According to informed sources Claro’s measured advertising expenditure for 2010 within the Jamaican market was estimated at between 350-400 million Jamaican dollars. Arising from this level of spend main competitor Digicel was from all accounts required to match and or exceed that in an effort to secure and maintain market dominance. This spend would also have impacted on LIME advertising expenditure during the measured period.

The source suggested that the estimated JA$1Billion spent by the telecoms in 2010 will be significantly reduced for 2011 as a result of the acquisition of Claro Jamaica by Digicel and the expected withdrawal of the brand and its advertising spend from the market.

It is widely felt and accepted in some quarters that Jamaican media is largely been kept afloat financially by the significant advertising spend arising from the intense competition by these telecom players.

Notwithstanding the significant expenditures in 2009 leading into 2010 the principal media players Gleaner Company and RJR Group both produced reduced revenues during this period and forecasted even further reductions in revenues and profits going into 2011.

Such a dismal forecast in advertising revenue for the upcoming period will have to be offset by containing expenses and other cost cutting measures. Compounding this factor, media houses are already attributing the poor advertising revenue intake to difficulties being experienced by businesses which are unable to launch new products and have had to cut back on promoting existing products.

This was all viewed in the absence of any knowledge of the planned acquisition of Claro by Digicel.

Gary Allen RJR Group Managing Director

“In fact, business that has been booked directly with us or through advertising agencies is down and down significantly in some sectors. Our radio and television brands have produced better audience results this year than they did last year but the simple fact is that the advertising market is shrinking and is virtually in a depressed state.”

“The present state of the economy and what is on the horizon suggest that for the next two quarters, buoyancy will not return to the advertising market, nonetheless, we will continue strident cost containment and aggressive selling approaches emphasizing our own strengths and diversity .” Gary Allen RJR Group Managing Director is reported to have told shareholders at a recent AGM.

Jermaine Burrell, Senior Economist & Sovereign Research Manager at Jamaica Money Market Brokers indicated in a published report on the Gleaner Company that for the nine month period ending September 30^th 2010, total revenue for the review period declined by 1.4% due in part to reduced economic activity and increased competition for advertising revenue both locally and globally. However, the Gleaner was able to increase gross profit by 1% via a 4% (J$47 mill) reduction in cost of sales. Cost of sales declined due to the reorganization of newspaper distribution and a revision of cost of distribution to cost of paper ratios.

Mr. Christopher N. Barnes Managing Director (l) and Chairman Hon. Oliver F. Clarke, OJ, LLD.(r)

Jermaine Burrell in his report dated Monday, 07 March 2011 indicated further that “The Gleaner is well positioned to benefit, via advertising revenue, from the ongoing competition between Jamaica’s telecommunications companies (Digicel, CLARO & LIME) both from the perspective of the print (Gleaner, STAR etc.) and electronic media (Radio, Internet). The company is also strategically positioned to benefit as economic activity recovers. Given the company’s current position of profitability, due to cost management, as the economy improves so should sales and advertising revenue.”

Under the heading “What We Don’t Like About the Stock/Company” Burrell reported the following.

“Like all companies in the communications sector, advertising revenue and sales are the major drivers of growth and profitability. While the international economy is showing signs of recovery, the Jamaican economy will take time to respond to the global growth if the global growth is sustained (Euro crisis and PIGS remains a concern). Consequently Jamaican companies will be cautious in terms of marketing and advertising until there is a clear and sustainable recovery path shown by the “Jamaican Economy”. It is also important to note that many companies still view their advertising departments as a cost centre and they tend to be the first to be scaled back during a recession and possibly the last to be re-established after. Whether this is an incorrect strategy or not, it tends to be the practice.”

Word out of the outdoor advertising sector is that cancellations of advertising boards are already coming in. The sector is estimated to generate JA$5Billion (2007 estimate) in revenues.

The proposed acquisition of Claro Jamaica by Digicel is still awaiting final approval by the OUR and FTC in Jamaica, and a number of influential voices including that of Phillip Paulwell the former Jamaican telecommunications minister, credited with liberalizing the telecommunications sector, have already wade into the matter, raising deep concerns and objections to the proposed deal.BM

Compiled from various published sources.