Film exhibition industry is expected to incur 80-85% decline in revenue in FY21
Most multiplexes are at present relying on library content and have had only a handful of new film releases.
As the coronavirus pandemic continues to wreak havoc around the world, businesses across sectors took a hit this year. While some are recovering in the second half of the year, others seem to still be in its grip. After being shut for seven months, theatres, despite being open now, are expected to take a 80-85% YoY hit this fiscal, according to credit rating agency ICRA Ltd. Similarly, print media which took a massive hit in distribution, is expected to register 30% YoY decline in revenues in FY2021. However, with advertisement back on track, ICRA estimates television to register 15-20% decline in revenue. “While the credit metrics of film exhibitors will weaken materially in FY2021 due to the pandemic, ICRA expects a moderate impact on the credit metrics of entities involved in print media and TV broadcasting segments,” the reported stated.
As per the report, Within the M&E industry, the pandemic took its biggest toll on the film exhibition segment. The film exhibition industry is characterised by high fixed costs. Around 40-45% of the total cost of the film exhibitors (primarily multiplexes) is fixed in nature, with lease rental being the major component, accounting for 20-22% of the total cost. To reduce the cash burn, multiplexes embarked upon a stringent cost rationalisation drive. While ICRA’s previous estimation came to 66% reduction in fixed costs for the multiplexes during the shutdown period, the actual (fixed) cost savings reported by multiplexes stood higher at 77% YoY in H1 FY2021.
While cinema operations have started in most states (excluding Jharkhand (barring Raipur), Chhattisgarh, Odisha and Rajasthan as of November 26, 2020), the occupancy levels at multiplexes, are at present very low at mid-single digit levels (of the permitted capacity). Most multiplexes are at present relying on library content and have had only a handful of new film releases (with the exception of West Bengal, which saw six new releases during the Puja time). The cinema halls are facing problems with content acquisitions as film producers (especially Bollywood) are not doing theatrical releases of new big blockbuster films, given the lack of visibility on footfalls. As per ICRA, the occupancy levels of theatres is expected to remain subdued during the balance four months of FY2021 as consumers are likely to stay away from enclosed places, amid rising cases of covid infections, forcing movie producers to shift to digital platforms. The report states that the ATP will remain sub-Rs 150, as multiplexes shall continue with their promotional offers to attract cinema goers. All of these will result in lower ticket sales and F&B revenues, which together constitute around 82-85% of the total revenues of an exhibitor. In the absence of fresh content, advertisement revenues will also remain muted. “Such a pronounced revenue decline will lead to operating losses for the film exhibitors, though the industry’s (multiplexes) 2 monthly cash burn will reduce from Rs. 57 crore in H1 FY2021 to Rs. 25-30 crore in H2 FY2021 supported by the sequential uptick in revenues and increased cost rationalisation,” the report highlighted.
For print media, ICRA’s sample set reported a 53% YoY decline in revenues in H1 FY2021 led by a decline in both advertising and circulation revenues. While the former declined by 59%, the latter registered a 27% drop. As corporates reduced their advertisement spends amid the pandemic, print media registered a 76% YoY decline in Q1 FY2021. However, advertisement revenues almost doubled in Q2 FY2021, though they remained lower by 43% on a YoY basis. Consumer durables, e-commerce, automobiles and education remained the top contributors in terms of ad-spends during Q2 FY2021. Similarly, circulation revenues also posted a sequential growth of 9% in Q2 FY2021, though they remained lower by 23% on a YoY basis, impacted by sporadic local lockdowns. Nonetheless, there has been a month-on-month recovery in newspaper circulation. With 78% of total revenues of the print media segment contributed by advertisement, a decline in the same will adversely impact the profit margins of print media companies, though ICRA expects the same to be partly offset by savings in newsprint costs. ICRA expects the OPM of print media entities to contract YoY by up to 200 bps in FY2021.
TV broadcasters in ICRA’s sample set reported a 21% YoY decline in revenues in H1 FY2021. Advertisement revenues witnessed a sharp 40% YoY decline in H1 FY2021, though the same was partly offset by the 9% YoY growth in subscription revenues as subscribers increased their TV viewing during the pandemic. Since advertisement revenues account for more than 55% of the total revenues of TV broadcasters (and even 100% in case of free-to-air channels), decline in these, adversely impacted the OPM of TV broadcasters, which contracted to 26.6% in H1 FY2021 vis-a-vis 31.6% in H1 FY2020 (for ICRA’s sample set).
Advertisement revenues posted a strong sequential recovery of 86% in Q2 FY2021 (albeit on a low base), though they were lower by 20% on a YoY basis. The sequential growth was aided by the lifting of the lockdown, easing of restrictions and resumption of fresh content on GECs with effect from June 2020. Genre-wise, GECs regained their popularity and market share that they had lost to news and movies during the lockdown. FMCG, ecommerce and consumer durables remained the top contributors in terms of advertisement spends in Q2 FY2021. “ICRA expects the TV broadcasting industry to witness YoY contraction of 15-20% in revenues in FY2021. This stands slightly revised upwards from ICRA’s earlier estimates of a revenue contraction of 18-25% in FY2021, given the higher-than-expected growth in subscription revenues in H1 FY2021 and stronger YoY recovery in advertisement revenues since Q2 FY2021,” the report estimated.