Fiona Orford-Williams, Director, TMT of Edison Group discusses the problems facing the media sector, and how AI is impacting the industry.

The media sector is experiencing ongoing underperformance, largely driven by a sustained lack of consumer confidence across major economies. This has led to brands being cautious with their marketing investments, resulting in a cycle of optimism for future recovery that has yet to materialize. 

Artificial intelligence is also playing a significant role, causing disruption as business models adapt to new technologies. While AI has been integrated into the sector for some time, its impact remains uncertain, and the transition has been uneven. Despite these headwinds, lower sector valuations may present opportunities for investors, particularly for those focused on platforms with strong proprietary data and customer relationships.

Why the media sector is underperforming

I think one of the biggest dynamics is still the continuing lack of consumer confidence, and that's across all the major economies that contribute to the sector. And that's affecting how much brands are prepared to put behind their products in the market. What's happened for a number of, well, for about three years on the trot now, is that we've started the year with people saying, you know, the first half is going to be a bit tricky, a bit sticky. We don't know what's going to happen, but we're still very confident for the full year outlook. But guys, it's going to be weighted very much the second half. And, you know, it's rinse and repeat. Here we are again, still waiting for those, that positivity to filter all the way through. So that's undermining confidence a lot. And then, as you rightly point out, the impact of AI. I don't think it's right to see AI just as a detractor from the sector. I think we're just in very much a process of transition. So business models are having to be adapted. And it's very interesting talking to my colleagues who cover different sectors, just to realise how far in advance media sector operators are in adopting AI into their business models. So it's disruptive. Nobody's quite sure what's going to happen at the other end. But AI is already being used. It has been used for a long time in the sector. But you're right, it's jerky as we go through the process. I would like to discuss the impact of AI in more detail for just a moment, because we did see fears in terms of what AI could mean for the sector back in 2023. This is not really new. And at the time, some analysts actually suggested that that was a good entry point into the sector. I'm trying to understand whether this weaker performance that we have witnessed as well in recent times could also mean an entry point for some investors. Oh, absolutely. I mean, if you look at the valuations across the sector, I mean, it used to be the sort of truism that you never really go wrong investing in WPP when it dipped below £6. If you tried that this time round, it would have been a little bit of a different story. So yes, there will be opportunities. And the other thing is that the valuations now are so low that obviously slide rules and corporate finance departments are looking at the opportunities. What they need to check is actually what they will be buying. And really, at the core of this, there are a lot of platforms. What they really need to look at is the volume of data, because owning the data and having access to proprietary data is really the linchpin of everything. And they also need to look at the customer relationships, because those are very valuable going forward.

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Breakdown