTI, TPI and Global TV channels dominate advertising expenditure on television. Another group, Surya Citra Media, grew substantially with liberalisation efforts in Indonesia’s media sector. The group now produces the leading news-focused MetroTV (Media Televisi Indonesia).

BUSINESS SAVVY: Indosiar Karya Media, a venture by top businessman Anthony Salim (of Indofood, a major player in the food industry) with Surya Citra Media, is the third-largest media group in Indonesia. James Riady, another leading businessman founder of the Lippo Group, is the most recent entrant to the sector. Riady made his entry in 2006 when he acquired the Indonesian-language Suara Pembaruan. He has since launched the full-colour daily The Jakarta Globe and Investor cable TV news channel later in 2011.

Trans Corpora, owned by Tahir, which runs the TransTV and Trans7 channels and is the only bumiputera ( ethnic-Javanese) media group, comes under the umbrella of companies controlled by Chairul Tanjung’s Para Group, which also counts a commanding stake in Bank Mega among its holdings. Sony sold its 15.5% stake in Trans Corpora to South Korea’s Samsung group in early 2011. In the print segment, Tempo Inti Media, publishes the extensively read weekly Tempo magazine, known for its independent and controversial investigating. Ireland-based publisher Independent News & Media bought a 20% stake in Abdi Bangsa, Indonesia’s fifth publishing group, in 2008. The Jawa Pos Group, the largest in print media, produces the Jawa Pos Televisi channel. Jakob Oetama’s Kompas/GraMedia group, on the other hand, publishes both the Kompas (in Indonesian) and Jakarta Post (in English) daily newspapers.

REGULATION: The Ministry of Information regulates the sector, although it does not run independent audits on circulation and viewership. The Central Information Commission has jurisdiction over broadcast media, while the Press Council, an independent organisation established by the industry, receives complaints on ethical questions. Landmark broadcast legislation was passed in 2002 in the spirit of decentralisation. The law first established the principles of diversity in content and in ownership for the media sector. It also legalised community broadcasting and created a regulator – the Commission on Broadcasting – which is independent of the state. Despite the regulator being established, implementation has remained ad-hoc. “Indonesia is still in its infancy when it comes to press freedom, although we have come a long way,” Ali Basyah Suryo, the CEO of President Post, Indonesia’s first bilingual newspaper, told OBG. Resistance from the Private TV Stations Association has focused on a clause requiring stations to run networks in all provinces, which they argue is not a commercially viable proposition.

FREEDOM OF PRESS: Another unapplied measure has been the 2007 regulation forbidding the replaying of foreign broadcasts. Although local TV stations tend to replay such content at a lag, radio stations still air live foreign programmes like “Voice of America” with impunity. The government and parliament have announced their intention to revise the broadcast law to harmonise and reform the existing tripartite legislation: the Broadcasting Law, the Telecommunications Law and the Electronic Information and Transaction Law.

The 2008 Freedom of Information Law, which took effect in April 2010, has the potential to bring far-reaching consequences, although it has yet to be fully implemented. In October 2010, the constitutional court expunged a 1963 law on book banning, thereby handing the government’s authority to ban books over to the country’s courts. Reporters Without Borders currently ranks the country 100th of the 175 countries their press freedom index covers, while Columbia University’s Freedom House Institute categorises Indonesia as “Partly Free”. Yet the increase in complaints to the regulatory Press Council (growing from 319 in 2007 to 442 in 2009, and dropping slightly to 421 in 2010) could be interpreted as a rise in political confidence within the print media. Questions over corruption and journalistic ethic came to a head in November 2010 during Krakatau Steel’s $300m IPO, when it was alleged that several journalists had demanded shares in exchange for positive coverage. Other measures have been taken to limit adverse coverage. Tempo, for example, had three of its issues bought wholesale in the last five years, effectively taking the magazine off the market. In all three cases the issues covered corruption.

