Dark cloud of COVID hovers over M&E sector

The global media and entertainment industry has experienced one of the most dramatic shifts as a result of the COVID-19 pandemic and related lockdown measures. Ad spends were slashed, as businesses cut their costs, affecting revenues across the entertainment industry. Nearly 10-12 percent of the country’s cinemas have shut down permanently, as of August 2020. At the same time, streaming services like Netflix, Prime Video, and Disney+Hotstar, among several others have become all the more popular for audiences to experience and consume content.

In the beginning of 2021, the situation saw some return to normalcy as cinema halls opened up in some parts of the country with limited occupancy. The focus shifted to bring back audiences and resume operations, while following precautionary measures. However, given the health concerns and the second wave followed by partial lockdowns in several states of the country, the situation remains uncertain.

Second wave: Another blow to fresh content
The Hindi entertainment industry has suffered a jolt with Maharashtra suspending shooting of films and TV serials till May 1, in a bid to contain the massive rise in the COVID-19 cases. This is expected to adversely impact Hindi movie releases as well as availability of fresh content on television and OTT platforms and also escalate costs for filmmakers and content producers.

The partial lockdown and halt on film shooting in Maharashtra will impact the entire value chain for the film industry as well as TV and OTT platforms. Films getting postponed will result in multiple clash releases as and when theaters open, as Hindi, Hollywood and pan-India films vie for audiences’ attention. Additionally, films which have held on for more than a year have the additional worry that they may start looking old, according to Gautam Jain, Partner, Ormax Media.

The broadcasters are now relying on their content pipeline especially for daily TV soaps. But it all depends on the kind of bank they have of fresh content and that may vary significantly from about 3 to 10 days depending on the format of the TV series and shooting schedules. Films that are under production will be more impacted as their delivery costs will escalate.

This could also impact availability of fresh content on TV channels as broadcasters may start running out of fresh content in the next few days. If the restriction on shooting extends beyond May 1, then it will have an even more significant impact on the entertainment industry, observes Jehil Thakkar, Partner, Deloitte India.

Shortage of content dampens OTT platforms’ performance
With the pandemic raging across the globe and forcing people to stay at home, most turned to streaming platforms for their daily dose of entertainment. And Netflix has been a prime example of this phenomena. The company witnessed record growth in 2020, adding 15.8 million new users.

Now, with the production of new and existing titles halted for most of 2020, it has become a bane for Netflix, whose shares took a massive plunge after paid subscriptions came at 3.98 million from January to March, well below the 6.25 million average projection of analysts surveyed by Refinitiv. This is the weakest start of a year for Netflix since 2013. It ended the first quarter of the year with 207.64 million streaming subscribers across the world.

Netflix executives have blamed a big COVID-19 pull forward in 2020, implying that the unprecedented growth last year was now slowing down. “It really boils down to COVID,” observed Spencer Neumann, chief financial officer, Netflix.

Another factor behind this fall was the lack of new shows and films since production was halted to stem the spread of the virus. While the screening of existing shows carried Netflix through the first half, the slump came since there was nothing new to watch in the current quarter. It is estimated that about another million streaming customers will be added by Netflix in the second quarter.

“These dynamics are also contributing to a lighter content slate in the first half of 2021, and hence, we believe slower membership growth,” as per Netflix’s quarterly letter to shareholders.

Lockdown 2.0 hits multiplexes’ recovery
The multiplex industry was one of the worst hit sectors in 2020. The industry is estimated to have lost upward of Rs 5000 crore in revenue. While there was some recovery in the third quarter, things continue to look bleak for the short to medium term. The second COVID-19 wave has derailed strong recovery witnessed in the third quarter. For movie exhibitors, the strong COVID-19 upsurge in the top five states – Maharashtra, Karnataka, Gujarat, Uttar Pradesh, and Tamil Nadu – poses new risks, point out India Ratings and Research (Ind-Ra).

These states account for 56 percent of the movie screens for PVR and INOX. According to Ind-Ra, the ban on film and TV shoots by the Maharashtra government is negative, especially for broadcasters. Earlier this month, the Maharashtra government announced closure of multiplexes and cinema halls while Kerala has allowed theaters with 30 percent occupancy. Delhi is also now under lockdown till May 1. Hence, such fresh curbs are adversely impacting the recovery for movie exhibitors.

On a brighter side, the impact of this second wave may not be as bad on stock prices of multiplexes. PVR and Inox have enough capital to sail through the cash burn for another 6 months, a solution in the form of vaccination is available, and developers are agreeing upon a revenue share arrangement until business recovers to 70 percent of pre-COVID-19 level.

Meanwhile, saving costs remains key for multiplex players. They have also secured complete waivers on rents during the lockdown period and concessions till March of 2021 on low occupancies. The evolving situation may warrant multiplexes to renegotiate again with mall owners for waivers or concessions as applicable. Unlike earlier, multiplexes are equipped with learnings from the previous shutdown and are better prepared this time.

Scouting for alternatives and relaxations
A co-coordination committee on behalf of the M&E industry comprising all the craft unions, broadcasters, and producer bodies have written to Maharashtra CM Uddhav Thackeray seeking certain concessions. Among other things, the bodies have requested that the post-production work which is done in a studio facility in a closed environment be allowed to be carried on, so that the already shot content can be edited and completed for final broadcasting.

Producers have also urged that the financial package announced by the CM be extended to M&E workers, technicians, and actors who may be daily wage earners, besides small-time actors especially in the regional space. Emphasizing on the need for quick vaccination, the bodies have asked for centers at locations such as Film City and the MiraBhayander region in Maharashtra specially catering to film and TV workers.

To be able to continue the production, some filmmakers are looking at shifting shooting locations to other states but that requires a lot of planning in terms of crew, locations, logistics as well as safety and travel protocols. Even though the lockdown will continue till May 1, filmmakers are preparing themselves for an extension. Hence, many productions will continue in Goa and Kolkata.

 Coming to television, most of the shows have a bank of episodes for this week, while a few are sorted for about 10 episodes. Producers are still in discussion with channels on how things would pan out in the coming days. There is also a conversation happening with the state government and the various industry bodies if shoots can resume soon.

None of the GECs want to stop original programming and are exploring alternatives. The best resort as of now looks like fiction shows will move base to different cities to continue shoots. Non-scripted television shows, however, had shot multiple episodes in advance fearing a shutdown.

 Outlook
While much of the traditional activities of the M&E industry has been mothballed to avoid the spread of COVID-19, the industry is confident that traditional means of consuming entertainment are here to stay.

Should the rise in cases be contained, the overall M&E outlook may remain positive as movie exhibitors could witness normalization of operations in the second half of FY22. The recovery expectations are also supported by a strong real GDP growth outlook for India in FY22. The Phase-III of the vaccination program is anticipated to act in favor of the movie business.

However, there may be some consolidation, as some cinema chains are having difficulty staying afloat through the ongoing pandemic. Even though blockbusters are considered to be the catalyst that will get the industry back on its feet, the industry may not be the same as it once was pre-pandemic.

Hence, a well-planned risk management approach is essential to instituting any proactive action to combat the current situation. This will involve identifying the risks that are now facing the sector, their evaluation, and treatment. Given the critical state of many entertainment-based businesses, the emphasis must remain on minimizing risks, while finding new ways to develop content and attract new audiences.

While considered a dark cloud over the M&E industry, the pandemic is also a huge opportunity to retool, adapt, and relaunch in the ecosystem.