The Role of Advertising in the Economics of Media

A Case Study on a Sample of Egyptian Private Satellite Television Channels

Presented at:

15th International Annual Conference Faculty of Mass Communication – Cairo University "Communication and Reform Issues in Arab Societies: Reality and Challenges" July 7 – 9, 2009

Dr. Nagwa El Gazzar Head, Faculty of Mass Communication Misr International University

Introduction: It is hard to define the term “Media Economics” and define the parameters of the field of study, but it is widely agreed that the field involves economic theory to explain the workings of media industries and firms. It goes much further to investigate and explain how the economic, financial and regulatory forces influence the operations of media markets and their effects on the society. The media economics field also involves inquiry that focuses on how economic factors produce the kinds of media systems found in societies, determine the ways in which media operate, affect the choices of content and reveal their implication on culture, politics and society. Such determinants are central to understanding communications systems and in formulation of national policies concerning communication (1). The field of “Media Economics” includes several interdisciplinary approaches as it is taught and researched in media and journalism schools, economics and political science departments, business schools, and social sciences in general. In conclusion, the term is employed to refer to the business and financial activities of firms operating in the various media industries. The operations of these firms are undertaken in the context of given market conditions and technological alternatives and their anticipated financial implications. Media economics is concerned with how the media industries allocate resources to create information and entertainment content to meet the needs of audiences, advertisers and other societal institutions (2).

The nature of media economics environment in Egypt and the Middle East at large is rapidly changing. In the past two decades, we witness the emergence of commercialized media networks for the first time in most Arab countries. The existence of the Arab Satellite, the Nile Satellite allowed for media convergence and expansion in specialized, private and directed channels. These channels currently practice a lot of pressures over the politics of countries, and shapes public opinion on political and cultural issues. In Egypt, the media environment have witnessed the development of independent press, television channels and networks, radio stations, in addition to the continuation of state-owned media in general. Although the content nature of most media systems is entertainment and general at large, yet, it tries hard to get involved in politics through current affairs programs that discuss and analyze political and social issues in the country and the

1 world at large. Examples of such programs are: Al Asheraa Masaa, Ninty minutes and Al Beit Beitak. Across the different types of media, we can see fragmented audiences, increasing dependence on advertising, as well as innovative sources of media income as SMS messages, program sponsorship and sweepstakes. All these variables form the big picture of the recent trends in media economics of the broadcasting industry. Economic forces affect all media but the means and significance of the forces differ due to the extent that market control, bureaucratic control, and other types of control influence choices (3).

Importance of the study: Most media researchers share a common interest in the workings and manifestations of economic forces and on the outcomes they produce. Media field is vibrant and compelling, therefore the explanation of media economics phenomena add understanding to why and how the media environment in which we exist is produced and how it affects a variety of social, political and cultural concerns. The development of technology and the changes they have brought to media markets – specifically the broadcasting industry-- have spurred research and interest in media economics. It is a field of inquiry that has much understanding to offer to contemporary debates about media and whose influence is growing stronger with every passing year.

Review of Literature:

To understand the economic dimension of the media, we need to have a broader perspective of the environment where the media operates. That’s why the literature will shed light on the following issues: first, The role media plays in the political environment of the society through the news industry, then the literature will also discuss the role of advertising in supporting the economics of media business, as well as innovative sources of income for TV networks. Since the topic of research revolve around the Television channels in specific, the literature will discuss the unique characteristics of television as a media business and will also portray global and national cases in media management.

News Media and Political Conflict: In all nations, business activities are undertaken within the overall structures and constraints set by society. The result is that media industries vary considerably from one country to another. The context for media firms is set by the political, social and legal environment of the society within which the business is conducted. The overall nature of a country’s political organization is clearly a fundamental factor in the determination of the media industries and business practices of media firms. The political extremes are “communist-totalitarian” and “laissez fair”(4). Although the communist system is now officially over, yet, we still see some of it’s remaining in some countries of the world, as Egypt. As Egypt witnessed the issuing of independent press, on the broadcasting sector we still can see that terrestrial channels are owned by the government, and private ownership of TV channels and networks are not allowed yet to handle news as a specialized channels or networks. The news media have become the central arena for political conflicts. It is not surprising that the role of the news media in political conflicts is an issue that has received a good deal of public attention in recent years. Policy- makers, journalists, and social scientists all point to the important role of the press – and media in general – in events such as the war in Bosnia, the conflict in Somalia, the Gulf war, and the Palestinian conflict. The discussion of the relationship between media and political conflict rests upon five basic arguments: first, the political process is more likely to have an influence on the news media than the news media are on the political process. Second, the authorities’ level of control over the political environment is a key variable that determines the role of the news media in political conflict. Third, the role of news media in political conflicts varies over time and circumstances. Fourth, for better understanding of the issue, we must incorporate the structural and cultural dimensions of the society. Finally, the news media can be used as a tool for political influence (5).

The Economic Dimensions of Advertising Media: Advertising is a fundamentally economic activity. Advertisers purchase access to audiences assembled by media organizations, hoping to persuade consumers of media products to become consumers of their products as well. Economists studying the media have focused largely on the interface between media consumers and the suppliers of media products and the structures of markets for media products defined from the consumer's perspective. The perspective of advertisers, audiences is the primary

3 product of interest created by media firms. Thus, given the importance of advertising revenues to the financial health of media industries, it is somewhat focused on the economic characteristics of the audience products that media organizations sell to advertisers. (6) A growing number of scholars of mass communication have more systematically referred to economics in order to explain the phenomena of journalism, such as “market-driven journalism(7)”, or “all the news that’s fit to sell. McManus used the television industry to illustrate a model he developed in order to describe the functioning of an increasingly commercialized journalism. For him, news production is no longer determined solely by journalistic norms, but rather by self-interest of advertisers, investors, sources and media consumers, and the influence they exert on journalist. Hamilton also describes news industry as an “information good where media managers, journalists, advertisers and media consumers all have their own rational interests in the selection, production and dissemination of news. In particular, media managers and journalist not only try to answer the classic “5Ws” when selecting news, but also five economic “Ws”: who cares about a particular piece of information? What are they willing to pay to find it, where can media advertisers reach these people? When is it profitable to provide the information? Why is this profitable? Hamilton illustrates how economic considerations drive content production (8).

