Earnings of media companies in the first quarter of 2011-12 have been defined by muted growth in advertising revenues, owing to softening of ad spends in sectors like FMCG, telecom, auto, banking and insurance.
With R1,500-1,700 crore sucked up by World Cup and IPL, major advertisers in the broadcast space cut back their ad spends by more than 20%, resulting in low single-digit ad growth for TV majors Zee Entertainment Enterprises and Sun TV Network.
?The weakness in the first quarter was pronounced due to sharp fall in ad volumes, as advertisers held back inventory,? Rahul Kundani, analyst ? institutional research, SBI Cap Securities, said.
FMCG companies constituting 50-70% of ad revenues for broadcasters cut back on ads. HUL?s ad spends declined 16% year-on-year (y-o-y), according to SBI Cap. Kundani added, ?Gross margins of FMCG companies are under pressure because of rising raw material costs. Hence, they?re spending less on advertising.?
Zee Entertainment Enterprises recorded a PAT growth of 7.6%, but its margin contracted 528 basis points to 22.3%, owing to dismal growth in ad revenues (0.5%), higher content costs and sports losses. While its domestic DTH subscription revenues grew 13% quarter-on-quarter, HD feeds of Ten Cricket during the India-West Indies series led to a rise in programming cost, taking losses to R56.6 crore in its sports business.
Nikhil Vora, MD, IDFC Securities, said, ?Besides poor growth in ad revenues, Zee Entertainment Enterprises spent R21 crore in re-branding and also ventured into a new media business, leading to a rise in overhead costs. Content costs went up to 49% of sales compared to 45% in Q1 FY11, putting more pressures on margins. International revenues also declined by 10%.?
Meanwhile, Sun TV registered an ad growth of 5%, while PAT and ebitda grew by 10% and 2% respectively. According to Kotak Institutional Equities, lower ad spends by FMCG companies, which are amongst the top advertisers on Sun, affected ad growth, while higher costs of film satellite rights led to margin pressures.
?However, a 12-15% ad growth is expected for Sun, which will be driven by impact of rate hikes in its non-GEC channels and the launch of five to six new channels this year,? Shobhit Khare of Motilal Oswal Securities said.
The network?s leadership position in the South and its strong film library content is expected to drive advertising volumes during the second and third quarter.
For TV18 Broadcast, Q1 performance was driven by Viacom 18, which reported a revenue growth of 16% and an ebitda of 50%. Viacom 18, which operates Colors, garnered 9% ad revenue growth, while its general news operations achieved break-even during the quarter. ?With a bouquet of the strong properties across genres, TV18 is a key player. Its investments in new channels will lead to an increase in subscription income. However, ad environment continues to be challenging,? Vora added.
