Given the sharp impact on revenue, cash accruals this fiscal will weaken for all M&E companies except TV distributors.
Revenue of India’s media and entertainment (M&E) sector expects to make a rebound by 27% to Rs 1.37 lakh crore in fiscal 2022 after posting a 26% decline in FY21, according to the rating agency CRISIL. However, the report stated that the time to bounce-back to pre-pandemic levels will be relatively shorter for segments such as digital and television (TV), while print, films, outdoor, and radio would take longer. “Advertisement (ad) and subscription revenues contribute nearly equally to the overall M&E sector’s topline, but since the former correlates strongly with economic growth, the pandemic has had a bigger impact on it. Next fiscal, with strong economic rebound on the cards, ad revenue should grow 31% on-year and subscription revenue by 24%,” Nitesh Jain, Director, CRISIL Ratings Ltd, said.
The TV segment – contributing around half of the sector’s topline – has recovered fully and will report healthy growth in FY22, the report highlighted. While ad revenue saw a sharp contraction initially, however it recovered aided by airing of new content, sports events such as the Indian Premier League (IPL) and festive season. As for subscriptions, TV was resilient even during the peak of pandemic as people remained indoors.
Meanwhile, the print segment, which accounts for a fifth of the M&E sector topline, is recovering at a slow pace and will be able to recover by the end of next fiscal. As per the report, the print sector is losing share in ad revenue mainly to the digital segment. Circulation too, especially for English language, could see a loss of 8-10%, because of increased preference for e-papers in metros. However, print companies are rebooting their cost structure and accelerating digital adoption to stay relevant, the report stated. According to Rakshit Kachhal, associate director, CRISIL Ratings Ltd, digital has emerged as the medium of choice. “The pandemic accelerated adoption of over-the-top (OTT) platforms, online gaming, e-commerce, e-learning, e-papers and online news platforms. This has meant the focus of advertisers has shifted from traditional to digital media. We expect the digital segment revenue to grow 14-16% annually over the medium term. Its share of M&E sector revenue is expected to double to 20% by fiscal 2024 compared with last fiscal,” he added.
One of the most impacted segments in the M&E industry was the film industry. Occupancies in theatres should improve with the vaccination rollout and a strong pipeline of content. However, this segment is likely to remain impacted even next fiscal due to social distancing norms and fear of closed spaces, the report highlighted. Radio and outdoor, on the other hand, will likely take much longer to recover. This is because commuting as well as ad budgets for micro, small and medium enterprises – the key drivers for these segments – will remain restricted even in fiscal 2022.
Given the sharp impact on revenue, cash accruals this fiscal will weaken for all M&E companies except TV distributors. Credit profiles of the large companies are cushioned by strong balance sheets (with most of them net debt free), while those of small and mid-sized media companies have weakened. More downgrades among the latter led to the CRISIL Ratings’ credit ratio (upgrades to downgrades) for the sector sliding to 0.33 in the first nine months of the current fiscal from 0.75 in fiscal 2020. Liquidity pressure may intensify for them if recovery in ad revenue is delayed.
However, the report claims that the M&E companies have adopted aggressive cost rationalisation initiatives. The pandemic-led change in consumer behaviour has accelerated monetisation opportunities for these players through integration of digital media into their traditional businesses. Some of these aspects can lead to structural changes in business models of the M&E sector over the longer term. Financial express