PRINT: The news and magazine market in Indonesia grew at an annual rate of 2.5% from 2004 to 2009. Newspapers led the segment, accounting for 67% of the market. According to the UN, readership levels in major Indonesian cities were 35% for men and 18% for women in 2010, far lower than the average in developed countries which stands at above 50%. With such low penetration and high fragmentation in titles, the market is set to remain highly competitive for years to come. Two Indonesian-language dailies – Kompas (circulation 500,000 a year) and Jawa Pos (circulation 400,00 a year) – and a weekly magazine, Tempo, continue to dominate the market. However, since 2006 readers have seen a big rise in the number of titles available, including those connected to political parties as well as independent publications.

The Jakarta Post, owned by Indonesia’s biggest newspaper company Kompas Gramedia Group, is now the largest English-language newspaper. The 28-page broadsheet, priced at Rp6500 ($0.80), has a circulation of around 40,000, targeted mainly at local English speaking expatriates and the diplomatic community. Moreover, it acts as a local partner to the New York Times, and prints an abridged supplement of the International Herald Tribune. Other English titles are the Bali Times and the Jakarta Globe, launched in November 2008. It is estimated that 250,000 people read English newspapers every day, while the Chinese-language Zhinan Post caters to the Chinese-Indonesian minority.

CONSOLIDATION: There have been some mergers and acquisitions in the vibrant print media segment, with the Bakrie Group buying out the locally-owned Surabaya Post in 2008. The Jawa Pos Group has been leading the trend for some limited consolidation in the print media industry. Growing to a circulation of over 300,000 in the last decade, the Jawa Pos has also invested in regional newspapers throughout the archipelago, and now owns 140 Indonesian-language titles nationwide. Yet industry insiders do not expect sustained merger activity in the sector. Ali Basyah Suryo, the CEO of President Post, a monthly publication with a distribution of about 10,000, said, “It doesn’t make sense to buy out a publication unless it has a significant subscriber base”.

One of the challenges for newspapers is high printing costs. Only the largest groups, such as Jawa Pos own their own printing presses. Newspapers like Kompas use digital printing for small-scale distribution in certain foreign countries, or remote areas.

TELEVISION: There are roughly 49m TV-owning households in Indonesia. All 10 commercial TV stations are based in the capital. RCTI, SCTV, Trans and Indosiar – the four leading TV stations – each command between 14% and 17% of the market. TransTV and Indosiar have increased their market share in recent years, while news stations like MetroTV and TVO ne grow their audience during political events. In October 2010 Global Mediacom’s TPI channel rebranded itself as MNC TV. A Jakarta court ruled in favour of Siti Hardiyanti Rukmana, eldest daughter of former president Suharto, in her $456m bid to take control of MNC TV from Global Mediacom. The three Global Mediacom/MNC channels (RCTI, MNCTV and GlobalTV) still commanded 42% of the television audience by the end of 2010, far ahead of TransGroup’s 22.4%, Surya Citra Media’s 16% or Viva Entertainment’s 9.7%. Local content dominates free-to-air TV, with Indonesian programmes accounting for 80% of content on leading stations such as TVO ne. Soap operas have been the strongest performers of late.

Their share of total airtime grew 8% year-on-year ( yo-y) in 2010 according to AGB Nielsen, a media research firm based in the Philippines. RCTI and Indosiar broadcast the most soaps (26% of total airtime), while Trans7, TVO ne and ANTV broadcast the least (less than 1%). There are complaints of loose broadcast regulations, which for example do not outlaw two competing TV stations transmitting the same content.

RADIO: The state-owned Radio Republik Indonesia (RRI) operates six national networks as well as regional and local stations, and the foreign-service “Voice of Indonesia”. Several Indonesian radio stations are available as free streaming audio service on the internet. Since 2006, competing stations have emerged in Jakarta and Surabaya. But while TV ownership continues to grow in Indonesia, radio has been on a long-term decline since 2006. Household radio ownership fell from 67% at the close of 2006 to 51% in April 2009.

