Media & entertainment firms take hit amid slowing advertising spend

Across print, TV, radio and digital platforms, companies are reporting either a decline in growth rates or a straight out fall
The bad news keeps piling up. 

HT Media’s flagship print division, which owns Dainik Jagran, Mid-Day and owns brands in print, digital and radio, total ad revenues fell by 3.2 per cent.  

On the broadcasting side, things look better, but only just. In the first quarter of FY 2019, ad growth at Zee Entertainment Enterprises grew by over 22 per cent over the previous quarter. This year it plummeted to 3.2 per cent in the first quarter of FY 2019-20.  

These are just some of the listed players. On the unlisted side, one of India’s largest media firms, Star India, shut its fourth quarter in June 2019 with a Rs 425 crore loss. (Its financial year is July-June). Across print, TV, radio and digital platforms, companies are reporting either a decline in growth rates or a straight out fall. There are several reasons for this but in earning call after earning call, the most common one is ‘softening advertising growth.’ 

Why is advertising falling?

The reasons are evident. As the economy enters a full-blown slowdown and consumption falls across sectors, the first big casualty is media. Advertising dominates India’s Rs 1,674,00 crore media and entertainment industry, having garnered over half of the revenues in 2018. There is a direct correlation between gross domestic product growth and advertising – as the former slows down, the latter falls. From 13 per cent in 2018, ad growth this year should be in “high single digits”, says Punit Goenka, managing director and CEO, Zee. Most analysts agree. They peg it at 8-9 per cent, at best. 

“If the second quarter is black (without a decline) then it will be a big thing,” says Girish Agarwal, director, DB Corporation. Two years ago, while newsprint prices were high and the economic indicators had just started flashing red, DB started cutting costs by pruning staff. As a result, says Agarwal, “We have been able to deliver on EBITDA (earnings before interest, taxes, depreciation and amortisation) though we are struggling with top line.”  

But it seems all is not lost. Rohit Dokania, Senior Vice-President, research, IDFC Securities, points out that the slowdown has to be seen from a “bucket perspective.” He reckons that just over half of the Rs 30,500 crore in advertising that the broadcasters made in 2018 came from fast moving consumer goods firms. These are companies such as Unilever or Nestle, which are still growing. “The TV structure is more about brand building. You want to launch a new brand you go on TV, you want footfalls in a dealership, you go on print,” says Dokania. 

Given that, TV ad growth shouldn’t have slowed down, but for the New Tariff Order implemented in February this year. This caused a huge drop in reach and, therefore, advertising, even as subscription revenues went up. 

The print industry is very ad-dependent, getting more than 71 per cent (or Rs 21,720 crore) of the Rs 30,550 crore it made last year from advertising. Automobiles, education, government spending bring in more than 40 per cent of all print advertising, says Agarwal. Over the last nine months, automobile sales have been dropping, going down by a whopping 31 per cent in July and leading to “the biggest dent in advertising,” says Agarwal. Real estate has also taken a hit.  

“If I remove political (election-related) advertising, then government spending has declined by 50 per cent,” says Agarwal. As for banking and financial services, the other big print advertisers, “the NBFC crisis has made everyone cautious. The upside for print is that, unlike TV, it has a diversified advertiser base,” says Dokania. 

Agarwal reckons that given the extent of the slowdown, print is actually in good shape compared to other sectors of the economy. “Tell me which industry is still doing 25 per cent EBITDA?” he asks.

But that is where the positive news ends. Much of the hope for recovery is attached to the festival season, which includes Eid, Onam, Diwali and Dusshera, spread over quarters three and four. “Going by the current trends, the festival season may not be as good as expected,” says K Satyanarayana, Senior Vice-President, R.K Swamy Media Group. Festival ad budgets are usually finalised by July/August. That hasn’t happened this time. “If clients are tentative and haven’t finalised budgets for Diwali yet, it means trouble (for media firms),” says Satyanarayana.

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