INM’s digital media strategy has yet to pay dividends

It always sounds good when a company can say a key revenue category has swollen 20 per cent.

Independent News & Media (INM) has managed just that with a flattering 20 per cent increase in its online revenues in 2016. This comes on top of an even more flattering 42 per cent increase in this category of income the year before.

The problem is that while digital income may be a strategically important element of INM’s top line, it cannot be said to be a large one.

At €15.1 million, up €2.6 million on the year before, INM’s online revenues represent less than 5 per cent of its total revenue of €323.4 million, its full-year results show. The phrase “coming from a low base” springs to mind.

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As the media group has shied away from charging for its digital content, this €15.1 million largely consists of advertising money, including the extra classifieds income that has come with buying out the half of CarsIreland.ie that it did not already own.

Income

Digital ads only account for 19 per cent of its advertising income. The difficult newspaper advertising market still delivers the bulk. Unfortunately, it is not expected to get any less difficult any time soon.

INM’s newspaper advertising revenues fell €6.5 million to €63.9 million last year – in other words, they declined by more than twice as much as its online revenues grew.

Group revenues rose €2.2 million, with the biggest uplift coming from a near 10 per cent rise in its distribution business. This was boosted by an October 2015 contract to distribute The Irish Times. But it was also lifted by INM's efforts to distribute products, such as fresh food packaging, that are unrelated to the tough media market.

Stockbroker analysts praised Independent News & Media for its "strong cost discipline" and "rigorous cost control", with both Merrion and the company's own brokers, Davy Research, stating that INM shares are undervalued.

Goodbody struck a more cautious note, noting the lack of dividends and the “subdued” tone of its outlook statement, which included a striking reference to a “current slowdown in digital display advertising”.

This is the nub of so many of the issues facing news media groups as they seek to straddle both the print and online markets. Digital display advertising is growing – just not for news publishers.

Market

Research group eMarketer predicts that Facebook will dominate the global display market in 2017 with a 34 per cent share, while Google will take an 11 per cent share of display. As far as the wider digital advertising market is concerned, Google is expected to take a 33 per cent share and Facebook 16 per cent.

News publishers can either fight for enough crumbs to get by or try to build digital subscription income. But INM has said it does not want to do the latter.

With the exception of the CarsIreland.ie move, INM's acquisitions activity and acquisitions talk has been of the analogue variety – the odd flirtation with Newstalk that skidded off the agenda after an internal dispute over its valuation, plus the proposed takeover of regional newspaper group Celtic Media. There are also reports of "exploratory" talks to buy the Irish Examiner.

One year ago, INM chief executive Robert Pitt said the group was looking to snap up digital businesses that were solid, developed propositions "that already have trading behind them". Digital revenues weren't going to close the gap on print ones through organic growth alone.

This is still the case. INM can push for more consolidation in Ireland’s print market, but at some point it will need to find meaningful new sources of cash from digital. The audience has moved online, but the group’s revenues haven’t yet.