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Navigating the COVID-19 disruption!

The Indian media and entertainment (M&E) industry is facing unprecedented challenges from the spread of COVID-19. The industry revenue in FY21 is set to fall by ₹25,000 crore, a 16-percent drop to ₹1.3 lakh crore. The ad revenue, largely impacted by lack of new content on popular channels and deferment of sports events, is expected to see a sharp cut of 18 percent. With low-income viewers switching to FTA channels or opting for basic recharge, en masse migration to home towns, and the lapsing of subscriptions with commercial establishments under lockdown, the subscription revenue is set for a decline of 14 percent.

OTT has become the preferred mode of content consumption. Pegged at ₹325 million users, it is poised for ₹550 million users in a couple of years. However, it does face the challenge of dearth of new content.

The entire distribution ecosystem is under duress. The MSOs struggle to get the LCOs to pay up. They, along with DTH operators, are being pressured by the broadcasters to waive off or substantially reduce carriage fees. The broadcasters, in turn, seeing the huge drop in revenue, are renegotiating their existing deals with television producers. The TV producers, under a lot of stress with a halt in all production activities, are, however, hesitant to drop their programming cost, as a compromise with quality will result in drop in viewership, which will ultimately impact ad revenues.

The Indian radio industry too saw an estimated loss of over ₹200 crore in April and May, and this trend is expected to continue, touching ₹600 crore by September.

The large M&E companies may surmount the stress, given their ample liquidity and strong financials. But smaller players could see a sharp impact on their credit profiles as revenues decline and liquidity gets squeezed. The sharp drop in revenues will impair the debt metrics of the industry, while balance sheet strength and time to recovery will determine the overall impact on credit profiles. The dynamics could change across segments as things are evolving continuously.

Recovery will begin only after the lockdown ends.

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