Jagran Prakashan is launching digital portals in regional languages. Network 18 is launching a platform for kids. Entertainment Network India Limited is expanding into content beyond Radio. Media & entertainment companies are working in new strategies that are imperative if they are to navigate an environment that is riddled with changes and complications.
For the 900 satellite TV channels, 1,14,820 registered Print publications, 2,500 multiplexes, close to 400 private FM Radio stations and more than 400 million Internet users in India, the year 2019 has been eventful indeed so far. Not only have there been big ticket events such as the Assembly elections and Cricket World Cup, but also several regulatory changes. However, the biggest impact all around has been that of deceleration of the GDP growth rate – the ubiquitous slowdown. It has driven the corporate world to exercise caution, in turn affecting the quantum of advertising revenue in the entire media & entertainment sector.
Earlier in November, Moody’s Investors Service cut India’s economic growth forecast to 5.6% for 2019, from an earlier estimate of 6.2%. Companies in the M&E sector have just reported their results for the second quarter of the financial year 2019-2020, and alarm bells are already ringing. Words of caution are being mouthed by most media firms. Growth has slowed, and companies have fallen short of their own forecasts as well as analysts’ expectations. At a time when consumer spending is weak, advertising spends across mediums are getting impacted.
“The Entertainment & Media sector definitely has a strong correlation with the GDP growth and it will have an impact on media spends,” says Rajib Basu, Partner & Leader - Entertainment & Media, PwC, adding that it could be slightly different for different media genres.
Jehil Thakkar, Partner and Leader, M&E Sector, Deloitte India, also attributes this impact largely to a weak economy. “Clients are pushing back because in times of a crunch, you obviously pull back all the discretionary advertising spends,” he says.
Even the festive season, which was expected to be a respite in the second quarter, could not help much. “This is despite the fact that there was some preponement of the festive season in Q2. Last year, the entire festive season was in Q3. But this time it was part Q2 and part Q3. But there has been a sharp deceleration,” notes Rohit Dokania, SVP of Research, IDFC Securities Limited, adding that another big spender on advertising, the Government, also held back on spending more than usual.
As the overall revenue growth slowed, companies such as Network18, Sun TV Network, Jagran Prakashan Limited and DB Corp Limited were among the ones expressing concern over the environment, which has resulted in a dip, or flattish growth in advertising revenues.
However, as much as there is concern, there is cautious optimism in the long run too, as the media ecosystem is part of the Indian economy, which boasts of strong fundamentals, and is sure to bounce back. Additionally, there are steps that media organisations are taking to weather the weak environment, and come out stronger than before.
WATCHING THE BROADCAST SPACE
At the beginning of the calendar year, the Telecom Regulatory Authority of India (TRAI)’s implementation of the New Tariff Order (NTO) drew advertisers away from many channels. Channels in the niche genres such as English and Infotainment, as well as the ones that were moved to the paid band, from the Free To Air (FTA) ecosystem, lost viewership, as well as advertisers. The larger networks, however, were not impacted greatly by the change due to their spread and viewer stickiness of their prominent channels. But the weakness in the economy did affect all players in the first half of the year.
“The advertising environment continued to remain tepid during much of the past quarter. Weak macro-economic trends dragged down consumer spends and depressed broader corporate appetite for above-the-line marketing activity,” Network18 Media & Investments wrote in its second quarter results release. For the first half of FY19-20, the broadcaster reported a moderate revenue increase of 6%.
Analysts suggest that dip in advertising revenue for broadcasters is not only driven by a weak economic environment, but is coupled with big events that took place in the beginning of the year that led advertisers to use up their marketing budgets early on in the year. “One, obviously, was the Cricket World Cup, and then there was the Assembly Election. A lot of advertisers spent very heavily over there, and in Q1 itself, everybody had exhausted their budgets,” says Aliasgar Shakir, Research Analyst, Motilal Oswal Financial Services, adding that as the environment showed signs of weakness, advertisers tightened their purse strings.
The first half of the year also experienced what one would call the settling into the new tariff order regime.
Most experienced a growth in overall revenue despite weakness in advertising revenue, primarily led by strong subscription revenues. All three listed bellwether companies in the broadcasting space, namely ZEEL, Network 18 and Sun TV, recorded a double-digit rise in subscription numbers.
“For broadcasters, resumption in advertising growth is likely to be challenging in light of the overall economic slowdown and cutback in ad spends by key advertisers; however, momentum in subscription growth is likely to remain robust,” note analysts Abneesh Roy and Prateek Barsagade of Edelweiss Securities, in a recent media results review report.
According to research firm Elara Capital, the Sun TV management also noted in a conference call with analysts, “Domestic subscriptions are well poised for robust growth for the rest of the year, owing to NTO benefits to broadcasters as well as SunNXT deals, which will aid in subscriber growth for the platform, and, consequently, subscription revenue.”
While broadcasters suggest that the NTO overhang seems to be subsiding, experts do warn that this is a fundamental change, and that the industry is currently in a state of flux. “Subscription revenue has so much room for growth, as consumers are not averse to paying. The big concern, however, is that regulations are still evolving,” says Ashish Pherwani, India Media & Entertainment Leader, EY, adding, “I think we need to wait and watch.” Add to that the impending discussion on putting a pricing cap on subscription costs, which could be detrimental for broadcasters in the long term. In a report, the analysts at Edelweiss noted: “If the discount cap is imposed, we could see a pickup in the à la carte selections by consumers and an increase in Average Revenue Per User (ARPU) pertaining to consumers that opt for bouquets. However, in the long run, this could be detrimental for broadcasters and the pay TV industry alike as it could nudge customers towards OTTs.”