The relevance of advertising revenues in television network business has been examined by researchers. Research in this area aim mainly at explaining the connection between the networks’ contents and the relationship that media establish between consumers preferences and advertisers using the network for connecting with their consumers. Orlando explored and illustrated numerically and graphically an advertising model, namely the Kim and Widman for the aim of reaching the profit maximization behavior of a representative TV network (9). Research has focused on different types of media, for example, Smith analyzed advertising profitability in press (10).

In the current recession period, television advertising is suffering. Most forecasts for the next year say that ad spending in America will decline by 5% or more. Much depends on the fate of the automotive industry that normally spend around 20 billion dollars, but within the current recession, their expenditures will be scaled back by more than 30% in the first nine months of 2008, and are expected to make further cuts in 2009 as they

4 struggle for survival. Advertising agencies are already suffering as their clients cut spending. For example, Omnicom Group, one of the industry’s giants, depends on car companies for 14% of its revenue in America. Although the prospects in America re bleak, there is some scope for optimism elsewhere. Zenith Optimedia, an arm of Publics Group, another big agency, predicted that 89% of all growth in advertising spending between 2008 and 2011 will take place in developing countries (11).

In an effort to cope with the economic recession currently happening, the association of Business Media Companies is currently raising awareness on the value of advertising during an economic downturn highlighting that companies that maintain or increase their advertising investments in periods of economic downturns increase their sales and share of market, both during and after the downturn. They state several rationales for maintaining advertising investments: it protects market position vis-à-vis forward looking competitors, it maintains the “share of mind” so the advertiser don’t have to rebuild it later on, the advertiser manages to preserve strong advertising presence while the competitor cuts his budget, the advertiser can sustain brand recognition, give image of corporate stability. They finally concluded that advertising in an economic downturn should be regarded not as a drain on profits, but as a contributor to profits (12).

Innovative sources of income for TV networks: A French Journalist and documentary producer – Patris Parat- stated that Arab satellite channels can find distinct ways of financing their channels, and yet preserving their local culture through production of documentaries that introduce Arab societies to the world, in a better way than other programs do – as star academy. But he stated that it is not about financing as it is about political restrictions (13).

The critics view the unrestrained pursuit of profits as a parasitical practice that puts self-interest above any sense of social responsibility (14). According to this view, whenever profit motives and altruistic motives compete for the attention of corporate management, commercial interests always prevail. The issue in any given situation, is how to balance economic pressures against individual or institutional duties to others, thus influence the content presented. A TV station in Los Angeles – KNBC, for example, decided to cancel its nearly twenty-year-old 4 p.m. newscast in September 2002 to make room for the syndicated Dr. Phil, as it generates higher ratings (15).

In a capitalist society, economic pressures can come from many directions, but they generally originate from three sources: 1) financial supporters, such as investors, advertisers, clients, subscribers and customers; 2) the competition; and 3) the public at large. The three are interdependent, and economic concerns in one area can have an impact on another area.

The media are in a unique position within the economic system. Unlike most other businesses, they acquire most of their profits not directly from the consumer but indirectly through advertising. The media are also unique because of the constitutional protection. Their “product”-news, information, and even entertainment- has been given a legal sanctuary not available to the output of other industries. Thus, from the outset the media have always been viewed as servants of the public interest, a role that transcends purely commercial considerations. Nevertheless, since the turn of the twentieth century, the media have joined the ranks of big business, and economic pressures have competed aggressively for influence in management decision making (16).

If we look at media as a business, we’ll see that the marketing concept holds that all departments, including news, must contribute to the financial well- being of the organization. This means that news executives are expected to package their news and information to attract a target audience and to exploit the economic potential of the marketplace (17). They must search for creative ways to infuse their news and editorial content with entertainment values. A recent survey of 130 editors and news directors showed that more than 75 percent of the respondents believed that entertaining readers and viewers comes before educating them. In another major survey by the Pew Research Center for the People and the Press and the Columbia Journalism Review, nearly eight out of ten of those surveyed attributed a decline in the coverage of important stories on their dullness, and a majority of respondents said the same of highly complex stories (18). The media are profit centers and as such can be expected to adopt marketing strategies similar to other economic institutions. As a result, commercial pressures might jeopardize journalistic standards.

Advertising is considered to be the underpinning for both the information and entertainment functions of independent mass communication institutions, and directly affects the quality of media content. Of course, advertising gives the mass media financial independence from government

6 and- to some extent other political interests, but it also creates at the same time a dependence on the commercial sector. The economic pressures exerted by the influence of advertising are apparent in at least four areas: first, the quantity of commercial material determines the amount of space or time remaining for non-advertising content. Second, a ripple effect occurs when advertisers cut their budgets, as they do in periods of economic recession. In other words, when the advertising industry sneezes, the media catch cold. Third, direct pressure on media managers can occur when advertisers are the subject of unflattering news coverage, and simply they might react by withdrawing their ads from the offending station or network or otherwise pressuring it into refraining from future negative publicity. Fourth, one of the most disturbing recent trends is the practice at some TV stations to disguise commercial content as news and when commercials are actually blended with editorial content, some media ethicists believe that a sacred line has been crossed (19).

