A year of contrasts for media and entertainment sector

The year 2011 presented a tale of contrasts for the media and entertainment sector. The R65,200-crore industry, dependent on advertising for 60% of its revenues, oscillated between the highs of the cricket World Cup in February-March and the lows of an advertising slowdown in the latter half of the year as companies slashed their ad budgets by 20-30%.

After the advertising blitz during the World Cup and the Indian Premier League or IPL, telecom, FMCG, auto and banking companies, which contribute 70-80% to television revenues, reduced their ad spends, leading to low single-digit advertising growth for broadcast majors Zee Entertainment Enterprises and Sun TV Network, during the April-June period.

?In the first half of the year, companies went out of their way to invest in cricket,? says Samir Khanna, media head (west) at Mudra Max, a media buying agency. ?Later in the year, they rationalised their ad budgets as their bottom line got eroded.?

While long-term ad deals remained unaffected, spot rates fell by 15-20% in July-August, as FMCG companies, which constitute 50-60% of advertising, reduced spending by 15-20% for the first time in three years.

Companies said they will maintain a cautious stance in ad spend, going forward. ?Given the inflationary environment and the moderation in demand, there will be some cuts in ad spend and we?ll avoid going over the top,? said Harsh Mariwala, CMD, Marico in an earlier interaction with FE.

Advertising picked up slightly during the festival season in September-October. The industry, however, is likely to post an advertising de-growth this year, say media buyers, broadcasters, brokerages and consultants.

?TV advertising will grow between 12% and 14%, against a projected 20% growth at the start of the year,? said Farokh Balsara, leader, media & entertainment for Europe, India, Middle East and Africa at consulting firm Ernst & Young India. ?During a slowdown, the feel-good factor disappears and advertisers don?t like taking additional risks.?

The broadcasting space is looking at a single digit ad growth this year. ?They were badly hit after the World Cup,? a media analyst at a Mumbai-based brokerage said. ?October was good but there was an overall softness in TV advertising.?

Broadcasters like Sony Entertainment Television (SET), however, refute claims of single-digit ad growth. ?The year has not been as bad as it?s being made out to be,? Rohit Gupta, president-ad sales, SET, said. ?Marketing and below-the-line activities were hit due to the slowdown, but TV advertising didn?t suffer as much.?

He, however, is cautious going forward. ?The next year could see a further slowdown in advertising and channels with lesser ratings might find it hard to sustain,? he said.

With advertising slowing down, there could be more dependence on subscription revenues in the coming year. ?2011 saw a shift towards subscription revenues,? Balsara of E&Y said. ?From a 20% share, subscription increased to 30% of the overall revenue pie and this will be the trend ahead.?

The broadcast industry also witnessed some consolidation, as arch rivals Star India and Zee Network entered into a distribution joint venture in order to curb piracy and reduce under-declaration by local cable operators. The JV distributes 65 channels under the name of Media Pro Enterprises.

While broadcasters faced an advertising slowdown, the information & broadcasting ministry?s mandate for cable digitisation brought cheer to direct-to-home (DTH) operators and digital cable companies. The government has made it mandatory to digitise television services or distribution of broadcasting signals through the digital medium, across all urban areas by 2014. For subscribers, this will improve the quality of services they get, while for broadcasters, it means more revenues from subscriptions.

Once the first phase of digitisation happens, media consultants expect the industry to attract more investments, both from foreign cable companies and private equity firms. ?The future of the DTH sector will depend on the speed at which digitisation is implemented,? E&Y?s Balsara said. ?Once 30-40 cities are covered, we might see PE funds and even foreign investors picking up stake in cable companies.?

?With digitisation being made mandatory, 2012 will be exciting for the sector,? Harit Nagpal, managing director and chief executive, Tata Sky, said. ?However, 2011 has been tough for DTH companies owing to excessive taxation and declining subscriber additions.?

Though DTH subscriptions fell in the last three quarters, margin trends improved because operators increased prices of their set-top boxes and subscription packs. ?The industry will end the year with 37-39 million gross subscribers,? Tata Sky?s Nagpal said.

For print media companies, high cost of newsprint and low advertising continued to pose challenges. ?Firms cut down pages and rationalised their circulation,? a Mumbai-based media analyst said. ?The print sector will grow by 10-12%.?

The year 2012 is poised to see a strong growth in the digital media space, as internet penetration increases in the country. ?Most companies will make inroads in the digital space and that will be the way to go,? Balsara added.