Edelweiss bearish on Q3 performance of media industry

Ad growth of broadcasters is likely to be under severe pressure

MUMBAI: Financial services conglomerate Edelweiss is bearish on the third-quarter performance of the media industry. The firm has predicted it to be one of the toughest quarters for the industry with a  decline in both revenue and EBITDA. The report has also suggested that ad growth of broadcasters is likely to be under severe pressure due to an economic slowdown and high base while subscription revenue growth for broadcasters is likely to remain robust owing to the new tariff order (NTO).

The report anticipates ZEEL’s Q3 revenue, EBITDA and PAT to decline by 5 per cent, 22 per cent and 21 per cent YoY respectively. It has also predicted advertisement revenue to decline owing to the economic slowdown, cutback in ad spends by large categories like consumer goods, auto, telecom and retail and withdrawal from the FreeDish platform. However, it belives subscription revenue growth to remain roboust owing to the tailwind from NTO and viewership gains in portfolio channels.

“Amidst this challenging environment, we expect ZEEL's revenue to decline 5 per cent YoY, with domestic ad revenue declining 13 per cent (on a base of 22 per cent) and subscription revenue growing ~19 per cent YoY (on a base of 29 per cent). We expect EBITDA margin to contract ~630bps YoY owing to decline in ad revenues,” it added.

It anticipates SUN TV Network’s Q3 EBITDA and PAT to decline by 12 per cent, 26per cent and 15 per cent  YoY respectively. Sun TV Network’s ad growth likely to be impacted by the broad-based ad slowdown and increased competition in regional markets. On the other hand, subscription revenue growth is likely to remain robust in the quarter as well.

"Overall, we anticipate SUN TV’s revenue growth to decline 12 per cent YoY on account to dwindling ad revenue and absence of movie release (blockbuster movie in the base - Sarkar). Advertising growth for the business is expected to decline by low to mid double digit YoY. Subscription growth expected to be 16 per cent in Q3FY20 on a base of 24 per cent (9 per cent growth in DTH; 40 per cent in cable). The production business did not have any releases this quarter. We estimate EBITDA to decline 26 per cent in the wake of weak ad revenue growth and increased investment in fresh programming for SUN NXT and other tele channels,” the report adds.

At the same time, it predicts a flattish performance of DTH operator Dish TV as well. Moreover, the pressure on subscriber addition and ARPU is predicted to remain given stress in rural economy and migration of customers to the FreeDish platform. Overall, a fall of 4 per cent qoq in both revenue and EBITDA, while ARPU is likely to decline at Rs 108, as per Edelweiss estimates.

After a transform change last year with the roll out of NTO, the Telecom Regulatory Authority of India (TRAI) has released a few amendments to the new price regime very recently. While the proposed changes are beneficial for customers, broadcasters’ subscription growth could slow down due to the price revision as the financial services group suggests at the same time.

While the amendments are consumer friendly, the report suggests that the new guidelines can lead to reduction in end-consumer ARPUs owing to the constraints placed on – bouquet discounting , price-linked bouquet inclusion of channels, and cap on the network capacity fee. However for broadcasters, this could lead to slowdown in the subscription revenue growth in the NTO as the prices are likely to come down.

“On the flipside, we might also see – i) increased offtake of channels due to the downward price revision. ii) Migration of FreeDish customers to pay TV which could partially offset the slowdown in subscription revenues,” it adds.

“Q4FY20 to be impacted marginally due to these amendments as they are effective from 1 March 2020. Overall, this is likely to be potentially negative for broadcasters given – ad revenue growth has been sluggish and resumption looks challenging; larger portion of growth for broadcasters in FY20 had been driven by the subscription revenues. However, in the long run, this would have a positive impact for the  broadcasters, as this reduces the OTT migration risk by reducing the price differential,” Edelweiss points out. 

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