The Indonesian government announced plans to merge the public radio station RRI and state TV station TVRI in March 2011, with the aim of improving services for people living in remote areas. According to the Ministry of Information and Communication Technology (ICT), RRI broadcasts reached 83% of the population and 60% of the total area in the country in 2010. TVRI broadcasts reached 62% of the population and covered just 35% of the country. The government wants to extend RRI and TVRI broadcasts to 88% of the population by 2014. Longstanding funding problems have reduced the scope of TVRI broadcasts in recent years, with the channel in need of upgraded equipment.

ADVERTISING: Growth in advertising expenditure (adex) has recovered sharply since 2009. Adex grew by 23% in 2010 compared to 16.5% the year before, almost reaching Rp60trn ($7.2bn) according to AGB Nielsen. This represents the sharpest rise since 2006. Advertising on TV accounts for the majority of expenditure (at 61.8%) in 2010, benefitting especially from spending on the football World Cup. Newspapers garnered 34.7% while magazines and tabloids, on the other hand, accounted for a mere 3.6% in 2010.

TELECOMMUNICATIONS: The telecommunications industry has cemented its dominant position as the biggest advertiser, and has raised spending by 50% in 2010 across all media. Of the 15 largest advertisers, nine are telecommunications companies. Although government and politicians are still the second-highest spending group, their total expenditure dropped 36% in 2010. Local government contests typically drive spending in this class. Yet fast moving consumer goods brands have also allotted substantial increases in adex, up an average of 40-50% y-o-y in 2010. Tobacco, long banned from advertising in most countries, continues to be a major force in Indonesian advertising. Total adex on TV remained resilient throughout the global financial crisis, with a 14% increase in 2009. The outlook for continued advertising revenues is positive for 2012 on the back of strong consumption trends.

Gudang Garam is the only cigarette brand ranked within the top five biggest spenders, and has been raising the intensity of its campaigns. MNC’s three TV stations (RCTI, MNCTV and GlobalTV) attract 37% of TV adex, according to AGB Nielsen. SCTV and Para Group (with its TransTV and Trans7 channels) remain runners-up in advertising as well as audience.

Spending on print adverts accounted for 23% of the total in 2010. The growth in the number of newspaper titles has been sustained by a rise in advert revenue. Indeed, newspapers’ share of total adverts has risen from 26.9% in 2005 to 34.7% in 2010. Local government elections are the source of the highest expenditure. Moreover, 2009 was a bumper year for Indonesian newspapers on the back of the general election. Telecommunications advertisement expenditure in print media has been growing fast, up 45% in 2010.

Telecoms has also expanded its spending on magazines and other tabloids. Media houses have long spent the most on this smaller segment of the market, spending Rp85bn ($10.2m) in 2009. Hair care brands and telecoms producers are among the biggest spenders when it comes to magazine adverts.

BILLBOARDS: Billboard and other out-of-home media saw an increase in spending during the financial crisis, growth that has been sustained in 2011. The market is now worth an estimated Rp3trn ($360m), which represents less than 5% of the total.

Around 1000 billboard companies compete in this fragmented market, with 300 in the greater Jakarta area alone. Despite government regulations in 2008 outlawing new standalone billboards in Jakarta’s downtown “golden triangle” area, market players agree the segment remains far under-regulated. “The Ministry of ICT may play a larger regulatory role in out-of-home advertising in future as digital billboards become more common and the line with broadcast media becomes blurred,” Gatot Teguh Ariffianto, the president director of Plasma Outdoor Advertising, told OBG. Yet with many associations vying to represent the industry, levels of competition in this segment can be excessive.

OUTLOOK: With languishing returns in more developed media markets, Indonesia is being closely watched by international media investors due to the size of its market, and the valuable lessons it can offer for other lower-income markets. Resilient domestic consumption in 2011 will likely drive growth in media and advertising. Larger groups will likely continue to dominate television. Moreover, investors will surely be drawn by new share offerings and their variety of opportunities.