The unique characteristics of television as a media business: Media in general can be characterized as single or continuous creation products, as operating in unit cost or fixed cost economies, and as focusing on failure management or success management strategies. The issue of media economics depends on supply side and demand side differences between media and other products, and their relationship to media industry business dynamics in general Picard differentiated between single and continuous creation products of media. Single creation products are creative and idea driven products that are based on unique individual media content as motion pictures and audio recordings or games. Because each product is unique, companies must expend significant marketing and sales costs to gain the attention of consumers, inform them about the content of the product and promote it for consumption. Such type of products is highly risky and experience high failure rates. Continuous creation media products that involve on-going creation of changing content, such as television series and television networks, they operate like those in packaged goods industries, relying on strongly structured and coordinated processes. Issues of branding are crucial for continuous production products, they require lower marketing and sales costs because they are able to create habitual use patterns and offer subscriptions (20).

As the global and national scenes of media business is rapidly changing, we can realize the following trends that characterize the field now: First: De-massification: Many media outlets – specifically TV- target niche audiences rather than mass audiences. We now have many, many choices, sprinkled with mega-events, the interactive technology acts to accelerate the trend to personal media. This means that advertisers can reach audience through a lot of means, not only through the media, which means we may need to find new models of supporting media. Second: Concentration: Now fewer and fewer companies dominate the industry. We find companies dominating books industry, few companies dominating global newspaper industry as Gannett newspapers, while other companies specialize in media production as Time Warner. Third: Conglomeration: media companies have become part of much larger corporations, many of which own a collection highly diverse businesses, as Viacom. Fourth: increasing competition: As media companies become more fragmented and specialized, the competition increased for consumer attention due to the variety of products produced. The possible consequences of these trends is that media companies will have to put greater emphasis on marketing and use cross promotion. The conglomeration of media will also allow for more political influence.

Global and National cases of media management: On the global level, there is VIACOM INC, a leading transnational media corporation in the production, sales and distribution of electronic media entertainment. The unique business strategy of VIACOM has been built through the steady acquisition of existing media companies. The great success of the corporation is mainly due to it’s CEO – Sumner Redstone, who is a unique model of an aggressive leader who is deeply involved in all aspects of the company’s operation.. it serves as a major distribution company for several renowned programs as I love Lucy and the honeymooners, in 1986, it purchases a majority stake in MTV Networks and Nickelodeon and began the company’s rapid entry into the world of cable TV. Viacom who began essentially in 1971 as a small movie theater chain has evolved into the second largest transnational media company in the world (21). Media restructuring in the global environment has accelerated since the Telecommunications Act of 19996. Media firms have scurried to merge with- and acquire – one another, in hopes of capitalizing on the current deregulatory scheme. Time Warner and Turner Broadcasting System

8 merged within a year. Walt Disney bought ABC. CBS merged into Viacom. American online has merged its new media operations with those of Time Warner’s more traditional media (22). Most recently Reuters in Europe merged with Thomson to become ThomsonReuters. Reuters – the oldest news agency in the world merging with Thomosn is a role model that shows how major media companies have developed their digital strategies as a result of convergence. With the capabilities and limitations of digital technologies much debated in the past four years following the dot-com collapse, the fortunes and failures of individual new media like Google and AOL have gotten considerable attention (23).

A researcher in the field indicated that the discipline of media management matters a great deal to a growing number of researchers but less so the industry. The field needs to adopt an applied approach and deepen its knowledge of management in the media through a focus on organizations and exposure to them, and it must conduct research that reflects industry’s concerns and produces findings that explain developments. The field of media management should also concentrate on theories from management rather than other media-related fields, and the application of a broader and more representative sent of management concepts (24).

Objective of the study: This study aims at the following: 1. Explaining and highlighting structures and economic forces on private satellite channels, how they are affected by the environment surrounding them. In other words, the study aims at drawing the economic landscape of the private satellite industry in Egypt. 2. Employing knowledge in the area of media economics to achieve business and policy recommendations for improvement of both content and economics of private satellite channels in Egypt.

The first objective requires descriptive and empirical study, while the second requires a qualitative approach that uses the descriptive information, analyzes the current political and cultural situation and uses it to set recommendations concerning the economics of media systems. As a result, media economics analyses are not only applicable for understanding free and open markets, but it provide insight into media activities in a variety of market conditions including those operating in semi-democratic societies or those societies with significant regulation and state intervention.

Theoretical Framework: The core idea of economic theory dates back to Adam Smith’s works on the functioning of markets – individuals act to their own advantage whenever they enter into interactions with other individuals. So, individuals are generally aware of their self-interests, and that they seek to maximize their own benefits in the course of interactions, weighting the potential costs and benefits of the various options they can choose from. In economics, interactions between individuals are described as market exchanges. The exchange of money for a product or service or even non-material “goods”, is highly valued by individuals. Not only do individuals act in an economic context, but they rather seek to “maximize” their well-being generally, and thus ‘calculate” the costs and benefits of their decisions, in political and in social contexts as well. Economic theory serves as an analytical tool – in the field of journalism- which helps to predict changes in society once parameters have been redefined.

The economic framework of media consists of guidelines and constraints imposed by societal choices (the political economy), the specific decision- making process of consumers and firms (what is referred to as microeconomics), and the overall, aggregate attributes of the economy (macroeconomics). At the corporate level, the framework consists of the underpinnings of industrial organization, the respective functional areas of the firm’s operations, and the impacts of globalization (25).

