India Ratings maintains negative outlook for media sector

India Ratings has a negative outlook for the media & entertainment (M&E) sector for H113, as moderate economic growth and cost reduction initiatives by corporates are leading to sluggish growth in advertising spending (ad-spend). The outlook is stable for H213, as the Indian economy is likely to start picking up thus driving higher ad-spend.

Overall, the financial performance of TV broadcasters is likely to be moderate in 1H13 before improving in 2H13. India Ratings expects TV broadcasters and multi-system operators (MSOs) to benefit due to mandatory digitisation as local cable operators (LCOs) will not be able to underreport subscriber numbers.

Mandatory digitisation will also be highly positive for DTH operators, as the overall market expands. TV broadcasters are also likely to benefit from the government’s decision to increase foreign direct investment limit in the sector to 74% from 49% earlier. However, digitisation process is highly capital extensive as cable and DTH operators sell set-top boxes at subsidised rates.

Margin pressure

The agency expects margin pressure on the print media industry to remain for most of the year. The industry is hurt from both revenue and cost sides as ad-spend growth is low and newsprint prices have remained firm. Over the last one year, there has not been any volatility in newsprint prices, but publishers using imported newsprint have suffered due to INR depreciation.

The online advertising will be the fastest growing segment over the medium to long term, but its contribution to the M&E industry may remain smaller than that of TV and print.

Improved corporate revenue and margins leading to higher ad-spend would be a positive for the industry. Also, a significant fall in domestic and international newsprint prices and/or rupee appreciation against the US dollar would help improve margins for newspaper publishers and thus may resulting in a stable outlook for the print media sector.

However, a continuation of the current economic slowdown, muted corporate growth and stressed margins may put pressure on adspend growth, thus further aggravating problems for the industry.

India Ratings-rated companies in this space include: Hathway Cable and Datacom, Prime Focus Limited, Rajasthan Patrika Private Limited and Stargaze Entertainment Private Limited.