Survival of the fittest

The length of the COVID-19 crisis and the strength of balance sheets and cashflow will determine the intensity of the bloodbath in the media and entertainment industry

How much of a knocking print, TV, radio, film or digital firms will take from the corona crisis depends on three things.

First, the strength of their balance sheets and cashflow situation. For instance, PVR Cinemas, India’s largest multiplex chain raised Rs 500 crore from a share placement late last year. It was just chance that this happened a few months before the crisis hit. But it gives the company, which anyway has a strong balance sheet, the ability to face the uncertainty of a complete shutdown of business.

At Rs 3,118 crore in revenues PVR is among the 10 largest media firms in India along with Disney-Star, Times Group, Google India and others. Its ability to withstand a prolonged shutdown, continue to keep staff on board and meet its fixed costs is simply better. However without a running business smaller theatrical firms with one or two screens will have trouble paying salaries, rent and other fixed costs. Most would have the cash to last for a month or two. The medium-sized cinema chains could last longer but could become distress sellers say industry experts.

All firms across India’s Rs 1,67,400 crore media and entertainment industry, big or small, could see either stagnation or fall in revenues. This is not just because of the virus. To begin with, there was the economic slowdown that began last year. Advertising growth had already dropped to single digits when protests against the Citizenship (Amendment) Act and the Delhi riots happened earlier this year further aggravating the slowdown. Most companies have shown a drop or stagnation in ad revenues in FY2020.

 

Now add the fact that a lot of the growth in ad revenues for media firms is from value-adds. These could be events, brand activation or some element of solution selling. This means offering advertisers a package that includes airtime/column inches plus a small event or brand activation in a mall etc. For example Entertainment Network India, which operates Radio Mirchi gets one-third of its Rs 635 crore income from events and digital.

The social distancing and lockdowns mean the events part, which employs hundreds of thousands of people, is in shutdown mode. Most firms that offer services in this area are nimble but small outfits that work from event to event, have no assets and long credit cycles. Note that about 120,000 below-the-line entertainment industry jobs have been lost in Hollywood as businesses shut down or scale back as they try to match their costs to their rapidly reducing revenues.

And that brings this to the second factor which will determine how hard the blow will hit a business, its employees, consumers and society — how long this crisis lasts. 

China, where the first few cases came out in December 2019 and the lockdown happened in January this year is just limping back to normal. If we use the two to four month benchmark then it would seem that some normalcy creeps in by June or July. It still doesn’t mean things will immediately come back to where they were. Most experts say it will be 18-24 months before the economic ecosystem is buzzing again.

There is a third random factor. The indirect result of the virus on businesses that do not have a direct physical interaction with consumers. For instance, the lack of transport that is forcing newspapers to drop delivery in some cities. Or the shutdown in the making of TV shows, films et al. Most large broadcasters depend on daily soaps, the bank for which does not last beyond a few days. The production industry shut down on March 17, which means any day now all the general entertainment channels will have to start running repeats. This in turn will mean revised deals with advertisers. Meanwhile hundreds of production houses which are by and large small, family-owned outfits, face an uncertain future just like small exhibitors.

In are a country where TV reaches 836 million people, offers almost 900 channels and is by far the most popular medium of entertainment that is sad. Most industry segments have asked for deferment of the goods and service tax among other measures to help the small firms tide through.

This is going to be a long fight that only the financially-fit and fiscally prudent will survive.

@vanitakohlik