In an effort to apply economic theory to journalism, Fengler and Mohl (2008) argued that journalists have a high self-interest at stake when selecting, producing and disseminating news. They seek to maximize attention for their work, they try to minimize costs of investigation and research and to use their sources to their greatest professional benefit. Under the conditions of an ever-increasing competition between media outlets, journalists increasingly employ a ‘market approach” to their decisions. So, news emerges not from individuals seeking to improve the functioning of democracy but from readers seeking diversion, reporters forging careers, and owners searching for profits. If we look at the incentives journalists react to, we can distinguish between material incentives (money, fringe benefits) and non-material incentives (reputation, influence, social rewards, acting as TV anchors, etc). The researchers assumed that journalists are interested in maximizing attention

10 for the products of their news organizations, and they consider influence and power as incentives offered by positions in mass media. Thus journalists’ self-interests affect newsgathering and news processing. They trade information for attention with their various sources, calculating risks and benefits. The economic analysis of journalism doesn’t limit itself to the study of the rational decision-making of journalists; it rather asks for the aggregated effects of the decisions of self-interested journalists. Thus, economic theory enables (and forces) us to ask how problems in the field of journalism can possible be solved by adjusting the parameters and incentives under which journalists operate (26).

Media economics is the study of how economics and financial pressures affect media systems, organizations. The economic context of media firms can be partitioned into microeconomic and macroeconomic issues. This is perhaps the most important distinction in economics. Microeconomics focuses on the decision-making processes of individuals and firms, and the supply, demand and price of particular goods and services. It deals with how individual economic units (households and firms) make decisions regarding their economic activity. Macroeconomics refers to aggregates in the economy and how the economy works as a system. The macroeconomic environment is the context within which microeconomic decisions are made, and government policy also influences microeconomic issues (27).

A number of studies in recent decades have reviewed the development of the field and its literature and identified broader patterns and themes related to its breath, depth and contributions (28). Three major paradigms have emerged during the development of the discipline: a theoretical paradigm, an applied paradigm and a critical paradigm. The theoretical paradigm emerged from the work of economists who have tried to explain choices and decisions and other economic factors affecting producers and consumers of communications products and services. The applied paradigm emerged from business economics and management departments at universities and from researchers for media industry associations. This paradigm has explored the structure of media industries and their markets, with an emphasis on understanding trends and changes. It often lead to the development of strategies or policies for firms or government to use in controlling or responding to the changes in the economy and consumer behavior. The critical paradigm emerged from the work of political economists and social critics, primarily within communications studies. It has as strong

11 cultural and social orientation that led to a focus on issues such as concentration and monopoly in communications, cultural effects issues, work and workers, and how society is being altered by shifts from the industrial to information economy (29). This study follows the critical paradigm as it aims at concluding recommendations for the current economic status of media economics, taking into considerations the cultural, political and social influences.

Hypotheses: Based on the previous review of literature and the theoretical framework, the researcher can draw the following hypotheses: First: The more private satellite channels increase in number, the less advertising revenues they get as more space is distributed over the same advertising pie –ie, advertisers. Second: Despite the existence of innovative sources of income through new media and interactive media, it constitutes a minor source of revenue compared to advertising. Third: The supporting industries that aid in raising the revenues of satellite channels are well established in Egypt. Fourth: The current environment of selling advertising space on satellite channels contributes to sustainability of channels in the future.

Methodology: Population and sampling: As this study will be focused on private Egyptian satellite channels, the population consist of all private television channels that are owned by Egyptians and run from Cairo. The sample has been selected from the list of channels airing through the Nile Satellite (30), with concentration on channels that are owned by Egyptians and run from Cairo. It also included a sample of research agencies that provide viewership rates, as well as sample of sales managers and executives working in media buying agencies that control selling advertising space for channels. The sample includes the following channels: - Dream, which is owned by the businessman Ahmed Bahgat, the owner of Dreamland. - Mazzika, which belongs to Alam El Fan company and is owned by Mohsen Gaber. - El Mehwar, which is owned by the businessman Mohamed Rateb. - OTV, which is owned by Naguib Sawiris.

- El Hayat TV, owned by Al Sayed Al Badawy Shehata, the businessman. - Modern TV, which is owned by Dr. Mohamed Deebas - Melody TV, owned by Ashraf Marawan.

The sample excluded the direct marketing channel – Tamima, because of it has a different nature when compared to other channels in the sample.

Method: Media economics research can utilize many different types of methodologies to investigate hypotheses or answer questions (31). Much of the existing literature tends to use one of four methodological approaches: trend studies, financial analysis, econometrics and case studies (32). This study will use case study as a methodology. Case studies allow the researcher to combine different types of primary and secondary data as well as different methodologies. In depth interviews were conducted with sample of owners and managers of private satellite channels in Egypt, as well as with some media buying agencies that control the selling of advertising time and also a sample of research agencies that monitor viewership. The interviews were conducted either via telephone or through personal interviews at the headquarters of the company. The interviews follow the basics of the conceptual framework provided by Picard (2004, 2005), and include questions about the following dimensions:

1. The industry and media market at large: such as consumer advertiser spending, concentration of media ownership, communications policy of the country. 2. The media organization itself: as it’s business strategy, company capital breakdown and whether there is a government or international share, organization and culture of the company, cost structures, financing and investment, financial performance, diversification of sources, nature and sum of commercial advertising, forecasting future advertising trends. 3. How the financial situation influence quality of products, and how globalization and trade balances has an influence on the end product and the media consumer and social welfare (33).

