Given the strong impact on revenues, this fiscal cash accumulation will weaken for all M&E companies except TV distributors.
India’s media and entertainment (M&E) sector revenue is expected to rebound 27% to Rs 1.37 lakh crore in fiscal 2022 after registering a 26% decline in fiscal 21, according to the rating agency. CRISIL. However, the report indicated that the time to recover to pre-pandemic levels will be relatively shorter for segments such as digital and television (TV), while print, film, outdoor and radio will take longer. “Advertising (ads) and subscription revenue contribute almost equally to the overall top line of the M&E sector, but since the former is strongly correlated with economic growth, the pandemic has had a greater impact on it. Next fiscal year, with a strong economic rebound in cards, advertising revenue should grow 31% year-on-year and subscription revenue 24%, ”said Nitesh Jain, Director of CRISIL Ratings Ltd.
The television segment, which contributes about half of the sector’s gross revenue, has fully recovered and will report healthy growth in fiscal year 22, the report noted. While ad revenue experienced a sharp contraction initially, it nonetheless recovered thanks to new content streaming, sporting events such as the Indian Premier League (IPL), and the holiday season. In terms of subscriptions, television was resilient even during the peak of the pandemic, as people stayed indoors.
Meanwhile, the printing segment, which represents a fifth of the top line of the M&E sector, is recovering at a slow pace and may recover at the end of next fiscal year. According to the report, the printing sector is losing share of advertising revenue mainly in the digital segment. Circulation too, especially for the English language, could experience a loss of 8-10%, due to a greater preference for electronic documents in metropolitan areas. However, print companies are resetting their cost structure and accelerating digital adoption to remain relevant, according to the report. According to Rakshit Kachhal, Associate Director of CRISIL Ratings Ltd, digital has become the medium of choice. “The pandemic accelerated the adoption of over-the-top (OTT) platforms, online games, e-commerce, e-learning, e-newspapers, and online news platforms. This has meant that advertisers’ focus has shifted from traditional to digital media. We expect revenues from the digital segment to grow between 14% and 16% annually in the medium term. Its share of M&E sector revenue is expected to double to 20% by fiscal 2024 compared to last fiscal year, ”he added.
One of the hardest hit segments in the M&E industry was the film industry. Movie theaters should improve with the launch of vaccination and a strong portfolio of content. However, this segment is likely to remain affected even into the next fiscal year due to social distancing rules and fear of confined spaces, the report noted. Radio and outdoors, on the other hand, will likely take much longer to recover. This is because the commuting and advertising budgets of micro, small and medium-sized businesses, the key drivers of these segments, will continue to be constrained even in fiscal 2022.
Given the strong impact on revenues, this fiscal cash accumulation will weaken for all M&E companies except TV distributors. The credit profiles of large companies are cushioned by strong balance sheets (most of them free of net debt), while those of small and medium-sized media companies have weakened. Further downgrades among the latter led to CRISIL’s ratings (upgrade downgrade) credit ratio for the sector to slide to 0.33 in the first nine months of the current fiscal year from 0.75 in fiscal 2020. Liquidity pressure may step up for them if ad revenue recovers. It is delayed.
However, the report claims that M&E companies have taken aggressive cost rationalization initiatives. The change in consumer behavior driven by the pandemic has accelerated monetization opportunities for these players through the integration of digital media into their traditional businesses. Some of these aspects may lead to structural changes in the business models of the M&E sector in the long term.
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