Show me the money

Written by Sudipta Datta | Updated: Jun 20 2012, 06:35am hrs
The economic downturn is bound to impact different parts of the media and entertainment sector differently, but at least films and TV are finding out ways to tide over a difficult period when liquidity is tight

Television and films, two of the top sectors of the media and entertainment industry, are banking on the inexpensive viewing experience to tide over a difficult economic period. As concern about the global, especially Europe, and Indian economy grows, GDP figures are pared down, theres a squeeze in advertisement spending, all this accompanied by a stalemate in policy decisions in India, the TV and filmed entertainment sectors are almost thankful that we are not a very high priced item. Consumer spending on luxury goods, including holidays and high-end gadgets, is already down as reports suggest.

Says Sanjeev Bijli, joint MD, PVR, We are not an expensive form of entertainment. And even if there is a slowdown, people do need to get entertained, and thankfully consumer spending is unlikely to dry up for low-price tickets.

Sunder Aaron, business head, Sony PIX, goes a step further and says there is likely to be no impact on TV during a slowdown on the demand side because TV viewing is even less expensive than going to a multiplex. At a multiplex, one outing for a family of four is likely to cost more than R500, while on the direct-to-home platform a whole package will cost less than R200, he points out.

But both Bijli and Aaron agree that there is bound to be some impact of the slowdown on the supply side. We are in the multiplex business which is dependent on mall infrastructure. Theres likely to be slippages of around 10-15%, admits Bijli. But he also says that PVR is on course to add 80 screens this year. We plan to add 70 screens next year. We are unlikely to see a delay in bulk of the projects though some slippages are unavoidable, he adds.

The stalemate in policy decisions is very frustrating for entrepreneurs. There are no progressive policies being announced. Taxation issues for the sector are yet to be sorted out. We have been waiting for GST for the last four years. We are still waiting for retail FDI. India could have done without this stalemate, says Bijli.

With the slowdown in the real estate sector, its a fact that many developers are out of funds, points out Deepak Marda, joint MD, Cinepolis India. The whole mobilisation of resources will affect our opening schedules. Mall projects are bound to be delayed, because funds are tight, he adds. Cinepolis India has 44 screens now and hopes to add 70 more by the end of the fiscal.

The challenge remains on the supply constraints because infrastructure developments funds have slowed down, says Marda. On top of that there are bureaucratic delays and the entertainment tax is heavy.

But still people do flock to the cinema when the chips are down, says Marda. And the filmed entertainment business is enjoying the moment. Three Bollywood films have crossed the R100-crore mark at the box office in the first six months of the year, Agneepath, Housefull 2 and Rowdy Rathode and even small films like Vicky Donor did very well at the box office. The next five years will be the best time for the filmed entertainment business, says Kamal Jain, CFO, Eros. Filmed entertainment is growing at a CAGR of 15% and now films are being monetised much better too with satellite and music rights growing aggressively, he adds.

The filmed entertainment sector was badly hit in the meltdown of 2008 and has learnt some lessons, especially in controlling costs. Margins have been improving post-2008, says Jain. There has been cost optimisation across the industry. We are working on a co-production model with top actors thus making them profit-sharing partners. Costs are not increasing as much as revenues are, he points out.

But still Aaron agrees that the general economic slowdown will make companies prudent about money spent on marketing. Theres going to be a squeeze because of the many challenges we are facing, both domestically and internationally. So, though the Indian growth rate is still good compared to many economies, the fact that our currency is devaluing means exports wont prop us up. We are facing problems on inflation. And because of the international downturn, MNCs who advertise may curb spending, he points out.

Aaron says that for television, the growth story is coming from tier II and III towns. If you take the English movies genre, the category continues to grow 25%, and while we were focused on metros earlier, we are now moving into tier II and III towns, he adds.

Slow year for entertainment

KPMGs head of media and entertainment, Jehil Thakkar, says that when the M&E sector growth projections were announced in February, we had factored in the fact that this will be a slow year of growth for entertainment. The last six months of 2011 were challenged for advertisement. And though different segments will get impacted differently, the M&E sector will see double digit growth, he adds. The heartening factor for the sector is that consumer expenditure in the hinterland is growing and advertising is focussed on regional. This year we dont have big policy changes and we are expecting a slow year of growth anyway, he adds.

The over-all television industry was estimated to be R32,900 crore in 2011, and expected to grow at a CAGR of 17 % over 2011-16, to reach R73,500 crore in 2016. Films, on the other hand, is projected to grow at a CAGR of 10.1% to touch R15,000 crore in 2016. The industry was pegged at R9,300 crore in 2011 indicating a growth of 11.5% vis--vis 2010.

Nikhil Rangnekar, CEO, media audit business, Spatial Access, says the entertainment sector saw a big downturn during the last recession in 2008 since consumers opted to stay away from theatres.

A family of four on an average ends up spending upwards of R1,000 in the metros on one outing and consumers definitely cut down on their cinema going habits. The impact this time would be similar. Media might not be affected so much since mass media consumption like TV, print and radio is cheap and OOH is practically free.

The slowdown in the economy is bound to have an impact on ad spend. How will TV cope since it is heavily dependent on ad revenues Says Rangnekar: There are a large number of categories/clients/brands which remain largely unaffected in an economic downturn, FMCGs being a prime example. Also we have learnt from the last recession that consumers downtrade in almost each and every category. The ad revenues would, therefore, shift within brands and categories and would not have a large impact on TV revenues.