Conflicting sentiments

Written by Sudipta Datta | Updated: Feb 29 2012, 05:38am hrs
We have been told over and over that entertainment is recession-proof, and while some of the top listed entertainment companies did report good numbers for Q3FY2012, there are quite a few which stumbled for a variety of reasonsfresh investments, restructuring, dip in ad spend, fall in sales and so forth.

Even as Walt Disney announced that it was acquiring a controlling stake in UTV Software and Communications, the entertainment company, which operates in five verticalsbroadcasting, gaming, motion pictures, digital content and television contentreported a net loss of R96.19 crore for the quarter ended December 31, 2011, against a consolidated net profit of R39.98 crore for the same quarter last fiscal. Interestingly, these are the last earning figures we will get to see from UTV as Disney is already in the process of delisting it from the stock exchanges. While no one at UTV was available for comment in the post-Disney scenario, analysts say that UTV has had a see-saw nine months with broadcasting, motion pictures and gaming registering losses. If there was pressure on margins in Q1 and Q2 (net loss R27 crore), there was a sharp dip in the bottomline in Q3.

For the quarter, the gaming business reported a loss of R7.92 crore, but analysts say what is worrying is that revenues for the quarter from this unit are down by over 40%. The motion pictures division too reported dip in profits. It had logged in the best performance in FY11, but though Q1 and Q2 showed a dip in profits, it registered a loss of R18 crore in Q3. As a result, UTVs consolidated net sales for the quarter declined by 38% to R158.43 crore, from R255.14 crore in the same period last fiscal.

Fast growing media and entertainment firm Reliance MediaWorks (RMW), too, reported a sharp net loss of R151 crore for the third quarter. RMW is in the midst of restructuring, and though none of its officials were available for comment on a dismal quarter, sources say some of its units like broadcasting are under pressure. Though three of its films Singham, Bodyguard and Don 2 entered the R100 crore club and narrowed losses, its Q3 net sales also showed a marginal dip of 3.69% to R207.34 crore. Reliance is in the process of hiving off its exhibition, film and media services verticals into 100% subsidiaries.

With Bollywood churning out good content and Hollywood digging deeper, the exhibitors have done well during the quarter. Even RMWs exhibition business, BIG Cinemas, achieved cash break-even during the quarter.

Exhibition firms like PVR reported better-than-expected results during the quarter. According to an ICICI Direct report, the topline for the company stood at R139.0 crore against expectations of R134.2 crore, growing 4% year-on-year driven by good quality of content and higher footfalls. Proft after tax for the quarter stood at R9 crore against expectation of R6.1 crore, improving from a loss of R4.8 crore in Q3FY11. Nitin Sood, CFO, PVR, says the exhibition side had done well with PVR multiplexes witnessing a 15% growth in footfall in the past nine months. Last year, we had invested a lot in the production side but now we have slowed down investment in production. We have just one film, Shanghai. The production business is volatile and profitability is unpredictable, he says. PVR is expanding its exhibition business, going into tier-2 and tier-3 towns. The exhibition side is our core business and in the next 12-18 months, there will be a huge rollout and we should add 70 new screens by December 2012, he adds. While PVR is consolidating its presence in key big markets, adding screens in Chennai, Delhi, Bangalore, Mumbai and Hyderabad, it is also venturing out to new cities like Pune, Kolkata, Dhanbad, Ranchi and Jamshedpur.

Sood says the company is also paying significant attention to the food and beverage segment. When people come to watch a movie, they spend R40-45 per person on an average on food. We are looking at the retail space to complement our core business, he adds. But Sood also cautions that one of the key challenges in the exhibition space, and which could impact business, is in the regulatory space. The tax regime is harshfor instance, the entertainment tax varies between 20-65% and some like UP and Tamil Nadu charge up to 65% and 40%, respectively. This is putting great pressure on our margins. We are looking for some clarity on the tax issue, he points out.

For Eros International, three big releases, a sensible business model, foray into regional helped revenues for the quarter up 46% to R408 crore and net profit up 48% to R65 crore. We had three big releases, Rockstar, Ra.One and Desi Boyz; we got good revenues from both theatrical and satellite rights and there was a good contribution from regional languages, says Kamal Jain, CFO, Eros. We managed to hold on to healthy margins16% during the quarter, he adds. The regional business now contributes 15% to revenues and this is going to grow for Eros. Analysts say the the business model Eros has been following for the past three years has helped it to stabilise returnsreleasing a slate of films that include big, medium and small; focus on distribution; and venturing into regional. Their risks are being hedged, say analysts. For instance, during the quarter, it released 19 films, six in Hindi, 12 in Tamil and one in Marathi. Its distribution strategy, too, has paid off.

For broadcasting companies like Sun TV or Zee Entertainment, the digitisation of the cable industry will help them consolidate revenues. Zee Entertainments revenues in the third quarter saw a dip with companies going slow on ad spends. Zees Q3 revenues were pegged at R755 crore compared to R825 crore in the same period last fiscal. Net profit was down to R138 crore against R156 crore in corresponding period in 2010. Analysts say the intense competition in the general entertainment category on television, the slowdown in ad spendad revenues were down 10% in the quarter to R395crorehave impacted the quarter earnings, but point out that Zee was aggressively building up its subscription revenues.

For Q4, analysts say most entertainment companies are optimistic about growth in double digits, but are anxious about cost constraints, regulatory issues and a moody economic sentiment that could impact both the topline and bottomline.