Data analysis and interpretation: Interviews were conducted with the following personalities:. - Dr. Hassan Rateb, chairman, Al Mehwar TV - Dr. Walid Deebes, the CEO of Modern Sport 1,2 channels. - The sales manager, starcom Megavest - Mr. Mohamed Safwat, the media manager, MBA (media buying agency) - Mr. Ashraf El Korashy, sales manager of Express media (media buying). - Client service executive, promoseven - Dr. Amr Kais – chairman of Ipsos - Media executive, TNS

A: Description of the environment of satellite channels in Egypt:

Most recently the Arab Media Forum held on May 11, 2009 in Dubai, discussed the rapid growth in number of private Egyptian satellite channels, and whether this growth in number gives a new shape of media in Egypt and the Middle East. The workshop was run by Hussein Abdul Ghany – the head of Al Jazeera office in Cairo, and attend by managers of major Egyptian private satellite channels as OTV, Mehwar, and Egyptian networks TV. "Although the Egyptian media was among the pioneers in the area in building the media infrastructure from satellites to the media city and technical expertise, yet the control of government over the Egyptian media and the lack of a true trial to create private media have hindered the rapid growth in media sector across the Arab region", mentioned Mr Osama Al Sheikh – head of Nile specialized satellite channels. "Private satellite channels were born out of the government womb, where it looks private but it is under government directions" he continued. The manager of Al Hayat TV – Mr. Mohamed Abdul Metaal commented that the Egyptian media still have a leading innovative role as major element of success in the field. Yasmine Abdulla – the managing director of OTV had a different opinion regarding the increase in number of satellite channels " it is a negative development since running a satellite channel requires huge amount of investment in the light of development for market expansion". Moatz El Demerdash elaborated on the content of Egyptian channels as "creating a new glory not through competition with other Arab countries but with itself and with – what he called- the government media". He asked whether the government in the future will allow for more freedom or will it interfere when the media agenda contradicts the government agenda (34).

In the light of strong media competition – whether at the national, regional or international levels – in efforts to exist on satellite scene, the sector of satellite channels in ERTU launched the Egyptian satellite channels 1,2 and the Nile international TV in October 6, 1993. The establishment of these channels was to mainly to reach the international target audience in Aisa, Australia, Africa, and Arab region and assure Egypt leadership on the media scene (35). " The Egyptian government wanted to take a piece of the satellite cake by taking advantage of two of the most powerful venues for cultural products in the region: Egyptian culture, which is the most dominant in the region, and the Egyptian Arabic dialect, which is still by far the most well- known in the Arab world.", mentioned Dr. Hussein Amin- former chair of mass communication department at American University in Cairo (36).

B: The landscape of the economics of private satellite channels in Egypt:

 The number of private satellite channels has been doubled in the past five years. Some channels start with a bouquet or more than a channel (as Al Hayat 1,2). Other channels start with one channel and add others after sometime (as Dream that added Dream sport, Modern Sport 1,2 that plans to add Modern Variety). Others prefer to establish their single channel and have long term plans of adding more to the bouquet (as Al Mehwar).  As confirmed by chairman of one satellite channel, the sole source of revenue is advertising. New techniques of advertising as chat bar, SMS calls, IVRs and direct response advertising constitute a very small portion of income.  Because most channels don't have the selling expertise of advertising space and in order to guarantee covering the expenses of the channel, they contract a media buying agency through a concession contract where the agency becomes the sole distributer of advertising time on the channel.  The cost of building up a successful channel is very high, as the content of the channel and it's strategy defines the viewership rates that attract advertisers. Because of the high costs of overheads, of preparing content of a good quality, most satellite channels can't reach the breakeven point and cover it's expenses.  Current affairs programs, followed by serials constitute the most important source of revenue for most channels as advertising demand is highly demanded around these specific programs. Some channels

have low rates of viewership over the channel as a whole, but has extremely high viewership on specific current affairs or talk shows programs.  The success of current affairs programs in attracting advertisers encourages channels to support creating more than a current affairs program. It can also be considered as a means of freely discussing politics which has been a taboo in the 20th century in Egypt.  The number of media buying agencies – which act as a liaison between the channel and the advertiser, is dramatically increasing. The market of media buying agencies in Egypt is fragmented between the following types: the international media buying agencies that handle international FMCGs as Proctor and Gamble, Unilever. Example of these companies are Zenith, Starcom. Most of these agencies act under the umbrella of multinational advertising agencies as Leo Burnett. The second type of media buying agencies is regional, that might have the control over distributing advertising budgets of specific multinational products in the Middle East, such as Fortune Promoseven. The third type, is the national media buying agencies, that either have concession contracts with one or more channels – as promo media and media line, or small agencies that have local and national advertisers, presents them below and sometimes above the line advertising services and reserve media through other media buying agencies that have concession contracts.  There are several research agencies which media buying agencies rely on when selecting channels for their clients of advertisers. Research agencies use the method of diaries or personal interviews conducted on sample of the Egyptian public. Among research companies are TNS, PARC and IPSOS.  The government provides a free environment in owning and airing programs- as confirmed by one media owner. Some channels are 100% privately owned, while other channels have a very small share of ERTU and Nile Sat – doesn't exceed in most cases 6%. "the minister of information is open minded and believes in the role of private sector because the private satellite channels are part of the Egyptian media and it can be the hand that defend the government point of view against any attack from outside or foreign media", confirmed the chairman of Modern TV.  The control of terrestrial channels in the hands of ERTU doesn't act as a hinder of advertising income for private channels. Despite the

fact that terrestrial channels have the highest viewership rates, yet, the spread of viewership of free to air satellite channels is dramatically increasing too. Anyone can easily realize it through the spread of dishes above the buildings in both urban and rural areas of Egypt. Both media buying agencies and private satellite channels commented on the developments currently happening in the Egyptian Satellite Channels of ERTU and the efforts being done to reduce advertising rates to attract advertisers to the Egyptian Satellite Network.

C: Testing hypotheses

The first hypothesis stated that: The more private satellite channels increase in number, the less advertising revenues they get as more space is distributed over the same advertising pie –ie, advertisers.

