Fresh COVID restrictions add to woes of M&E cos

Revised Covid restrictions due to the recent significant rise in the number of active cases will hinder economic activity and thus delay recovery in the media and entertainment (M&E) sector. The risks to recovery are significant for movie exhibitors, followed by broadcasters and print media, says India Ratings and Research (Ind-Ra).

However, should the rise in cases be contained, the ratings agency says it continues to believe that the overall M&E outlook will remain positive as movie exhibitors should witness normalisation of operations in second half (2H) of FY22, broadcasters and print media will likely have a strong year amid solid advertising growth, and multi-system operators (MSOs) and cable companies are expected to continue to benefit from the ongoing trend of digitisation.

Ind-Ra also warns that the second Covid wave could derail strong recovery witnessed in third quarter (3Q). It says, broadcasters and print media companies reported resurgent 3QFY21 results on the back of strong advertising revenue momentum which raised hopes that a recovery is finally underway.

“The recovery expectations were also supported by a strong real gross domestic product (GDP) growth outlook for India in FY22. However, quite dramatically, active Covid cases in India have risen sharply in the past four months and stand at 1.36 million on 13 April 2021 compared with previous peak with 1.01 million in September 2020,” it says.

Active covid cases in Maharashtra too have followed a similar trajectory, rising to 0.59 million on 13 April 2021. This has caused the Maharashtra government to impose a fresh set of stricter curbs on various forms of economic and social activities.

Ind-Ra says, “The new set of restrictions, especially if they continue for a few months, will impact the multiplex, broadcasting, and print sectors the most while MSO, cable and broadband segments should be largely unimpacted.”

For movie exhibitors, the strong covid upsurge in top five states poses new risks, the ratings agency feels.
Earlier this month, the Maharashtra government announced closure of multiplexes and cinema halls until further notice and other states where active cases have risen may follow suit.

Ind-Ra says it expects such fresh curbs to adversely impact the recovery for movie exhibitors in four ways, for two leading multiplex chains, the top five states account for 56% of the movie screens; net box office collections in these states could thus be directly impacted, other states may impose similar restrictions, given the large screen footprint in Maharashtra and other top states where cases are rising, key producers may delay release of new content further, leading to negative for attendance in theatres at a pan-India level, and small film producers facing financing issues ad migrating to over-the-top platforms.

“Also, as a cost containment measure, multiplex chains had negotiated with lessors for a waiver of lease rentals and substantial discounts on lease rentals till 31 March 2021. Continued weak attendance in movie exhibitors raises fresh uncertainty regarding the trajectory of lease rental expense and therefore profitability of movie exhibitors in 1HFY22,” the ratings agency added.

According to Ind-Ra, the ban on film and tv shoots by Maharashtra government is negative, especially for broadcasters.

Earlier this week, the Maharashtra government announced halting film and TV serial shooting for 15 days. While this is a temporary ban, it could get extended beyond the first 15 days thus delaying production of new content for television channels.

As such, Ind-Ra says it believes this will adversely impact advertising revenue outlook for general entertainment channels, like what was experienced in 1HFY21. “The impact of the film shooting ban could be felt with a lag though, as the content already shot will likely last a few weeks.”

“This is partly offset though by Indian Premier League (IPL) continuing unabated, which should support advertising and subscription revenues for sports channels. MSOs and cable players were largely unaffected by lockdown measures even last year and we believe their efforts to digitise collections will continue. Overall, they are unlikely to be impacted materially by the new set of restrictions,” the ratings agency added.

During the 1HFY21, print media was severely impacted by the lockdowns as both circulation and advertising revenues were adversely impacted. Post which, as Covid cases reduced, circulation revenues picked up. This time, Ind-Ra says it does not expect circulation revenues to be significantly impacted.

“However, unlike big broadcasters, print media is more reliant on the local economy and small and medium businesses which will suffer amid the fresh set of lockdowns or restrictions. Consequently, this is likely to impact both volume and pricing of print advertising,” it says.

According to the ratings agency, while movie exhibitors are at the end of their rope, their liquidity is comfortable for now.

While movie exhibitors have been the worst impacted by the pandemic; they have also been the most proactive in raising liquidity, it says, adding, “The fresh set of restrictions though will test their ability to raise funds. Standalone cinemas or small regional movie exhibitor chains who do not have access to capital markets may find it tough to sustain.”

In Ind-Ra’s rated universe, MSO and cable companies have the highest FY22 liquidity, followed by print media companies. Money Life