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ased on a Nielsen AC survey in February, Media Nusantara Citra'€™s audience share reached 36.2 percent, down 90 bps month-on-month (mom), leaving it still the dominant player in the industry, with RCTI also experiencing improvements (20.1 percent in February 2016, 100bps mom).

Despite MNCN'€™s audience share dropping from a record high in January, current market share remains strong, and is indeed the third-highest level in past years.

For Surya Citra Media, audience share in February improved slightly to 26.3 percent (+110 bps mom), on major improvements in Indosiar (IVM) (14.9 percent, +230bps mom) thanks to the launch of D'€™Academy 3, which is being aired between February and May. The show is one of SCMA'€™s efforts to regain viewership given its historical success as a popular talent show following the decline in Indosiar'€™s share to 12.6 percent (-400bps mom) in January.

However, we expect the effect to be temporary, as D'€™Academy 3 will only air until May.

Meanwhile, SCTV'€™s audience share dropped to 11.4 percent (-120bps mom) despite having the channel'€™s launch of a new outsourced drama series, taking on tough competition within the sinetron (soap opera) sector, which also includes RCTI'€™s Anak Jalanan and an increasingly popular Turkish sinetron from ANTV, which saw February audience share of 14.3 percent (+50bps mom).

Looking ahead, the launch of popular new programs, as well as the broadcast of the Euro 2016 soccer championships, should allow MNCN to retain its audience share dominance, helped by the addition of TV stations to its portfolio.

This will also allow MNCN to benefit from the increasing presence of internet players in TV ads, which may contribute up to 10 percent of media companies'€™ total 2016 revenue.

Additionally, MNCN'€™s integrated programming strategy, with full control over talent management and production house capability of creating 15,000 content hours per annum, should prove able to cater to the growing demand for local content in Indonesia.

It is also worth noting that although MNCN does not sell its local content to any other local pay-TV providers, we believe there is room for cooperation with Netflix in supplying local content ahead.

Based on our study on the ground, we suspect fourth-quarter 2015 TV ad volumes to have increased quarter-on-quarter with augmentation in the first quarter of 2016 on higher rate card realization. That said, we retain our 7.5 percent 2016 revenue growth assumption for SCMA, mostly backed by higher rate cards in December 2015.

Greater increase would require a sustained SCTV audience share improvement and MNCN'€™s share dominance as the market leader, paving the way for increases in the industry'€™s overall rate cards.

As we still expect minimal contributions from its content business this year, SCMA'€™s earnings growth support will come from lower US-dollar programming costs on BPL termination in May 2016, coupled with plans not to broadcast European multi-year shows this year.

For MNCN, the 2016 top-line support should come from proportionate increases in rate cards and volumes, which we attribute to market-share dominance and a recovery in TV ad spending stemming from consumer companies'€™ appetite for TV ad spending. On the cost side, worth noting is the completion of MNCN'€™s four integrated studios, which could lead to substantial savings in rental cost per annum.

Overall, we retain our neutral view of the media sector (FTA TV) given that the recent fourth-quarter 2015 GDP improvement to more than 5 percent has not been accompanied by higher FDI and consumption trends.

This is likely to result in soft ad spend, particularly in the first half of 2016, before seeing material recovery in the second half. Additionally, based on our channel checks, consumer-related companies currently continue to opt for direct marketing (e.g. providing samples to their consumers) and online ads, which they perceive to be not only cheaper, but also more effective.

Nevertheless, with the dominance of MNCN and SCMA, which have a combined audience share of 62.5 percent (as of February), these two companies are set to benefit most from upticks in ad spend ahead given their solid bargaining power, stronger cost structure and more diversified portfolios, with substantial library content. In the emergence of digital ads, we still expect no significant impact on FTA TV players like MNCN and SCMA given that most digital ads users (e.g. e-commerce players) are selling products with a mass demographic as the target market.

The nationwide coverage of FTA TV provides a lower effective cost-per-rating unit (CPRP) than a digital platform can offer for video-based ad-content. This, coupled with a continued lack of internet infrastructure across the country, means we still expect digital ads to grow at the expense of print media (as a closer substitute) rather than FTA TV (more as a complement), at least over the next two to three years.

This landscape, however, may change in the face of TV digitalization. We also still see no direct significant threat for FTA TV players on the presence of new pay-TV providers (e.g. Netflix), including OTT and IPTV, which cater to very different target markets.
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The writer is an equity research analyst at Bahana Securities.