Both owners of channels and media buying agencies representatives agreed that the cutting edge of advertising revenues is the content of the channel which controls the rates of viewership. Media buying agencies base their selection of advertising spots in specific channels on both the viewership rates and the characteristics of the target audience. "When I have an advertiser whose product is used by adult males who are decision makers, I direct advertising towards current affairs programs, but when my target audience are ladies who are mostly housewives, I can use channels as Panorama Drama", commented the sales manager of one media buying agency. "The advertising pie in Egypt is limited. Due to the economic recession, most national advertisers reduced their promotional budget by 20-30%, but the number of advertisers stay as is, meaning that the advertising pie size is not changing, but what is changing is the demand on the different channels", mentioned the chairman of Modern satellite channels. Since the number of national advertisers is limited, and the number of channels that have similar strategies and their viewers match the same target audience of the advertiser, then media buying agencies can have more alternative channels for the same advertiser, and they will sure select the channel that gives the highest discounts to attract advertisers. To overcome the problem of reduced advertising revenues, one of channels owners in the sample is planning a strategy to build a new market of advertisers through attracting small and medium size advertisers who never

17 advertised in mass media before. With minimum cost of production, the amount of small and local advertisers can grow and draw a new cake of advertising for satellite channels. Therefore, the hypothesis which correlates the increase in number of private satellite channels and the decrease in advertising revenues has proven to be true.

The second hypothesis stated that: Despite the existence of innovative sources of income through new media and interactive media, it constitutes a minor source of revenue compared to advertising.

Owners of media channels confirmed that the percentage of income coming from other sources than advertising doesn't exceed 8% of total revenue coming to the channel. The most innovative sources of income are: program sponsorships, SMS messages, chat bar and incoming calls from viewers. Another innovative technique is the IVR – interactive voice-over recorded messages, which could be a sweepstake, competition, or service - as downloading mobile rings- that uses the number of 0900 and the caller receives a recorded message. The income comes from the agreement between the telecom company and the channel or the service provider. The most famous example for this type of promotion is the character of Detective Corombo, which was originally invented by timeline- Haitham Hamdy, which is below the line advertising agency that present several post production services to advertisers, and advertise on several channels, receiving millions of calls, covering expenses of prizes and generating fine profit shared between the service provider and the channel. However, some channels depend on chat bar and incoming calls as major source of income "mainly because they are very poor in content", elaborated a channel owner. "Program sponsors are considered as advertisers by satellite channels. In Egypt, they are either telecom companies or soft drinks companies", elaborated one media buying agency. "In an effort to treat their problems with media buying agencies, one sector which is considered among the large sponsors in Egypt- telecom sector recently decided to cooperate together, and use the spots system beside the current sponsorship programs they already have in different mediums. They said to themselves: nothing would hurt if two competing telecom companies act as sponsors for the same program as long as it will save them money", mentioned the chairman of one of satellite channels.

In conclusion, channel owners insist that all innovative techniques are secondary sources of income, compared to advertising which they consider their primary source of revenue. However, media buying agencies claim that innovative techniques – specifically the IVR- can also guarantee a good profit when it is well executed. Therefore, this hypothesis has partially proven to be true as per arguments from the sides of media buying agencies and media owners.

The third hypothesis stated that: The supporting industries that aid in raising the revenues of satellite channels are well established in Egypt.

By supporting industries, the researcher means two elements: - the precise measures of viewership rates through continuous research that can be used as a base for creating innovative techniques and programs to win readers or viewers. - and the existence of media marketing specialists who can sell advertising time or space The precise reporting of media users can foster changes in content and rescue media outlets from closing. One of the largest print media organizations – Newsweek faced a strong decline in print readership and consequently a decline in advertising pages due to increase in reading the magazine on the internet. John Mitchem, the magazine editor declared that the new Newsweek will concentrate on investigative journalism and hard discussions – but not biased, and decided to reduce the amount of regular news articles. They started with last week of May edition with an interview with President Obama (37). As for the viewership measuring of channels, the electronic meters are used worldwide to precisely monitor the rapid changes in viewership, so advertisers can be directed toward the most beneficial channels for them, and also responsible figures in media organizations can draw their future strategies and program maps, set prices for their advertising slots accordingly. "The cost of bringing meters to Egypt is very high," mentioned Dr. Amr Kais, the chairman of IPSOS – one of the leading research agencies that provide viewership rates. Almost all research agencies in Egypt use the diary method or personal interviews to measure ratings. There are several research agencies in Egypt that provide viewership rates, but they are not supervised by any entity. Therefore, their results might be tailored for the favor of some channels or might contradict each other. Despite the fact that all interviewees in the sample praised the results of research companies and

19 said they have similar results, still the researcher argues that viewership measurement should be supervised by a world audit company where all media producers and media buying agencies are part of it - as ABC – audit bureau of circulation in print media. The other element that supports media industries is the existence of media marketing specialists who can sell advertising time and space, who can look at media as a business and create successful marketing plans for media organizations. Because of the scarcity in media marketing specialists, most private satellite channels are forced to sign concession contracts with media buying agencies who act as a liaison between the advertiser and the channel, and creates a longer chain between the buyer (advertiser) and the seller (the satellite channel). The concession contract guarantees a fixed amount of income for the channel without having the load of having staff who can sell ads. One of interviewed media owners commented "it is a mistake that we sign a concession contract with a media buyer". So, based on most of the sample comments praising the activities of both research agencies and media buying agencies, the hypothesis has also proven to be true.

Hypothesis four stated that: The current environment of selling advertising space on satellite channels contribute to sustainability of channels in the future.

