Broadcasters to see muted growth in Q1FY23, analysts say high inflation to impact ad revenue

Just as broadcasters had begun to cheer the return of advertising revenue that had fallen off a cliff due to the impact of COVID-19 in the last two years, a sustained rise in inflation threatens to turn off the ad money tap for TV channels.

Inflationary pressure has led to advertisers cutting down on ad spends by 15 percent, say experts. The most affected categories have been electronics, auto and consumer packaged goods (CPG) brands.

Food company Britannia, at the time of announcing its Q4FY22 results, had said that inflation is forcing it to increase prices and control spending on advertising and promotions. Similarly, Ritesh Tiwari, executive director, finance, Hindustan Unilever, during the Q4FY22 earnings call had said the company expects more sequential inflation and that it would heighten its focus on savings.

Fast-moving consumer goods or FMCG companies contribute around 60 percent to overall ad revenue of broadcasters.

“The broadcasting business is facing multiple near-term headwinds in the form of high inflation hitting advertising revenues hard. With companies continuing to invest aggressively in content as well to avoid falling behind (in viewership), margins are also likely to be under pressure,” said Naval Seth, deputy head of research at Emkay Global Financial Services.

Inflation impact on ad revenue
General entertainment channel operator Zee Entertainment Enterprises is estimated to see a 10 percent sequential fall in ad revenue in Q1FY23, while south-focused GEC Sun TV is likely to report a 1 percent drop, said Emkay.

“TV was the first traditional medium to recover to pre-COVID levels in FY22. However, the recent inflationary pressure has seen a negative impact on ad spends recovery. We expect ad revenue growth to be lower versus pre-COVID levels due to macro weakness and inflationary headwinds in the months of May and June and reduced ad spends from FMCG and new-age internet companies,” analysts at Elara Securities said in a note.

Zee had said that a sharp rise in inflation, and macroeconomic and geopolitical factors hit ad spends by FMCG clients in Q4FY22 as well.

Zee is expected to record an ad revenue of Rs 1,009 crore in the first quarter of FY23 versus Rs 1,186.7 crore in the corresponding quarter of FY20, according to Emkay analysis. The media company had earned Rs 1,119.8 crore as ad revenue in Q4FY22.

Emkay in its report said that for Zee, it is likely to be a double whammy as it has been unable to recoup market share losses and has also removed the Hindi GEC from the free dish platform offered by state-run broadcaster Doordarshan, which could negatively affect ad revenues.

The broadcaster had removed Zee Anmol from DD Free Dish earlier this year.

The brokerage added that for Sun TV, ad revenue will be flat in Q1FY23. Sun TV’s Q1FY23 revenue is estimated at Rs 333.3 crore against Rs 378 crore in Q1FY20. The company had reported ad revenue of Rs 337.1 crore in Q4FY22.

“The recovery in the base quarter was slow and it has maintained market share in the last few quarters, both of which should lead to better ad revenue growth compared with Zee,” it added.

Slow subscription growth
Analysts note that along with ad revenues, subscription revenue for broadcasters will be under pressure. Elara Securities expects subscription revenues to remain flat year-on-year for Zee Entertainment and Sun TV.

While Zee is expected to report subscription revenue at Rs 817.8 crore in Q1FY23 versus Rs 854.9 crore Q4 FY22, Sun TV is likely to report Rs 450.3 crore in subscription revenue in the first quarter of this fiscal compared to Rs 440 crore in Q4FY22.

Growth in subscription revenue is expected to be muted due to delayed implementation of NTO 2.0, or the new tariff order from the Telecom Regulatory Authority of India.

TRAI in 2019 had introduced NTO 1.0 in 2019, which allowed viewers to see the price of every channel and select the one they wanted to subscribe to.

TRAI later introduced NTO 2.0, which was expected to be implemented last November but has been deferred several times. Analysts say that this will delay any recovery in subscription revenues. “Subscription revenues are only likely to stabilise in FY24 after the initial hiccups post the implementation of NTO 2.0 subside,” said Seth.

Industry observers estimate subscriber revenue growth to drop from 7-8 percent year-on-year to 3-5 percent in the first year of NTO 2.0 implementation. Money Control