Even as broadcasters are struggling with monetisation of digital investments and uncertainty related to tariffs, the COVID-19 outbreak is putting further pressure on revenues, both on account of lower advertisements and cancellation of events.
Brokerages have cut their advertising and earnings estimates for broadcasters by up to 11 per cent.
According to CLSA, the media sector is witnessing its worst-ever slowdown in advertisement spending. This, coupled with possible disruption in TV viewership if the second version of the new tariff order (NTO 2) is implemented, as well as loss of revenue from cancellations of events such as the Indian Premier League, make other negatives. The postponement of movie production will also add to the sector’s woes.
Most advertisers, especially the big three spenders — consumer goods, e-commerce, and auto had cut back on spending, given the economic slowdown and worries related to NTO 2 implementation. Zee, for example, had reported a 16 per cent fall in advertising revenues in the December quarter because of a reduction in spends. While the Street was hopeful of a consumption-led demand recovery, given the virus outbreak, a recovery seems unlikely in the near term.
Compiled by BS Researcu Bureau
While ad revenues will be hit, brokerages are hopeful of robust subscription revenues, led by strong channels of market leaders such as Zee Entertainment and Sun TV. Zee had reported a 22 per cent gain in subscription revenues in Q3 because of bouquet pricing and higher off-take of its portfolio channels. The momentum in their over-the-top applications (Zee5 and Sun NXT) will also be key.
The other positive from the investors’ perspective is valuations. Both Sun TV and Zee Entertainment are down by 50-64 per cent, respectively from their respective annual highs. While Zee is trading at 8x its FY20 earnings estimates, Sun TV is available at 10x its FY20 earnings estimates, with analysts recommending a buy given their resilient businesses, net cash balance sheet and rock-bottom valuations. Even though Sun TV was down over 7.7 per cent in trade on Wednesday, Zee made a smart recovery, ending the day with gains of 23.7 per cent.