This hypothesis is concerned with the vision of the market of private satellite channels in forecasting the future. There has been conflicts regarding this issue. The media buying agencies see the market of media as healthy, and there is room for more and more satellite channels to start as long as they will have a different content that will position them in front of other competing channels. They also see good opportunities for small media buying agencies to grow, if concentrated on small and local advertisers. "Definitely, the market of advertising will survive despite the recession. Companies and manufacturers will never stop advertising, their products will be visible to the end user only through advertising", asserts the sales manager in one media buying agency. "The purchasing rate of products might slow down, and in this case the manufacturer either selects to reduce advertising expenditure or to increase it, but he will never stop advertising. Consequently I don't think the recession will be of influence on the channels", elaborated another media buying agency representative.

Other media buying agencies described the market of media buying as unorganized " the market of selling advertising to satellite channels is not organized at all. Every agency wants to make profits today and never look at the future. Some media buying agencies strive to add a specific advertiser to it's client list and they loose money for that. There is no cooperation between the different agencies. The market of media buying needs more transparency in dealing with each other". The side of media owners predict that the activities of some channels will stop and several channels will be forced to close - specifically after the coming season of Ramadan. They claim that the costs of having top quality programs and serials is very high, and is currently not covered by the advertising revenues. "I think anyone who plans to enter the market of broadcast media should have a mission, should use his medium as a tool for enlightening the public, should have a clear social value towards his society besides the economic value as a project. We should look at satellite channels as a golden opportunity given by government to practice freedom of expression", commented Dr. Rateb, chairman of Mehwar. Other media owners predicted that the survival will be for the strongest. "In the next phase, the survival of channels will be in the favor of alliances – not between agencies or advertisers, but between channels as for instance Modern and Rotana. Conglomerates of media business (companies that own more than a business related to media as Rotana) will need the support of other media businesses owned by different people", clarified Dr. Debes. Actually, this is true now at the multinational media scene. Recently, alliances happened between two of the world's strongest media businesses: Reuters – the largest news agency in the world, and Thomosn, the top multimedia agency in the world. In conclusion, the current environment of selling advertising space includes several intervening variables as the economic recession, the practice of media buying agencies, the current system of media marketing through specialized agencies and finally the world system of creating alliances and conglomerates through different media forms that support each other. Therefore, this hypothesis can't be proven to be true.

Summery and recommendations: Advertising plays a great role in achieving sustainability for private television channels, as it guarantees income that would cover the high cost of airing and producing programs for the channel. Modern technology presented innovative techniques of achieving income for channels, but yet, it still represent a small portion of income for satellite channels. The environment of private satellite channels in Egypt is flourishing due to the existence of basic supportive services as research that measures viewership rates and media buying agencies that is specialized in media marketing. Finally, there are several variables that interfere in predicting the future of private satellite channels in Egypt: the economic recession, the practices of media buying agencies, the current system of media marketing, the global system of alliances and conglomerates.

For the sustainability of the private satellite industry, the following recommendations for the field are needed: - There should be some sort of cooperation between the different private satellite channels in the area of detecting viewership research results. Electronic meters should be used instead of diaries to get precise results that can act as a basis for developing successful channel content strategies. - Discounts on advertising prices should be arranged between the different satellite channels, so they can all agree on a specific level of discounts and reduce the manipulation of media buying agencies with advertisers when distributing their spots across the different channels. - The chains of media buying agencies should be eliminated. Each channel must have it's own staff of media selling and dealing directly with advertisers who seek spots of specific programs. - Each satellite channel should have a clear mission and specific objectives clearly announced, so the audience can judge the content quality in the light of it's overall strategy. - Satellite channels must search for new and innovative techniques to generate income through production of programs that are new and different. Current affairs programs is a good idea to discuss social and political events of the country, but it can't be the sole type of program that is presented in all channels. Each channel should position itself differently and think of new ideas of programming that attract revenues. Creativity in program production never ends.

- Innovative techniques through tie-in promotional programs can be also used. Tie-in promotions are some sort of sales promotion that grants a discount offers for the advertiser when advertising over for instance two channels, or two different timings over the same channel. On commercial basis, tie ins are found through the cooperation of different commercial activities as an airline with a bank, a detergent with an appliance company and so on.

References: 1) Picard, Robert G. (2003) “Media Economics”, in:Ruth Towse (Ed.), A Handbook of Cultural Economics, Cheltenham, U.K:Edward Elgar Publishing, PP.301-305

2) Picard, R (1990) “Media Economics”, Beverly Hills, CA: Sage

3) Gulyas, A (2001) “Communist Media Economics and the Consumers- the Case of the Print Media of East Central Europe”, JMM- International Journal on Media Management, 3(2): 74-81.

4) Alexander A, Owers, J. and Rod Carveth (1993) “Media Economics, Theory and Practice”, Lawrence Erlbaum Associates, p.4-5.

5) Wolfsfeld, Gadi (1997) “Media and Political Conflict, News from the Middle East”, Cambridge University press, pp.2 -5.

6) Steven, S., Wildman, H. and Philip Napoli (2006) Economic Dimensions of Advertising Media Audiences, Journal of Advertising, Vol.35, no.2 (Summer), p.99

7) Steven, S., Wildman, H. and Philip Napoli (2006) Economic Dimensions of Advertising Media Audiences, Journal of Advertising, Vol.35, no.2 (Summer), p.99

8) Hamilton, James T.(2004) “All the News that’s Fit to Sell, How the Market Transforms Information into News”, Princeton, NJ: Princeton University Press.

9) Gomes, Orlando (2007) “The Dynamics of Television Advertising with Bloodedly Rational Consumers”, http://mpra.ub.uni-muenchen.de/2847

10) Smith, K.(1999). “Preprints versus Display Advertising: Which is More Profitable for Non-daily Newspapers?”, Journal of Media Economics, vol.12, pp.233-245

11) Broadcasting gloom, Economist, December 13, 2008, Vol. 389, Issue 8610, Business section

12) www.americanbusinessmedia.com/images/abm/pdfs/committees/ValueofAdv.pdf

13) Al Sharq Al Awsat Newspaper, Sunday, March 26, Issue no.9980, p.1

14) Alan H. Goldman (1980) “The Moral Foundations of Professional Ethics”, Totowa, NJ: Rowman & Littlefield, P. 234.