Meanwhile, broadcasters are taking steps to remain relevant, and ensure that they are on the fast track when the spending environment returns, in order to tap into the consumer base that could be migrating to OTT platforms. To counter the impact, broadcasters are pressing ahead and are investing on their digital platforms. “We are fully geared for a digital world, with differentiated content available on integrated platforms on a pipe-agnostic basis. Impetus on seeding new business models and germinating fresh ideas are the hallmarks of our Digital business, which is backed by a TV content backbone that we continue to invest in,” said Adil Zainulbhai, Chairman of Network18, in a company statement.
Most broadcasters are generating more and more content for their OTT platforms such as MX Player, Voot, Zee5, Hotstar and SonyLiv to attract more audiences that are becoming receptive to the digital medium. SunTV, a late entrant to the OTT space, has also launched Sun NXT. There is no other way to go about it, say experts, and this move is likely to weigh on the broadcasters, at least in the short term.
Analysts indicate that costs will continue to go up even further, and while digital is seeing an increase in investments, there is yet no clear monetization opportunity. At this point, it’s just about building a library.
“Broadcasters who have a clear intent of making that kind of content and are probably investing in that kind of content will survive, while those with a conservative mindset who want to go slow on digital, and test the market to gauge the response are likely to fall behind,” says Karan Taurani, VP - Research Analyst, Elara Capital.
Growing the regional piece is also a way to tap into new markets. On a recent call with analysts, the ZEEL management noted that with its leadership position in Marathi, Bangla and Kannada markets, it’s channel Zee Keralam has reached 8% viewership share in less than a year of launch. The company also notes that it is on track for the launch of more regional channels this year.
Network 18 too launched channels such as Kannada Cinema in the second quarter, and says it is ramping up programming for Colors Tamil.
So as broadcast companies find their way around the current economic environment, more changes are on the anvil.
PRINT IN A SOUP
The first half of the year has been tough for the Print industry. Sudhir Agarwal, Managing Director, DB Corp Ltd attributed the company’s performance to market conditions that have been lacklustre, primarily due to the economic slowdown resulting in weak demand and tepid consumer spending. HT Media’s Chairperson and Editorial Director Shobhana Bhartia also attributed the company’s revenue pressure on the slowing economic growth in the recent Q2 results announcement.
Not only has Print - the second highest advertising revenue generator – been impacted by the slowdown, but analysts notice a trend of customers veering towards the Digital platform, and choosing to spend there instead. All this, despite Print companies reporting sustained circulation numbers.
“Though we expect Print players to benefit from softer newsprint prices, the imposition of a 10% basic customs duty on newsprint would limit gains. Moreover, onslaught of the Digital medium remains an overhang on the Print sector at large,” said an Edelweiss note on DB Corp, which reported a dip in both advertising and circulation revenue in the first half of the year.
Declining revenue numbers is a big question mark on the business for these companies, growth is not in sight anytime soon.
The analysts at Edelweiss concur. “For Print companies, growth is likely to be difficult given: i) Cuts in ad spends by advertisers; ii) Rising competition from digital mediums; and iii) Pressure on circulation revenue growth,” they note.
While Pherwani of EY doesn’t see circulation coming down, he does note that there is a need for enhancement in the perception of the Print segment. Some experts also attribute the stalling of growth to an issue of perception where advertisers are reconsidering the importance of Print in their marketing mix. “Newspapers are definitely facing this challenge as they want to impress on the advertiser community the importance of their medium on building a brand,” says Basu of PwC.
Print companies today are working towards strengthening their digital business, to counter the Digital onslaught. Jagran Prakashan Ltd has understood the importance of diversification, and expanded in related businesses, including Digital.
“Contribution from other businesses, coupled with steep reduction in loss on the digital business front, compensated for loss of profit from Print business, to some extent. It validates once again the Group’s strategy of diversification of risk through territories and the related businesses,” declared Mahendra Mohan Gupta, Chairman and Managing Director, Jagran Prakashan in a company statement. The company launched english.jagran.com, gujaratimidday.com and punjabi.jagran.com in the first half of the year.
Others too are expanding their digital footprint by way of acquiring more online properties, and investing to build the space.
WHERE THERE IS A WILL, THERE IS A WAY
As companies figure out additional revenue streams to set themselves up for the future, there is optimism in the long term. Also, this is not the first time that the sector is going through a slowdown, point out experts. “This is a cyclical thing,” says Dokania of IDFC Securities, adding, “This happened in 2008-09, triggered by the Lehmann crisis; and again in 2012-13, when inflation became very high, and economic growth took a knock. Demonetisation too gave the sector a tough time.”
What could happen, therefore, is change in the mediums that advertisers spend on. “Digital would become bigger, Print could become smaller. TV could be flattish (in terms of percentage of revenue, not in terms of growth)... From that perspective, mediums could evolve over a period of time,” says Dokania. Also, there could be some consolidation. “The upside of this whole situation is that it may lead to consolidation or reduced competition, assuming there are no significant new launches, which I don’t see right now,” says Thakkar of Deloitte.
Experts firmly believe that once the economy starts getting back on track, there will be renewed interest in advertising by companies. They see no permanent gloom and doom, as there is no dearth of consumers in India, a highly aspirational country.
“Dropping GDP, dropping consumer spending, surely has an impact. But if anyone does come out of it first, it will be India,” says Basu of PwC.