15) Louis Alvin Day (2006) “Ethics in Media Communications, Cases and Controversies”, Thomson Wadsworth, 5th edition, pp. 247 – 281.

16) Ibid.

17) Conrad C. Fink (1995) “Media Ethics”, Boston, Allyn & Bacon, pp. 140-141.

18) Andrew Kohut (2000) “Self-Censorship: Counting the Ways,” Colombia Journalism Review, (May-June), p. 42

19) Louis Alvin Day (2006), op.cite, p. 257.

20) Picard, R.G (2005) “Unique Characteristics and Business Dynamics of Media Products”, Journal of Media Business Studies 2(2): 61-69.

21) Richard A., Greshon and V. Ratnadeep Suri (2004) “Viacom Inc: A case study in Transnational Media Management”, Journal of Media Business Studies 1(1): 47-69.

22) Daphne Eilein L (2004). “Lightening the Load: An Exploratory Analysis of Divestiture Strategies of Major Media Firms”, Journal of Media Business Studies 1(2): 1-27 23) Everette ElD, Warley, S. and James S..(2006) “Doing Digital: An Assessment of the top 25 U.S. Media Companies and their Digital Strategies”, Journal of Media Business Studies, 3(1):33-51.

24) Kung, Lucy (2007) “does Media Management Matter? Establishing the Scope, Rationale and Future Research Agenda for the Discipline”, Journal of Media Business Studies , 4(1): 21-39.

25) Alexander, A. et als (1993), op.cite, pp. 44-45.

26) Fengler, Susanne and Stephan Rub-Mohl (2008) ‘Journalists and the information-attention markets: Towards an Ecomomic Theory of Journalism”, 9, 667, http://jou.sagepub.com/cgi/content/abstract/9/6/667

27) Alexander A, Owers J. and Rod Carveth (1993), Op-cite, pp.6-7

28) Albraran, A. B (1998) “Media Economics: Research Paradigms, Issues and Contributions to Mass Communication Theory”, Mass Communication an Society, 1(3/4), 117-129. Picard, R.G (2004). “The Development of Media Economics: History, Traditions and Research Approaches”, Media Economics & Culture, 2(2), 7-23.

29) Min Hang (2006) “The History and Development of Media Economics Research in China,” Journal of Media Business Studies, 3(2), 23-39.

30) http://www.nilesat.com.eg

31) Egen, B.M, Gershon, R.A. (1999) “Retransmission consent, Cable franchising, and market failure: A case study analysis of WOOD TV 8 versus Cablevision of Michigan”, Journal of Media Economics, 12 (3) 201-224.

32) McDowel, W. and Sutherland, J. (2000) “Choice versus chance: using brand equity theory to explore TV audience lead –effects. A Case study”, ”, Journal of Media Economics, 13 (4) 233-247.

33) Please see the outline of in-depth interview of discussion guide in the appendix

34) http://www.elaph.com/Web/Knowledge/2009/5/439190.htm

35) http://www.ertu.org/esc/ESC.html

36) http://www.tbsjournal.com/Archives/Fall00/Amin_Paris.html

37) Al Shorouk Newspaper, issue no.112, May 23, 2009, page 20.

Appendix

In-Depth interview Discussion guide March- April 2009

Introduction: Brief about the research topic, and why the interviewee is selected for interview. Full name and Administrative position is recorded.

Part I: the industry and media market at large:  In light of current economic recession, what is the consumer advertiser spending levels, when compared to three years ago?  We hear a lot about concentration of media ownership in hands of few personalities, as Prince Al Walid Ibn Talal. Does this sort of concentration of ownership has an impact upon Egyptian media? In what ways? How far this is happening in the arab media?  Does this concentration in form of conglomerates allow for political influence?  Has the increased competition in form of more fragmented and specialized channels been of influence on the broadcast industry in terms of consumer attention and advertising revenues?  On what way do globalization and trade balances has an influence on the following; o end product that is displayed o media consumer or the viewer o social welfare or the society.  What are the rules that govern media ownership in Egypt? Who gives the permission, and what are the conditions of having the license to establish a channel?

Part II: the organization itself: General structure:  Can I have information on the structure of the channel, when did it started, it’s business strategy, the capital breakdown, whether the government – or an international network – has a share in it  What is the culture of the company?

 How the channel is financed? What is the nature and sum of commercial advertising?  How far does your channel practice the 5 economic w’s? who cares about your product or who are your target audience? What are they willing to pay to find it? Where can advertisers reach these people? When it is profitable to provide the information or media content? Advertising and other sources of revenue;  How far your channel depends on advertising as major source of revenue?  Do you rely on other sources of income as sponsoring programs or SMS messaging service? What about IVR (0900)?  Have you ever had any kind of pressure from the part of advertisers? Programming and audience:  Have you conducted audience research to know the audience of your channel?  If you have current affairs program, that disseminates and interpret news, can we talk about it as a major source of attraction to audience and advertisers consequently?  if you have a current affairs program, what are the costs of investigation and research in front of benefits of professionalism and advertisers attraction.  Does the government interfere or put any pressure upon what to be discussed in the program?  Do you have any pressures or considerations when selecting what to air?

Part III: Forecasting future and industry & recommendations;  How can you forecast the future of broadcasting trends in Egypt?  What would you recommend as suggestions to improve both the content and the economics of the Egyptian private broadcasting industry?

Thank respondent and terminate ##